<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 7, 1997
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
THE MAXIM GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 5713 58-2060334
(PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
(STATE OR OTHER CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
JURISDICTION
OF INCORPORATION OR
ORGANIZATION)
210 TOWNPARK DRIVE
KENNESAW, GEORGIA 30144
(770) 590-9369
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
A.J. NASSAR
THE MAXIM GROUP, INC.
210 TOWNPARK DRIVE
KENNESAW, GEORGIA 30144
(770) 590-9369
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
Copies to:
ARTHUR JAY SCHWARTZ, ESQ.
SMITH, GAMBRELL & RUSSELL, LLP
1230 PEACHTREE STREET, N.E.
SUITE 3100
ATLANTA, GEORGIA 30309
(404) 815-3500
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box: [_]
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED(1) PER NOTE OFFERING PRICE FEE(2)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9 1/4% Senior
Subordinated Notes,
Series B............. $100,000,000 $992.95 $99,295,000 $30,090
- ----------------------------------------------------------------------------------
Guarantees of 9 1/4%
Senior Subordinated
Notes, Series B...... $100,000,000 (3) (3) NONE(3)
</TABLE>
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- -------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the amount of the
registration fee pursuant to Rule 457.
(2) Each Registrant other than The Maxim Group, Inc. is a subsidiary of The
Maxim Group, Inc. and is guaranteeing payment of the Notes. Pursuant to
Rule 457(n) under the Securities Act of 1933, as amended, no registration
fee is required with respect to these guarantees.
(3) No separate consideration will be received for the guarantees of the 9
1/4% Senior Subordinated Notes, Series B by the subsidiaries of The Maxim
Group, Inc.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNDER 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, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF ADDITIONAL REGISTRANTS(1)
<TABLE>
<CAPTION>
STATE OR OTHER PRIMARY STANDARD
JURISDICTION INDUSTRIAL I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION IDENTIFICATION
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER ORGANIZATION CODE NUMBER NUMBER
- ---------------------------------------------------- ------------------- ---------------- ---------------
<S> <C> <C> <C>
Maxim Retail Group, Inc... Georgia 5713 58-2250264
Kinnaird & Francke
Interiors, Inc........... Delaware 5713 61-1261296
Kinnaird & Francke Drapery
Company, Inc............. Kentucky 5713 61-1052718
Losantville Carpet Outlet,
Inc...................... Indiana 5713 35-1463020
First Quality, Inc........ Delaware 5713 58-2114646
Steve Peterson Interiors &
Associates, Inc.......... Utah 5713 87-0480649
RNA Enterprises, Inc...... Delaware 5713 59-3268732
Bay Area Carpets, Inc..... Delaware 5713 59-3269982
Carpet World, Inc......... Delaware 5713 59-3269978
GCO Carpet Outlet, Inc.... Alabama 5713 58-2248353
Investor Management, Inc.. Alabama 5713 63-1102137
Dubose Carpets & Floors,
Inc...................... Delaware 5713 74-2730434
Rugs N Remnants, Inc...... Texas 5713 74-2465255
Carpet Gallery, Inc....... Georgia 5713 63-1133477
American Carpets &
Interiors, Inc........... Georgia 5713 56-1910630
Carpet Country, Inc....... Georgia 5713 58-2170987
Carpetmax, L.P............ Georgia 5713 58-2248354
GCO, Inc.................. Nevada 5713 58-2248356
Bailey & Roberts Carpetmax
of Tennessee, Inc........ Tennessee 5713 62-1295940
Carpetmax of New Mexico,
Inc...................... Georgia 5713 58-2264853
Maxim Equipment Leasing
Company, Inc............. Georgia 5713 58-2269911
Image Industries, Inc..... Delaware 2273 04-2962635
Carpetmax Alabama
Contract, Inc............ Alabama 5713 58-2271003
Creditmax Corp............ Georgia 5713 58-2096342
Cloud Carpets, Inc........ Georgia 5713 58-2315169
Tri-R of Orlando, Inc..... Georgia 5713 58-2316052
Carpetmax of Charlotte,
Inc...................... Georgia 5713 58-2319465
Carpetmax of Palm Beach,
Inc...................... Georgia 5713 58-2325494
</TABLE>
- --------
(1) The address, including zip code, and telephone number, including area code,
of the additional Registrants' principal executive offices is 210 TownPark
Drive, Kennesaw, Georgia 30144, (770) 590-9369, except for Image
Industries, Inc., whose address and telephone number is 1112 Georgia
Highway 140, Armuchee, Georgia 30105, (706) 235-8444.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 7, 1997
PRELIMINARY PROSPECTUS
THE MAXIM GROUP, INC.
OFFER TO EXCHANGE
UP TO $100,000,000 OF
9 1/4% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B
FOR ANY AND ALL OF THE OUTSTANDING
9 1/4% SENIOR SUBORDINATED NOTES DUE 2007
----------
LOGO
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1997, UNLESS EXTENDED.
----------
The Maxim Group, Inc., a Delaware corporation (the "Company"), hereby offers,
upon the terms and subject to the conditions set forth in this Prospectus and
the accompanying letter of transmittal (the "Letter of Transmittal" and,
together with this Prospectus, the "Exchange Offer"), to exchange an aggregate
of up to $100,000,000 principal amount of 9 1/4% Senior Subordinated Notes due
2007, Series B (the "Exchange Notes"), which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), for an identical
face amount of the issued and outstanding 9 1/4% Senior Subordinated Notes due
2007 (the "144A Notes" and, together with the Exchange Notes, the "Notes") of
the Company from the Holders (as defined herein) thereof in integral multiples
of $1,000. As of the date of this Prospectus, there is $100,000,000 in
aggregate principal amount of the 144A Notes outstanding. The terms of the
Exchange Notes are identical in all material respects to the 144A Notes, except
that the Exchange Notes have been registered under the Securities Act, and
therefore will not bear legends restricting their transfer and will not contain
certain provisions providing for an increase in the interest rate payable on
the 144A Notes under certain circumstances relating to the Registration Rights
Agreement (as defined herein), which provisions will terminate as to all of the
Notes upon the consummation of the Exchange Offer. The Exchange Notes will be
obligations of the Company evidencing the same indebtedness as the 144A Notes,
and will be entitled to the benefits of the same Indenture (as defined herein).
See "The Exchange Offer."
Interest on the Exchange Notes will accrue from the date of issuance thereof
and will be payable semi-annually on April 15 and October 15 of each year,
commencing April 15, 1998. The Exchange Notes will mature on October 15, 2007.
The Exchange Notes are redeemable, in whole or in part, for cash at any time on
or after October 15, 2002, at the option of the Company, at the redemption
prices set forth herein, together with accrued and unpaid interest, if any, to
the redemption date. In addition, at the option of the Company, up to 30% of
the original aggregate principal amount of the Exchange Notes may be redeemed
on or prior to October 15, 2000 at the redemption price set forth herein
together with accrued and unpaid interest, if any, to the redemption date with
the net proceeds of one or more Public Equity Offerings (as defined herein) of
the Company, provided that at least $70 million of the aggregate principal
amount of the Exchange Notes remains outstanding following such redemption.
Upon the occurrence of a Change of Control (as defined herein), the Company
will be required to make an offer to repurchase all or any part of each
holder's Exchange Notes at a cash purchase price equal to 101% of the principal
amount thereof, together with accrued and unpaid interest, if any, to the date
of purchase. There can be no assurance that the Company will have sufficient
funds necessary to repurchase the Exchange Notes upon the occurrence of a
Change of Control. The provisions of the Indenture allow the Company to incur
additional indebtedness, including Senior Indebtedness (as defined herein),
subject to certain limitations. The provisions of the Indenture do not require
the Company to repurchase the Exchange Notes in the event of highly leveraged
or certain other transactions if such transaction is not a transaction defined
as a Change of Control. See "Description of the Exchange Notes."
The Exchange Notes will be unsecured senior subordinated obligations of the
Company and, as such, will be subordinated in right of payment to all existing
and future Senior Indebtedness of the Company. The Exchange Notes will rank
pari passu in right of payment with all other existing and future senior
subordinated indebtedness, if any, of the Company, and senior in right of
payment to all existing and future subordinated indebtedness, if any, of the
Company. THE COMPANY HAS NOT ISSUED, AND DOES NOT HAVE ANY CURRENT ARRANGEMENTS
TO ISSUE, ANY SIGNIFICANT ADDITIONAL INDEBTEDNESS TO WHICH THE NOTES WOULD BE
SENIOR, SUBORDINATE OR RANK PARI PASSU IN RIGHT OF PAYMENT. THE NOTES WILL BE
EFFECTIVELY SUBORDINATE TO ESSENTIALLY ALL OF THE CURRENTLY OUTSTANDING
INDEBTEDNESS OF THE COMPANY AND ITS SUBSIDIARIES. The Exchange Notes will be
fully and unconditionally guaranteed, jointly and severally, on a senior
subordinated basis (the "Guarantees"), by all of the
(cover page continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
The date of this Prospectus is November , 1997.
<PAGE>
Company's subsidiaries (the "Guarantors" and, together with the Company, the
"Issuers"). The Guarantees will be unsecured senior subordinated obligations
of the Guarantors and will be subordinated to all existing and future
Guarantor Senior Indebtedness (as defined herein) which includes all
indebtedness under the Credit Facility and the Summerville Loan (each as
defined herein). As of July 31, 1997, on a pro forma basis after giving effect
to the Offering and the application of the estimated net proceeds therefrom,
the Credit Facility and the Summerville Loan, the Issuers would have had
approximately $133.7 million in aggregate principal amount of indebtedness
outstanding, of which approximately $33.7 million would have ranked senior in
right of payment to the Exchange Notes and the Guarantees. See "Description of
the Exchange Notes--Ranking." As of the date of this Prospectus, approximately
50% of the consolidated assets of the Company were held by the Guarantors and
the majority of the Company's cash flow and net income was generated by the
Guarantors. Therefore, the Company's ability to make interest and principal
payments when due to holders of the Exchange Notes is dependent, in part, upon
the receipt of sufficient funds from its subsidiaries.
The Company's Common Stock is listed on the New York Stock Exchange under
the symbol "MXG."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of 144A Notes being tendered for exchange. The date of acceptance and
exchange of the 144A Notes (the "Exchange Date") will be when, as and if the
Company has given oral or written notice thereof to the Exchange Agent. 144A
Notes tendered pursuant to the Exchange Offer may be withdrawn at any time
prior to the Expiration Date. The Company will not receive any proceeds from
the Exchange Offer. The Company and the guarantors will pay certain expenses
incident to the Exchange Offer. The Exchange Offer will expire on , 1997
(the "Expiration Date"). The Company does not currently intend to extend the
Expiration Date.
The 144A Notes were offered and sold on October 16, 1997 at a price of
$992.95 per $1,000 principal amount of 144A Notes in a transaction not
registered under the Securities Act in reliance upon an exemption from the
registration requirements thereof (the "144A Notes Offering"). In general, the
144A Notes may not be offered or sold unless registered under the Securities
Act, except pursuant to an exemption from, or in a transaction not subject to,
the Securities Act.
The Exchange Notes are being offered hereby in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement.
Based on interpretations by the staff of the Commission set forth in no-action
letters issued to third parties, the Company believes that the Exchange Notes
issued pursuant to the Exchange Offer in exchange for 144A Notes may be
offered for resale, resold or otherwise transferred by any Holder thereof
(other than any such Holder that is an "affiliate" of the Company within the
meaning of Rule 405 promulgated under the Securities Act) without compliance
with the registration and prospectus delivery provisions of the Securities
Act, provided that such Exchange 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 Exchange Notes. In some cases, certain broker-dealers may
be required to deliver a prospectus in connection with the resale of such
Exchange Notes.
This Prospectus, as it may be amended or supplemented from time to time, may
be used by a broker-dealer in connection with any resale of Exchange Notes
received in exchange for such 144A Notes where such 144A Notes were acquired
by such broker-dealer for its own account as a result of market-making
activities or other trading activities (other than 144A Notes acquired
directly from the Company). The Company has agreed that it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale.
The 144A Notes are designated for trading in the Private Offerings, Resales
and Trading through Automated Linkages ("PORTAL") market. Prior to this
Exchange Offer, there has been no public market for the 144A Notes or the
Exchange Notes. If a market for the Exchange Notes should develop, the
Exchange Notes could trade at a discount from their principal amount. Although
the Company intends to list the Exchange Notes on the New York Stock Exchange,
there can be no assurance that the application will be approved. The Initial
Purchasers (as defined herein) have indicated to the Company that they intend
to make a market in the Exchange Notes, but are not obligated to do so and
such market-making activities may be discontinued at any time. As a result, no
assurance can be given that an active trading market for the Exchange Notes
will develop.
The Exchange Notes issued pursuant to this Exchange Offer will be issued in
the form of Global Exchange Notes (as defined herein), which will be deposited
with, or on behalf of, The Depository Trust Company (the "Depository" or
"DTC") and registered in its name or in the name of Cede & Co., its nominee.
Beneficial interests in the Global Exchange Notes representing the Exchange
Notes will be shown on, and transfers thereof will be effected through,
records maintained by DTC and its participants. Notwithstanding the foregoing,
144A Notes held in certificated form will be exchanged solely for Certificated
Exchange Notes (as defined herein). After the initial issuance of the Global
Exchange Notes, Certificated Exchange Notes will be issued in exchange for the
Global Exchange Notes only on the terms set forth in the Indenture. See
"Description of the Exchange Notes--Book-Entry, Delivery and Form."
ii
<PAGE>
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act. These statements appear in a number of places
in this Prospectus and include statements regarding the intent, belief or
current expectations of the Company, its directors or its officers with
respect to, among other things: (i) the timing, magnitude and costs of the
roll-out of the CarpetMAX Flooring Idea Gallery(TM) stores; (ii) potential
acquisitions by the Company; (iii) the Company's financing plans; (iv) trends
affecting the Company's financial condition or results of operations; and (v)
the Company's business and growth strategies. Investors are cautioned that any
such forward-looking statements are not guarantees of future performance and
involve risks and uncertainties, and that actual results may differ materially
from those projected in the forward-looking statements as a result of various
factors. Among others, factors that could adversely affect actual results and
performance include local and regional economic conditions in the areas served
by the Company, the level of consumer spending for floorcovering products,
competition among floorcovering retailers and carpet manufacturers, changes in
merchandise mixes, site selection and related traffic and demographic
patterns, inventory management and turnover levels, realization of cost
savings, and the Company's success in integrating recent and potential future
acquisitions. The accompanying information contained and incorporated by
reference in this Prospectus, including, without limitation, the information
set forth under the headings "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business,"
identifies important additional factors that could adversely affect actual
results and performance. Prospective investors are urged to carefully consider
such factors.
All forward-looking statements attributable to the Company are expressly
qualified in their entirety by the foregoing cautionary statement.
1
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act
of 1934, as amended (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and
other information filed by the Company may be inspected and copied (at
prescribed rates) at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at
the Commissions regional offices located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. The Commission also maintains a World Wide Web site
containing such reports, proxy statements and other information, at
http://www.sec.gov. Quotations relating to the Company's Common Stock appear
on the New York Stock Exchange and such reports, proxy statements and other
information concerning the Company can also be inspected at the offices of the
New York Stock Exchange, 20 Broad Street, New York, New York 10005.
The Company has agreed that, if at any time while the 144A Notes are
restricted securities within the meaning of the Securities Act or the Company
is not subject to the informational requirements of the Exchange Act, the
Company will furnish to holders of the 144A Notes and to prospective
purchasers designated by such holders the information required to be delivered
pursuant to Rule 144A(d)(4) under the Securities Act to permit compliance with
Rule 144A in connection with resales of the 144A Notes.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the Commission
pursuant to the Exchange Act are incorporated by reference in this Prospectus:
(i) the Company's Annual Report on Form 10-K for the fiscal year ended January
31, 1997; (ii) the Company's Amendment No. 1 on Form 10-K/A dated October 9,
1997 to its Annual Report on Form 10-K for the fiscal year ended January 31,
1997; (iii) the Company's Amendment No. 2 on Form 10-K/A dated October 14,
1997 to its Annual Report on Form 10-K for the fiscal year ended January 31,
1997; (iv) the Company's Amendment No. 3 on Form 10-K/A dated October 15, 1997
to its Annual Report on Form 10-K/A for the fiscal year ended January 31,
1997; (v) the Company's Quarterly Report on Form 10-Q for the quarter ended
April 30, 1997; (vi) the Company's Quarterly Report on Form 10-Q for the
quarter ended July 31, 1997; (vii) the Company's Current Report on Form 8-K
dated September 25, 1997 and (viii) the Company's Current Report on Form 8-K
dated October 16, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act, prior to the consummation of the Exchange Offer,
shall be deemed to be incorporated by reference herein and to be part hereof
from the date of the filing of such reports and documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for the purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
THOMAS P. LEAHEY, EXECUTIVE VICE PRESIDENT, FINANCE AND TREASURER, THE MAXIM
GROUP, INC., 210 TOWNPARK DRIVE, KENNESAW, GEORGIA 30144, (770) 590-9369. IN
ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE
BY , 1997 (DATE FIVE BUSINESS DAYS PRIOR TO THE DATE ON WHICH THE
FINAL INVESTMENT DECISION MUST BE MADE).
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information contained in this Prospectus and
the Consolidated Financial Statements and the related notes included and
incorporated herein by reference. References herein to the "Company" refer to
The Maxim Group, Inc. and its consolidated subsidiaries, unless the context
otherwise requires. The term "fiscal" when used in this Prospectus shall mean
the twelve month period ending March 31 for the fiscal years ended March 31,
1993, 1994 and 1995, the ten month period ending January 31 for the fiscal year
ended January 31, 1996, and the twelve month period ending January 31 for the
fiscal years thereafter. The Consolidated Financial Statements of the Company
give retroactive effect to the merger of a wholly-owned subsidiary of the
Company and GCO, Inc. on September 28, 1994 and the merger of a wholly-owned
subsidiary of the Company and Image Industries, Inc. ("Image") on August 30,
1996, which transactions were accounted for as poolings-of-interests. Except as
otherwise indicated, industry data in this Prospectus are for calendar 1996 and
are derived from selected reports prepared by FloorCovering Weekly, an industry
trade publication.
THE COMPANY
The Company operates and franchises one of the largest floorcovering
distribution networks in North America through two retail floorcovering
concepts: CarpetMAX(R), a full-service floorcovering store format, and Georgia
Carpet Outlets(TM) ("GCO(R)"), a cash-and-carry discount floorcovering store
format. In addition, the Company, through Image, is one of the largest
manufacturers of polyester carpeting in the United States. As a vertically
integrated carpet manufacturer and a leading floorcovering retailer, the
Company believes that it is well positioned to continue its leadership and
growth in the approximately $15 billion floorcovering industry. For the twelve
months ended July 31, 1997, the Company's total revenues and EBITDA (as defined
herein) were $338.9 million and $37.2 million, respectively.
Since commencing operations in 1991 as a franchisor of floorcovering stores,
the Company has grown its franchise network to include 377 franchise dealers
operating 448 CarpetMAX stores and 101 GCO stores in 49 states. The Company's
fees from franchise services consist of up front membership fees, either
ongoing royalties or product brokerage fees and fees for services such as
advertising and employee training. The rapid growth of the Company's franchise
network resulted in the development of an integrated retail infrastructure,
including store development, marketing, advertising, credit, sales training and
product sourcing resources. In an effort to leverage this retail
infrastructure, the Company began acquiring existing CarpetMAX franchisees in
fiscal 1995 and opening Company-owned stores in fiscal 1996. The Company
currently owns 54 CarpetMAX stores and six GCO stores.
The Company has further developed its full-service retail format to offer
customers a wide selection of competitively priced floorcovering products
through CarpetMAX Flooring Idea Gallery stores (the "Gallery" stores). The
Company's Gallery stores are typically 6,500 square feet in size and offer
approximately 20,000 SKUs, including an extensive merchandising mix of carpet,
area rugs, hardwood flooring, ceramic tile, vinyl flooring, laminates and
stone. Gallery stores are located in prime retail locations with high consumer
visibility and are staffed with specialized floorcovering sales associates.
Gallery stores offer a wide range of services, including interior design
consulting, measuring, delivery and installation, and unconditional
satisfaction guarantees. The Company's strategy is to expand its ownership and
operation of Gallery stores. The Company currently operates 18 Gallery stores,
including 10 stores which were converted into Gallery stores from the original
CarpetMAX format. For the twelve months ended July 31, 1997, franchise
operations and Company-owned stores together accounted for 49.3% and 25.0% of
the Company's total revenues and EBITDA, respectively.
Through Image, the Company is one of the largest manufacturers of polyester
carpeting and one of the largest recyclers of polyethylene terephthalate
("PET") soft drink bottles in the United States. The Company converts PET
bottles into PET flake and pellet and polyester fiber which is either sold to
third parties or spun
3
<PAGE>
into carpet yarn, the raw material used in manufacturing polyester carpet.
Image's vertically integrated operations provide the Company's retail network
with a captive source of low cost, high quality private label polyester
carpeting with a price advantage relative to competitors. The Company believes
that polyester carpeting, which currently accounts for approximately 6% of
industry-wide carpet sales, will enjoy market share growth because of certain
advantages over other carpet fibers such as nylon, including superior stain
resistance and vibrant coloring. For the twelve months ended July 31, 1997,
Image sold 25.7 million square yards of polyester carpeting through the
Company's retail distribution network (13.7% of total Image sales volume) and
to over 6,000 independent domestic and international retailers and
distributors. For the twelve months ended July 31, 1997, Image accounted for
50.7% and 75.0%, of the Company's total revenues and EBITDA, respectively.
The mailing address of the Company's principal executive office is 210
TownPark Drive, Kennesaw, Georgia 30144, and its telephone number is (770) 590-
9369.
STRENGTHS
The Company believes that its extensive retail network, combined with its
manufacturing operations, positions the Company for continued growth in
revenues and EBITDA. Several of the Company's key business strengths include:
Distinct Retailing Strategies. The Company's retail floorcovering sales are
diversified across the residential replacement, home builder and specified
contract markets. CarpetMAX offers a wide selection of floorcovering products
with a high level of customer service to a broad consumer spectrum, while GCO
offers discount floorcovering products to the cash-and-carry, do-it-yourself
customer. The Company believes that the breadth of its retail network and the
diversity of its targeted customer markets helps to mitigate the impact of
changes in local competitive or economic conditions on revenues.
Significant Product Sourcing Capabilities. The Company's large retail network
provides significant purchasing power which enables the Company to realize
advantageous pricing, delivery terms and merchandising programs. The Company
has established close relationships with major suppliers across all
floorcovering categories. By capitalizing on suppliers' production and delivery
capabilities, the Company offers one of the largest selections of high quality
floorcovering products, generally on a private label and just-in-time basis,
thereby minimizing inventory risk and maximizing retail profitability.
Furthermore, Image's carpet manufacturing capacity provides the Company with a
captive source of high quality carpet products to support its expanding retail
network.
Extensive Retailing Infrastructure. In order to service its retail
floorcovering network, the Company has built an extensive retail
infrastructure, including store development, marketing, advertising, credit
program, sales and management training, and product sourcing resources. The
Company will continue to leverage these resources to support the opening of new
Gallery stores and the expansion of other distribution channels. In addition,
the Company has assembled a strong management team with an average of more than
10 years of retailing experience.
Diversified Cash Flow Streams. The Company's established franchise operations
generate stable cash flows, with a low overhead structure, from brokerage fees
earned on CarpetMAX franchisees' purchases, royalties earned on GCO
franchisees' store sales and other related fees for advertising, training and
distribution services. In addition, Image provides a strong and growing source
of cash flow, as it uses the Company's affiliated distribution network of
Company-owned and franchised floorcovering retailers to distribute high margin,
value added polyester carpet. Cash flow generated from franchise operations and
Image's operations provide a stable base to fund capital expenditures,
including the roll-out of Company-owned Gallery stores.
Strong Financial Position. The Company's total revenues and EBITDA have
increased from $122.6 million and $16.6 million, respectively, in fiscal 1994
to $338.9 million and $37.2 million, respectively, for the twelve months ended
July 31, 1997. The Company's strong financial performance has provided it with
the financial flexibility to fund its growth objectives with a combination of
cash flow from operations, proceeds from the issuance of the Company's Common
Stock and bank borrowings.
4
<PAGE>
BUSINESS STRATEGY
The Company's strategic objective is to establish the largest and most
profitable floorcovering distribution network in North America. To achieve this
objective, the Company is pursuing the following strategies:
Expand Company-Owned Store Base. A key element of the Company's growth
strategy is to expand its ownership and operation of Gallery stores by opening
approximately 64 Gallery stores over the next 18 months principally in existing
and contiguous market areas. The Company intends to target areas with
significant new residential building activity or older, more established
communities where remodeling is likely to occur. The Company believes that the
roll-out of Gallery stores will enhance profitability as the Company further
leverages its retail infrastructure.
Expand GCO Franchise Network. The Company's strategy is to expand its
franchise network by adding approximately 25 GCO franchises per year, further
leveraging its retail and manufacturing infrastructure. The Company believes
that the expansion of the GCO franchise network complements the expansion of
the Gallery store base given their alternative operating formats. Further, with
only 70 of the 265 areas of dominant influence ("ADI") currently covered by GCO
stores, the Company believes significant growth opportunities exist.
Increase Manufacturing Capacity. In order to capitalize on the increasing
demand for polyester fiber, the Company is in the process of expanding its
fiber extrusion capacity. The additional capacity, which is expected to become
fully operational by the end of calendar 1998, will increase Image's annual
fiber production capacity to 150 million pounds from 100 million pounds. The
additional capacity will enable the Company to continue to optimize Image's
profitability by shifting output from lower margin commodity products such as
PET pellet and flake to higher margin polyester fiber and carpet.
Pursue Selected Acquisitions. The Company believes it is uniquely positioned
to capitalize on the consolidation occurring in the retail floorcovering
industry and thereby further its goal of becoming the largest floorcovering
distribution network in North America. Although the Company's primary focus is
on opening Company-owned Gallery stores, the Company intends to selectively
pursue the acquisition of independent floorcovering retailers in new markets
which offer the potential for the Company to build substantial market share. In
addition, the Company may selectively acquire existing CarpetMAX franchisees to
provide a platform for new store openings.
RECENT DEVELOPMENTS
On August 26, 1997, the Company entered into a $130.0 million credit facility
(and as amended on September 24, 1997, the "Credit Facility") which provides
for a (i) revolving credit facility of up to $70.0 million, (ii) a term loan in
the amount of $29.0 million and (iii) a special purpose letter of credit in the
amount of up to $31.0 million for use as credit support for the Summerville
Loan to be used to finance the expansion of Image's fiber extrusion
capabilities at its plant in Summerville, Georgia. The proceeds from the Credit
Facility were used primarily to repay outstanding indebtedness under the
Company's prior credit facility and provide the Company with additional working
capital. The Company used a portion of the net proceeds from the 144A Notes
Offering to repay all borrowings outstanding under the Credit Facility. See
"Use of Proceeds." Upon completion of the 144A Notes Offering, the commitments
under the revolving credit facility were permanently reduced to $50.0 million.
In connection with the Company's efforts to increase sales to smaller
commercial and residential construction and renovation projects managed by
general contractors (the "builder market"), in July 1997, the Company acquired
Tri-R of Orlando, Inc. ("Tri-R"), a CarpetMAX franchisee in Orlando, Florida
with a presence in the Orlando area builder market, for approximately $4
million, consisting of a cash payment of $968,000 and the issuance of $3
million in Company Common Stock. The acquisition agreement provides that
additional consideration in the form of cash or Company Common Stock may be
issued based on the profitability of Tri-R over the next three years. This
acquisition provides the Company with the Orlando, Florida territory (including
one existing store), which the Company believes will be an attractive region
for opening new Company-owned Gallery stores. See "Business--Builder and
Specified Contract Operations."
5
<PAGE>
THE 144A NOTES OFFERING
The 144A Notes............ The 144A Notes were sold by the Company in the
144A Notes Offering on October 16, 1997, and
were subsequently resold to Qualified
Institutional Buyers (as defined herein)
pursuant to Rule 144A under the Securities Act
in a manner exempt from registration under the
Securities Act. See "Plan of Distribution."
Registration Rights
Agreement................. In connection with the 144A Notes Offering, the
Company entered into the Registration Rights
Agreement, which grants Holders of the 144A
Notes certain exchange and registration rights.
The Exchange Offer is intended to satisfy such
exchange and registration rights, which
generally terminate upon the consummation of
the Exchange Offer. See "The Exchange Offer--
Purpose and Effect of the Exchange Offer ."
THE EXCHANGE OFFER
Securities Offered........ $100,000,000 in aggregate principal amount of 9
1/4% Senior Subordinated Notes due 2007, Series
B.
The Exchange Offer........ $1,000 principal amount of the Exchange Notes
in exchange for each $1,000 principal amount of
144A Notes. As of the date hereof, $100,000,000
in aggregate principal amount of 144A Notes are
outstanding. The Company will issue the
Exchange Notes to Holders on or promptly after
the Expiration Date. The terms of the Exchange
Notes are substantially identical in all
material respects (including principal amount,
interest rate and maturity) to the terms of the
144A Notes for which they may be exchanged
pursuant to the Exchange Offer, except that the
Exchange Notes are freely transferable by
holders thereof (other than as provided
herein), and are not subject to any covenant
regarding registration under the Securities
Act. See "The Exchange Offer." Other than
compliance with applicable federal and state
securities laws, including the requirement that
the Registration Statement be declared
effective by the Commission, there are no
material federal or state regulatory
requirements to be complied with in connection
with the Exchange Offer.
Interest Payments......... The Exchange Notes will bear interest from
October 16, 1997, the date of issuance of the
144A Notes, or the most recent interest payment
date to which interest on such 144A Notes has
been paid, whichever is later. Accordingly,
Holders of 144A Notes that are accepted for
exchange will not receive interest on such 144A
Notes that is accrued but unpaid at the time of
tender, but such interest will be payable on
the first interest payment date after the
Expiration Date. See "The Exchange Offer--
Interest on the Exchange Notes."
Minimum Condition......... The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of 144A
Notes being tendered for exchange. See "The
Exchange Offer--Conditions."
6
<PAGE>
Expiration Date........... 5:00 p.m., New York City time, on , 1997
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. See "The Exchange Offer--
Expiration Date; Extensions; Amendments."
Exchange Date............. The date of acceptance for exchange of the 144A
Notes will be when, as and if the Company has
given oral or written notice thereof to the
Exchange Agent.
Withdrawal Rights......... Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the
Expiration Date. See "The Exchange Offer--
Withdrawal of Tenders."
Acceptance of 144A Notes
and Delivery of Exchange
Notes.................... The Company will accept for exchange any and
all 144A Notes which are properly tendered in
the Exchange Offer prior to 5:00 p.m., New York
City time, on the Expiration Date. The Exchange
Notes issued pursuant to the Exchange Offer
will be delivered promptly following the
Expiration Date. See "The Exchange Offer--Terms
of the Exchange Offer."
Conditions to the
Exchange Offer............ The Exchange Offer is subject to certain
customary conditions, concerning, among other
things, changes to existing law and
governmental approvals, which may be waived by
the Company. See "The Exchange Offer--
Conditions."
Procedures for Tendering
144A Notes............... To tender pursuant to the Exchange Offer, a
Holder must complete, sign and date the
accompanying Letter of Transmittal, or a
facsimile thereof, have the signatures therein
guaranteed if required by Instruction 4 of the
Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile, together with the 144A Notes and any
other required documentation to the Exchange
Agent (as defined herein) at the address set
forth herein prior to 5:00 p.m., New York City
time, on the Expiration Date. See "The Exchange
Offer-- Procedures for Tendering" and "Plan of
Distribution." By executing the Letter of
Transmittal, each Holder will represent to the
Company that, among other things, the Holder or
the person receiving such Exchange Notes,
whether or not such person is the Holder, is
acquiring the Exchange Notes in the ordinary
course of business and that neither the Holder
nor any such other person intends to
participate or has any arrangement or
understanding with any person to participate in
the distribution of such Exchange Notes. In
lieu of physical delivery of the certificates
representing 144A Notes, tendering Holders may
transfer 144A Notes pursuant to the procedure
for book-entry transfer as set forth under "The
Exchange Offer--Procedures for Tendering."
Special Procedures for
Beneficial Owners........ Any beneficial owner whose 144A Notes are
registered in the name of a broker, commercial
bank, trust company or other nominee and who
wishes to tender in the Exchange Offer should
contact such registered
7
<PAGE>
holder promptly and instruct such registered
holder to tender on such beneficial owner's
behalf. If such beneficial owner wishes to
tender on such beneficial owner's own behalf,
such beneficial owner must, prior to completing
and executing the Letter of Transmittal and
delivering the 144A Notes, either make
appropriate arrangements to register ownership
of the 144A Notes in such beneficial owner's
name or obtain a properly completed bond power
from the registered holder. The transfer of
registered ownership may take considerable
time. See "The Exchange Offer--Procedures for
Tendering."
Guaranteed Delivery
Procedures................ Holders of 144A Notes who wish to tender their
144A Notes and whose 144A Notes are not
immediately available or who cannot deliver
their 144A Notes, the Letter of Transmittal or
any other documents required by the Letter of
Transmittal to the Exchange Agent (or comply
with the requirements for book-entry transfer)
prior to the Expiration Date must tender their
144A Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer--
Guaranteed Delivery Procedures."
Federal Income Tax
Consequences.............. The issuance of the Exchange Notes to Holders
pursuant to the terms set forth in this
Prospectus will not constitute an exchange for
federal income tax purposes. Consequently, no
gain or loss would be recognized by Holders
upon receipt of the Exchange Notes. See
"Certain Federal Income Tax Consequences of the
Exchange Offer."
Use of Proceeds........... There will be no proceeds to the Company from
the exchange of 144A Notes pursuant to the
Exchange Offer. See "Use of Proceeds."
Exchange Agent............ State Street Bank and Trust Company is serving
as exchange agent (the "Exchange Agent") in
connection with the Exchange Offer. See "The
Exchange Offer--Exchange Agent."
Effect on the Holders of
144A Notes................ As a result of the making of, and upon
acceptance for exchange of all validly tendered
144A Notes pursuant to the terms of, the
Exchange Offer, the Company and the Guarantors
will have fulfilled the covenant contained in
the Registration Rights Agreement (the
"Registration Rights Agreement") dated October
16, 1997 among the Issuers, Merrill Lynch,
Pierce, Fenner & Smith Incorporated, First
Union Capital Markets Corp. and Wheat, First
Securities, Inc. (the "Initial Purchasers")
and, accordingly, there will be no increase in
the interest rate on the 144A Notes pursuant to
the terms of the Registration Rights Agreement,
and the holders of the 144A Notes will have no
further registration or other rights under the
Registration Rights Agreement. Holders of the
144A Notes who do not tender their 144A Notes
in the Exchange Offer will continue to hold
such 144A Notes and will be entitled to all the
rights and subject to all the limitations
applicable thereto under the Indenture dated
October 16, 1997 among the Company, as issuer,
the Guarantors, as guarantors, and State Street
Bank and Trust Company, as Trustee, relating to
the 144A Notes and the Exchange Notes (the
"Indenture") except for any such rights under
the Registration Rights Agreement that by their
terms terminate or cease to have further
effectiveness as a result of the making of, and
the acceptance for exchange of all validly
tendered 144A Notes pursuant to, the Exchange
Offer. All untendered 144A Notes will continue
to be
8
<PAGE>
subject to the restrictions on transfer
provided for in the 144A Notes and the
Indenture. To the extent that the 144A Notes
are tendered and accepted in the Exchange
Offer, the trading market for untendered 144A
Notes could be adversely affected.
Consequence of Failure to
Exchange.................. Holders of 144A Notes who do not exchange their
Notes for Exchange Notes pursuant to the
Exchange Offer will continue to be subject to
the restrictions on transfer of such 144A Notes
as set forth in the legend thereon as a
consequence of the offer or sale of the 144A
Notes pursuant to an exemption from, or in a
transaction not subject to, the registration
requirements of the Securities Act and the
applicable state securities laws. The Issuers
do not currently anticipate that they will
register any 144A Notes and the related
Guarantees which are not exchanged pursuant to
the Exchange Offer under the Securities Act
after the Expiration Date.
SUMMARY OF TERMS OF EXCHANGE NOTES
The form and terms of the Exchange Notes are the same as the form and terms
of the 144A Notes (which they replace) except that (i) the Exchange Notes have
been registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof, and (ii) the holders of Exchange Notes
generally will not be entitled to further registration rights under the
Registration Rights Agreement, which rights generally will be satisfied when
the Exchange Offer is consummated. The Exchange Notes will evidence the same
debt as the 144A Notes and will be entitled to the benefits of the Indenture.
See "Description of the Exchange Notes."
Securities Offered........ $100,000,000 aggregate principal amount of 9
1/4% Senior Subordinated Notes due 2007, Series
B.
Maturity Date............. October 15, 2007.
Interest Payment Dates.... April 15 and October 15 of each year,
commencing April 15, 1998.
Optional Redemption....... The Exchange Notes are redeemable, in whole or
in part, for cash at any time on or after
October 15, 2002 at the option of the Company,
in whole or in part, at the redemption prices
set forth herein, together with accrued and
unpaid interest, if any, to the redemption
date. In addition, at the option of the
Company, up to 30% of the original aggregate
principal amount of the Exchange Notes may be
redeemed on or prior to October 15, 2000 at the
redemption price set forth herein together with
accrued and unpaid interest, if any, to the
redemption date with the net proceeds of one or
more Public Equity Offerings of the Company,
provided that at least $70 million aggregate
principal amount of the Exchange Notes remains
outstanding following such redemption. See
"Description of the Exchange Notes--Optional
Redemption."
Guarantees................ The Exchange Notes will be guaranteed, jointly
and severally, on a senior subordinated basis,
by all of the Company's subsidiaries. See
"Description of the Exchange Notes--
Guarantees."
Ranking................... The Exchange Notes will be unsecured senior
subordinated obligations of the Company and, as
such, will be subordinated in right of payment
to all existing and future Senior Indebtedness
of the Company. The
9
<PAGE>
Exchange Notes will rank pari passu in right of
payment with all other existing and future
senior subordinated indebtedness, if any, of
the Company, and senior in right of payment to
all existing and future Subordinated
Indebtedness, if any, of the Company. The
Company has not issued, and does not have any
current arrangements to issue, any significant
additional indebtedness to which the Notes
would be senior, subordinate or pari passu in
right of payment. The Notes will be effectively
subordinate to essentially all of the currently
outstanding indebtedness of the Company and its
subsidiaries. The Guarantees will be unsecured
senior subordinated obligations of the
Guarantors and will be subordinated to all
existing and future Guarantor Senior
Indebtedness, which includes all indebtedness
under the Credit Facility and the Summerville
Loan. As of July 31, 1997, on a pro forma basis
after giving effect to the 144A Notes Offering
and the application of the net proceeds
therefrom, the Credit Facility and the
Summerville Loan, the Company and the
Guarantors would have had approximately $133.7
million in aggregate principal amount of
Indebtedness outstanding, of which
approximately $33.7 million would have ranked
senior in right of payment to the Exchange
Notes and the Guarantees. See "Description of
the Exchange Notes--Ranking."
Change of Control......... Upon the occurrence of a Change of Control, the
Company will be required to make an offer to
repurchase all or any part of each holder's
Exchange Notes at a cash purchase price equal
to 101% of the principal amount thereof,
together with accrued and unpaid interest, if
any, to the date of purchase. There can be no
assurance that the Company will have sufficient
funds necessary to repurchase the Exchange
Notes upon the occurrence of a Change of
Control. See "Description of the Exchange
Notes--Certain Covenants--Purchase of Notes
Upon a Change of Control."
Restrictive Covenants..... The indenture relating to the Exchange Notes
(the "Indenture") will contain certain
restrictive covenants, including, but not
limited to, covenants with respect to the
following matters: (i) limitation on
indebtedness; (ii) limitation on restricted
payments; (iii) limitation on transactions with
affiliates; (iv) limitation on liens; (v)
limitation on senior subordinated indebtedness;
(vi) limitation on sale of assets; (vii)
limitation on guarantees by subsidiaries;
(viii) limitation on transfer of assets to
subsidiaries; (ix) limitation on dividend and
other payment restrictions affecting
subsidiaries; (x) restrictions on the issuance
of capital stock of subsidiaries; (xi)
restrictions on mergers, consolidations and the
transfer of all or substantially all of the
assets of the Company; and (xii) limitation on
unrestricted subsidiaries. See "Description of
the Exchange Notes--Certain Covenants."
The interest rate on the 144A Notes is subject
to increase under certain circumstances if the
Issuers are not in compliance with their
obligations under the Registration Rights
Agreement. See "Exchange Offer; Registration
Rights."
Absence of Public Market
for the Exchange Notes... The Exchange Notes will be new securities for
which there is currently no established trading
market. Although the Company intends to apply
10
<PAGE>
for listing of the Exchange Notes on the New
York Stock Exchange, there can be no assurance
that the Company's application will be approved
or that an active trading market for the
Exchange Notes will develop or continue after
the Offering. The Company has been advised by
the Initial Purchasers that they presently
intend to make a market in the Exchange Notes,
although they are under no obligation to do so
and may discontinue any market-making
activities at any time without notice. No
assurance can be given as to the liquidity of
the trading market for the Exchange Notes or
that an active public market for the Exchange
Notes will develop. If an active trading market
for the Exchange Notes does not develop, the
market price and liquidity of the Exchange
Notes may be adversely affected. If the
Exchange Notes are traded, they may trade at a
discount from their initial offering price,
depending on prevailing interest rates, the
market for similar securities, the performance
of the Company and certain other factors. See
"Risk Factors--Restrictions on Resale; Absence
of Public Market for the Exchange Notes."
RISK FACTORS
See "Risk Factors" beginning on page 14 for a discussion of certain factors
that should be considered by holders of the 144A Notes before deciding to
tender 144A Notes in the Exchange Offer. Such risk factors include:
. The Company has substantial indebtedness and, as a result, significant
debt service obligations;
. Payment on the Exchange Notes will be subordinated to the prior payment
in full of all future and existing Senior Indebtedness;
. The Company's ability to repay the Exchange Notes is dependent, in part,
upon receipt of funds from the Company's subsidiaries, and although the
Exchange Notes are guaranteed by the Guarantors, such Guarantees, under
certain circumstances may be invalid or released;
. The Company has limited history of opening and operating Company-owned
stores, and is subject to risks associated with the management of its
growth and the roll out of its Gallery stores;
. The Company's business is highly competitive;
. The Company's quarterly operating results fluctuate and due to the nature
of the floorcovering industry, its business exhibits some measure of
seasonality;
. The Company is dependent on the services of its executive officers and
faces a competitive labor market;
. The Company is subject to risks associated with the availability of low
cost materials;
. The Company is subject to risks associated with dependence on suppliers
for floorcovering products and distribution;
. The Company is subject to environmental liability;
. The Company is subject to the risk associated with the effect of carpet
and other floorcovering products on indoor air quality;
. The Company is subject to the risk associated with the restrictions
imposed by the terms of its indebtedness;
11
<PAGE>
. There can be no assurance that the Company will be able to repurchase
some or all of the Exchange Notes upon a Change of Control;
. The Exchange Notes are new securities for which there is no prior market;
. Holders desiring to tender 144A Notes in exchange for Exchange Notes are
responsible for complying with Exchange Offer procedures; and
. The 144A Notes are subject to certain restrictions upon transfer.
12
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following information should be read in conjunction with "Selected
Consolidated Financial and Operating Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
Consolidated Financial Statements and the notes thereto included and
incorporated by reference herein.
<TABLE>
<CAPTION>
TEN
FISCAL YEAR ENDED MARCH MONTHS FISCAL YEAR SIX MONTHS
31, ENDED ENDED ENDED JULY 31,
--------------------------- JANUARY 31, JANUARY 31, ------------------
1993 1994 1995 1996(A) 1997 1996 1997
------- -------- -------- ----------- ----------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues............... $98,851 $122,591 $203,341 $227,551 $309,721 $149,323 $178,468
Cost of sales.......... 71,570 85,847 139,521 161,723 222,290 108,630 122,226
------- -------- -------- -------- -------- -------- --------
Gross profit........... 27,281 36,744 63,820 65,828 87,431 40,693 56,242
Selling, general, and
administrative
expenses.............. 17,417 23,669 46,870 59,197 72,366 36,259 41,163
Operating income(b).... 9,864 2,687 16,450 62 10,165 4,434 15,079
Interest expense....... 3,844 1,886 1,839 4,695 7,006 3,213 2,663
Earnings (loss) before
income taxes and
extraordinary income.. 5,942 845 15,429 (4,140) 4,074 1,790 12,725
Net earnings (loss).... 4,995 659 9,642 (4,245) 2,145 1,160 7,836
BALANCE SHEET DATA:
Cash and cash
equivalents........... $636 $3,972 $2,365 $4,207 $6,439 $3,464 $4,925
Trade accounts
receivable, net....... 11,682 14,779 29,882 33,037 43,487 38,392 49,974
Inventories............ 15,226 17,768 38,137 49,170 42,148 43,967 47,168
Property and equipment,
net................... 30,946 40,448 68,832 93,879 101,403 95,926 107,332
Total assets........... 63,809 95,281 162,473 202,085 219,673 203,946 244,194
Total debt............. 35,054 21,620 57,459 94,185 96,289 91,635 70,395
Stockholders' equity... 30,960 50,053 71,424 72,150 76,154 73,896 123,755
OTHER FINANCIAL DATA:
Image revenues(c)...... $89,480 $103,257 $127,250 $128,260 $162,681 $79,231 $88,278
Franchised revenues.... 5,172 11,873 18,764 25,761 40,877 15,430 23,300
Company-owned store
revenues.............. 4,199 7,461 57,327 73,530 106,163 54,662 66,890
EBITDA, as adjusted
(d)................... 13,002 16,951 22,993 15,132 26,498 10,538 21,233
Depreciation and
amortization.......... 3,216 3,832 5,225 8,008 10,518 5,535 5,845
Capital expenditures... 4,439 12,734 25,941 15,580 17,444 7,051 11,837
Gross margin........... 27.6% 30.0% 31.4% 28.9% 28.2% 27.3% 31.5%
EBITDA, as adjusted,
margin................ 13.2% 13.8% 11.3% 6.6% 8.6% 7.1% 11.9%
Ratio of EBITDA, as
adjusted, to interest
expense............... 3.4x 9.0x 12.5x 3.2x 3.8x 3.3x 8.0x
Ratio of total debt to
EBITDA, as adjusted... 2.7x 1.3x 2.5x -- 3.6x -- --
SELECTED OPERATING DATA:
End of period:
Company-owned stores.. 8 8 51 59 57 57 60
Franchise territories. 148 233 325 377 368 353 377
</TABLE>
- --------
(a) On January 31, 1996, the Company changed its fiscal year end from March 31
to January 31.
(b) Operating income includes non-recurring charges of $10.4 million, $500,000,
$6.6 million and $4.9 million for fiscal 1994, 1995, 1996 and 1997,
respectively.
(c) Includes revenues generated from carpet, fiber and PET sales.
(d) EBITDA, as adjusted is defined as earnings before interest, taxes,
depreciation, amortization and non-recurring charges. While EBITDA should
not be construed as a substitute for operating income or as a better
measure of liquidity than cash flows from operating activities, which are
determined in accordance with generally accepted accounting principles, it
is a measure commonly used in the Company's industry and is included herein
because management believes it is useful and provides additional
information with respect to the ability of the Company to meet future debt
service, capital expenditures and working capital requirements. EBITDA, as
adjusted, reported above excludes non-recurring charges of $10.4 million,
$500,000, $6.6 million and $4.9 million for fiscal 1994, 1995, 1996 and
1997, respectively.
13
<PAGE>
RISK FACTORS
Holders of 144A Notes should carefully consider the following risk factors
in addition to the other information contained herein before deciding to
tender 144A Notes in the Exchange Offer. The risk factors set forth below are
generally applicable to the 144A Notes as well as the Exchange Notes.
SUBSTANTIAL LEVERAGE
The Company has substantial indebtedness and, as a result, significant debt
service obligations. As of July 31, 1997, after giving pro forma effect to the
144A Notes Offering and the application of the net proceeds therefrom, the
Credit Facility and the Summerville Loan, the Company would have had
approximately $133.7 million of long-term debt which would have represented
approximately 51.9% of its total capitalization. See "Capitalization." In
addition, the Indenture and the Company's other debt instruments will allow
the Company to incur additional indebtedness, including Senior Indebtedness or
secured indebtedness in the future subject to certain limitations set forth
therein. See "Description of the Exchange Notes--Certain Covenants" and
"Description of Certain Indebtedness." As of July 31, 1997, after giving pro
forma effect to the 144A Notes Offering and the application of the net
proceeds therefrom, the Credit Facility and the Summerville Loan, the Company
would have had an aggregate of $50.0 million of available borrowings under the
Credit Facility. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." The
Company's ability to make payments with respect to the Notes and to satisfy
its other debt obligations will depend upon its future operating performance,
which will be affected by prevailing economic conditions and financial,
business and other factors, certain of which are beyond the Company's control.
Any inability of the Company to service its indebtedness may result in the
acceleration of some or all of the Company's indebtedness which would have a
material adverse effect upon the Company's financial condition.
Upon the issuance of the 144A Notes, the Company's interest expense
increased compared to prior years. The Company believes, based on current
circumstances, that the Company's cash flow, together with available
borrowings under the Credit Facility, will be sufficient to service its debt
requirements as they become due for the foreseeable future. Significant
assumptions underlie this belief, including, among other things, that the
Company will succeed in implementing its business strategy and that there will
be no material adverse developments in the business, liquidity or capital
requirements of the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Business--Business Strategy." If the Company is unable to
service its indebtedness, it will be required to adopt alternative strategies,
which may include actions such as reducing or delaying capital expenditures,
curtailing or eliminating the opening of Company-owned stores, selling assets,
restructuring or refinancing its indebtedness or seeking additional equity
capital. There can be no assurance that any of these strategies could be
effected on satisfactory terms, if at all.
The degree to which the Company is leveraged could have important
consequences to holders of the Exchange Notes, including: (i) the Company's
ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions or general corporate purposes may be
impaired; (ii) a substantial portion of the Company's cash flows from
operations may be dedicated to the payment of principal and interest on its
indebtedness, thereby reducing the funds available to the Company for its
operations; (iii) certain of the Company's indebtedness contains financial and
other restrictive covenants, including those restricting the incurrence of
additional indebtedness, the creation of liens, the sale of assets, ratio of
total debt to total capitalization, ratio of total debt to earnings before
interest, taxes, depreciation, amortization and rental expense ("EBITDAR"),
ratio of senior debt to EBITDAR and certain interest coverage ratios; (iv)
certain of the Company's borrowings are and will continue to be at variable
rates of interest which exposes the Company to the risk of greater interest
rates; and (v) the Company may be more leveraged than certain of its
competitors, which may place the Company at a relative competitive
disadvantage and make the Company more vulnerable to changing economic
conditions.
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SUBORDINATION OF THE EXCHANGE NOTES AND THE GUARANTEES; RISK OF NON-PAYMENT;
ASSET ENCUMBRANCES
The payment of principal of, premium, if any, and interest on the Exchange
Notes will be subordinated to the prior payment in full of all existing and
future Senior Indebtedness of the Company, which includes all indebtedness
under the Credit Facility and the Summerville Loan. Therefore, in the event of
a liquidation, dissolution, reorganization or any similar proceeding regarding
the Company, the assets of the Company will be available to pay obligations on
the Exchange Notes only after Senior Indebtedness has been paid in full, and
there may not be sufficient assets to pay amounts due on all or any of the
Exchange Notes. In addition, the Company may not pay principal of, premium, if
any, interest on or any other amounts owing in respect of the Exchange Notes,
make any deposit pursuant to defeasance provisions or purchase, redeem or
otherwise retire the Exchange Notes, if any Senior Indebtedness is not paid
when due or any other default on Senior Indebtedness occurs and the maturity
of such indebtedness is accelerated in accordance with its terms unless, in
either case, such default has been cured or waived, any such acceleration has
been rescinded or such indebtedness has been repaid in full. Moreover, under
certain circumstances, if any non-payment default exists with respect to
Designated Senior Indebtedness (as defined herein), the Company may not make
any payments on the Notes for a specified time, unless such default is cured
or waived, any acceleration of such indebtedness has been rescinded or such
indebtedness has been repaid in full. See "Description of the Exchange Notes--
Ranking." As of July 31, 1997, on a pro forma basis after giving effect to the
144A Notes Offering and the application of the net proceeds therefrom, the
Credit Facility and the Summerville Loan, the Company would have had
approximately $33.7 million in aggregate principal amount of Senior
Indebtedness outstanding which ranked senior in right of payment to the
Exchange Notes. Under the terms of the Indenture governing the Exchange Notes,
and the Company's other debt instruments, the Company may incur additional
indebtedness, including future Senior Indebtedness or secured indebtedness.
See "Description of the Exchange Notes--Certain Covenants."
The Guarantees will be unsecured senior subordinated obligations of the
Guarantors and will be subordinated to all existing and future Guarantor
Senior Indebtedness, which includes all indebtedness of the Guarantors under
the Credit Facility and the Summerville Loan. As of July 31, 1997, on a pro
forma basis after giving effect to the 144A Notes Offering and the application
of the net proceeds therefrom, the Credit Facility and the Summerville Loan,
the Guarantors would have had outstanding approximately $1.1 million in
aggregate principal amount of Guarantor Senior Indebtedness which ranked
senior in right of payment to the Guarantees.
The Exchange Notes will not be secured by any of the Company's assets.
Certain of the Company's other indebtedness, including indebtedness under the
Credit Facility and the Summerville Loan, is secured by certain of the
Company's assets, and the terms of the Indenture and the instruments governing
the Company's other indebtedness permit the Company to incur certain
additional senior secured indebtedness. If the Company becomes insolvent or is
liquidated, or if payment under any of the instruments governing the Company's
secured indebtedness is accelerated, the lenders under such instruments would
be entitled to exercise the remedies available to a secured lender under
applicable law and pursuant to instruments governing such indebtedness.
Accordingly, such lenders will have a prior claim on the Company's assets
securing their indebtedness. In any such events, because the Exchange Notes
will not be secured by any of the Company's assets, it is possible that there
would be no assets remaining from which claims of the holders of the Exchange
Notes could be satisfied or, if any such assets remained, such assets might be
insufficient to satisfy such claims in full. See "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," "Description of Certain Other
Indebtedness" and "Description of the Exchange Notes."
DEPENDENCE UPON OPERATIONS OF SUBSIDIARIES; POSSIBLE INVALIDITY OF GUARANTEES;
POTENTIAL RELEASE OF GUARANTEES
The Exchange Notes are the obligations of the Company. As of the date of
this Prospectus, approximately 50% of the consolidated assets of the Company
was held by the Guarantors and the majority of the Company's cash flow and net
income was generated by the Guarantors. Therefore, the Company's ability to
make interest
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and principal payments when due to holders of the Exchange Notes is dependent,
in part, upon the receipt of sufficient funds from its subsidiaries.
The Company's obligations under the Exchange Notes will be guaranteed,
jointly and severally, on a senior subordinated basis by each of the
Guarantors, which consist of all of the Company's subsidiaries. To the extent
that a court were to find, pursuant to federal or state fraudulent transfer
laws or otherwise, that (i) a Guarantee was incurred by a Guarantor with
intent to hinder, delay or defraud any present or future creditor or the
Guarantor contemplated insolvency with a design to prefer one or more
creditors to the exclusion in whole or in part of others; or (ii) such
Guarantor did not receive fair consideration or reasonably equivalent value
for issuing its Guarantee and such Guarantor (a) was insolvent, (b) was
rendered insolvent by reason of the issuance of such Guarantee, (c) was
engaged or about to engage in a business or transaction for which the
remaining assets of such Guarantor constituted unreasonably small capital to
carry on its business or (d) intended to incur, or believed that it would
incur, debts beyond its ability to pay such debts as they matured, the court
could avoid or subordinate such Guarantee in favor of the Guarantor's other
creditors. Among other things, a legal challenge of a Guarantee on fraudulent
conveyance grounds may focus on the benefits, if any, realized by the
Guarantor as a result of the issuance by the Company of the Exchange Notes.
The measure of insolvency of a Guarantor for purposes of the foregoing will
vary depending upon the law of the relevant jurisdiction. Generally, however,
a company would be considered insolvent for purposes of the foregoing if the
sum of the company's debts is greater than all of the company's property at
fair valuation, or if the present fair saleable value of the company's assets
is less than the amount that will be required to pay its probable liability on
its existing debts as they become absolute and mature. There can be no
assurance as to what standards a court would apply to determine whether a
Guarantor was solvent at the relevant time. To the extent any Guarantee were
to be avoided as a fraudulent conveyance or held unenforceable for any other
reason, holders of the Exchange Notes would cease to have any claim in respect
of such Guarantor and would be creditors solely of the Company and any
Guarantor whose Guarantee was not avoided or held unenforceable. In such
event, the claims of the holders of the Exchange Notes against the issuer of
an invalid Guarantee would be subject to the prior payment in full of all
liabilities of such Guarantor. There can be no assurance that, after providing
for all prior claims, there would be sufficient assets to satisfy the claims
of the holders of the Exchange Notes relating to any voided Guarantee.
Based upon financial and other information currently available to it, the
Company believes that the Exchange Notes and the Guarantees are being incurred
for proper purposes and in good faith and that the Company and each Guarantor
is solvent and will continue to be solvent after issuing the Exchange Notes or
its Guarantee, as the case may be, will have sufficient capital for carrying
on its business after such issuance and will be able to pay its debts as they
mature. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Description of Certain Other Indebtedness" and
"Description of the Exchange Notes."
Any Guarantee of a Guarantor may be released at any time upon any sale,
exchange or transfer by the Company of the stock of such Guarantor or all or
substantially all of the assets of such Guarantor to a non-affiliate. See
"Description of the Exchange Notes."
LIMITED HISTORY OF OPENING AND OPERATING COMPANY-OWNED STORES; RISKS
ASSOCIATED WITH GALLERY STORE ROLL-OUT; MANAGEMENT OF GROWTH
The Company has only limited experience in the acquisition, construction and
direct management of Company-owned stores. Since April 1995, the Company has
opened 14 CarpetMAX stores (10 of which have been converted into Gallery
stores) and eight new Gallery stores. The Company's growth and future
operating results depend principally on its ability to open and operate stores
during the remainder of fiscal 1998 and fiscal 1999. See "Business--Business
Strategy." The success of the Company's planned Gallery store roll-out is
dependent upon a number of factors including: (i) the availability of new
store locations in which the Company is not prohibited from opening Company-
owned stores pursuant to existing franchise agreements; (ii) the negotiation
of acceptable purchase or lease terms; (iii) the Company's financial resources
and its ability to control the operational aspects of its growth; and (iv) the
ability to hire, train and assimilate management and store-level
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employees. The Company also competes for site locations with other businesses
which seek the same demographics and location characteristics. Moreover, the
Company may experience substantial delays in the opening of Company-owned
Gallery stores as well as increased expenses as a result of adverse weather
conditions and may experience substantial delays, increased expense or loss of
potential sites due to complexities associated with the regulatory and permit
processes. To the extent that the Company underestimates the cost to complete
the Gallery store roll-out or is unable to meet its contemplated opening
schedule and successfully integrate new Gallery stores into its ongoing
business, the Company's results of operations could be materially and
adversely affected. Although the Company believes that it can obtain suitable
sites for its projected Gallery store expansion and that its management and
systems controls will be adequate to support this growth, there can be no
assurance that the Company will be able to achieve the planned expansion on a
timely basis, if at all, that the Gallery store concept will be accepted in
the marketplace or that it will achieve planned operating results or results
comparable with the Company's existing CarpetMAX stores.
The Company's growth and future operating results also depend on its ability
to expand its carpet manufacturing capacity and add new franchises. As part of
its growth, the Company intends to increase Image's annual fiber production
capacity from 100 million pounds to 150 million pounds by the end of calendar
1998. The Company may experience substantial delays in its planned
manufacturing expansion, as well as increased expenses associated with any
unexpected expansion costs. To the extent that the Company underestimates the
cost of expansion, the Company's results of operations could be materially
adversely affected. In addition, there can be no assurance that the Company
will be able to increase the number of franchisees or that new franchisees
will be as profitable to the Company as the existing franchisees.
Additionally, the Company's growth and profitability will be significantly
dependent on the Company's ability to upgrade and integrate all of its
operations into a new management information system, accounting system,
internal controls and purchasing systems. The inability of the Company to
accomplish such upgrades and integration on a timely basis or at all, could
have a material adverse effect on the successful operation of the Company's
business, implementation of its growth strategy and future operating results.
The Company is currently developing a centralized information system to
integrate the Company's store operations and financial data. There can be no
assurance that the development of such information system will be successful,
or accomplished within the anticipated time frame, if at all. If the Company
is unable to manage its growth effectively, the Company's business, results of
operations and financial condition could be materially adversely affected.
HIGHLY COMPETITIVE NATURE OF THE FLOORCOVERING INDUSTRY
Competition in the retail floorcovering market is intense due to the
significant number of retailers. In December 1995, Shaw Industries, Inc.
("Shaw"), one of the Company's significant suppliers and the world's largest
carpet manufacturer, announced its decision to move into the retail
floorcovering sector. Pursuant to this strategy, Shaw has acquired Carpetland
USA, Inc., New York Carpet World, Inc. and several other prominent dealers and
has opened a number of retail stores such that Shaw has become a major
competitor. In addition, large retailers also provide significant competition,
including The Home Depot, Inc., Lowe's Corporation and Sears, Roebuck & Co.
The principal methods of competition within the retail floorcovering industry
include store location, product selection and merchandising, customer service
and price.
The Company's carpet manufacturing business competes with other carpet
manufacturers and manufacturers of alternative floorcoverings such as wood or
tile. Certain of the Company's competitors in the carpet manufacturing
business have greater financial and other resources than the Company.
According to Floor Focus, an industry trade publication, the 10 largest carpet
manufacturers accounted for approximately 85% of total U.S. carpet shipments
in 1996. No assurance can be given that the Company's competitors will not
substantially increase resources devoted to the production and marketing of
products competitive with those of the Company, which could require the
Company to reduce prices or increase spending on product development,
marketing and sales, any of which could have a material adverse affect on the
Company. See "Business--Competition."
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FLUCTUATIONS IN QUARTERLY RESULTS, SEASONALITY AND CYCLICAL NATURE OF THE
FLOORCOVERING INDUSTRY
The Company's quarterly operating results have fluctuated in the past and
are expected to fluctuate in the future as a result of a variety of factors,
including the timing of store openings and related pre-opening expenses,
weather conditions, price increases by suppliers, actions by competitors,
conditions in the carpet manufacturing, home building and improvement markets
and the floorcovering industry in general, regional and national economic
conditions and other factors. Moreover, the Company expects its business to
continue to exhibit some measure of seasonality, which the Company believes is
typical of the floorcovering industry. Individual stores generally experience
lower net sales, operating income and cash flow from operations and the
Company experiences lower sales of manufactured carpets in the first and
fourth fiscal quarters than in the second and third fiscal quarters, due
primarily to the effects of winter weather on home improvement projects. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results and Seasonality."
The floorcovering industry historically has been adversely impacted by
economic downturns. The Company believes that the industry is significantly
influenced by economic conditions generally and particularly by consumer
behavior, consumer confidence, the level of personal discretionary spending,
the condition of the residential and commercial construction industries,
interest rates, credit availability and the overall strength of the economy.
There can be no assurance that a prolonged economic downturn would not have a
material adverse effect on the Company.
DEPENDENCE ON SENIOR MANAGEMENT
The success of the Company is largely dependent on the skills, experience
and efforts of its senior management and especially its President and Chief
Executive Officer, A.J. Nassar, and its Chief Operating Officer, James W.
Inglis. The loss of the services of Mr. Nassar, Mr. Inglis or other members of
the Company's senior management could have a material adverse effect on the
Company's business and prospects. The Company has entered into an employment
agreement with Mr. Nassar and maintains a key man life insurance policy on Mr.
Nassar in the amount of $2.0 million. The Company believes that its future
success will also depend in part upon its ability to attract, retain and
motivate qualified personnel. Competition for such personnel is intense.
Although the Company has recently hired several senior level management
personnel with extensive retail experience, there can be no assurance that the
Company will continue to be successful in attracting and retaining such
personnel. See "Management."
RISKS ASSOCIATED WITH PRICE AND AVAILABILITY OF RAW MATERIALS
The availability of low cost materials, particularly post-consumer PET
bottles, is important to the profitability of the Company's manufacturing
operations. An increase in the demand for post-consumer PET bottles could
increase prices for PET bottles, thereby increasing the Company's
manufacturing costs. Such increased costs could have an adverse effect on the
profitability of the Company's manufacturing operations. In recent years,
post-consumer PET bottle prices have fluctuated dramatically, most notably in
fiscal 1996 when prices increased 150% and subsequently returned to historical
price levels. There can be no assurance that such prices will not continue to
experience significant volatility. The Company has not entered into long-term
contracts with any suppliers for its raw materials. In addition, the Company
plans to expand its fiber production capacity, which will increase its
requirements for PET bottles by up to approximately 40%. The unavailability,
scarcity or increased cost of such raw materials could disrupt the Company's
manufacturing operations which would have a material adverse effect on these
operations. In addition, any significant change in the proportion of PET in
the waste bottles supplied to the Company's manufacturing operations, or the
introduction of alternatives to PET bottles for food packaging, could also
disrupt the Company's manufacturing operations and have a material adverse
effect on the Company. For the twelve months ended July 31, 1997, Image's
operations accounted for approximately 50.7% and 76.2% of the Company's total
revenues and EBITDA, respectively. Any decrease in the profitability of these
manufacturing operations would have an adverse effect on the Company's overall
results of operations.
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DEPENDENCE ON SUPPLIERS FOR FLOORCOVERING PRODUCTS AND DISTRIBUTION
The Company's retail network relies on several large independent
floorcovering manufacturers for the production of floorcovering products.
These manufacturers include Shaw and Mohawk Industries, Inc., which supplied
approximately 33.0% and 15.0%, respectively, of the Company's floorcovering
purchases for the twelve months ended July 31, 1997. In addition, the
Company's retail inventory management is highly dependent on the delivery
capabilities of these manufacturers. Any significant change in the Company's
relationships with these manufacturers, or in the manner in which these
manufacturers produce or distribute their products, could have a material
adverse effect on the Company. Although these manufacturers have been
reliable, high quality producers, there can be no assurance that in the future
these manufacturers will be willing or able to meet the Company's requirements
and those of its franchisees on a timely basis or that their pricing and
rebate policies will remain competitive. While the Company believes there are
a number of alternative manufacturers capable of supplying and distributing
the Company's floorcovering products, any delays in obtaining alternative
suppliers could have a material adverse effect on the Company's operations and
those of its franchisees. In addition, the Company expects that suppliers will
contribute to the opening expenses of new Gallery stores. However, there can
be no assurance that these suppliers will contribute to such expenses and, to
the extent they do not, the Company's ability to maintain its Gallery store
roll-out may be adversely affected. See "Business--Retail Infrastructure--
Supplier Relationships."
ENVIRONMENTAL AND REGULATORY MATTERS
The Company's operations and facilities are subject to numerous federal,
state and local laws and regulations designed to protect the environment from
wastes and emissions of hazardous substances and to provide a safe workplace
for the Company's employees. The Company believes it is either in material
compliance with all currently applicable laws and regulations or is operating
in accordance with appropriate variances or similar arrangements. The Company
believes that compliance with current laws and regulations will not require
significant capital expenditures or have a material adverse effect on its
operations. However, such laws and regulations are subject to change in the
future, and any failure by the Company to comply with present or future
regulations could subject it to future liabilities or the suspension of
production which could have a material adverse effect on the Company's
business. In addition, changes in environmental regulations could restrict the
Company's ability to expand its facilities or could require the Company to
incur substantial unexpected other expenses to comply with such regulations.
The Company is subject to federal regulations and state laws that regulate
the offer and sale of franchisees and the franchiser-franchisee relationship.
The Company is not aware of any pending franchise legislation which in its
view is likely to have a material adverse effect on the operations of the
Company. The Company is aware, however, that various legislative proposals
have been or are being debated at both the state and federal levels which
could result in new laws regulating the offer and sale of franchises and other
aspects of the franchisor-franchisee relationship. It is possible that such
legislation, if enacted, could adversely affect the Company's franchise
operations.
INDOOR AIR QUALITY
The effect of carpet and other floorcovering products on indoor air quality
has been the subject of debate in recent years. Although it is uncertain
whether emissions from carpet pose a health hazard, there can be no assurance
that researchers will not detect hazardous levels of emissions from carpet.
The discovery of adverse health effects resulting from carpet, or the public
perception thereof, could have a material adverse effect on the Company's
operations and those of its franchisees.
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Indenture governing the terms of the Exchange Notes will contain certain
covenants limiting, subject to certain exceptions, the incurrence of
additional indebtedness, the payment of dividends, the redemption of capital
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stock, the making of certain investments, the issuance of capital stock of
subsidiaries, the creation of liens and other restrictions affecting the
Company's subsidiaries, the issuance of guarantees, transactions with
affiliates, asset sales and certain mergers and consolidations. A breach of
any of these covenants could result in an event of default under the
Indenture. In addition, the Credit Facility contains other restrictive
covenants and requires the Company to satisfy certain financial tests,
including maintaining certain ratios relating to levels of total debt,
consolidated senior debt, and EBITDAR (as defined herein). The Company's
ability to comply with such covenants and to satisfy such financial tests may
be affected by events beyond its control. A breach of any of these covenants
could result in an event of default under the Credit Facility and the
Indenture. In the event of a default under the Credit Facility, the lenders
thereunder could elect to declare all amounts borrowed, together with accrued
interest, to be immediately due and payable, and the lenders under the Credit
Facility could terminate all commitments thereunder and, if such borrowed
amounts are not paid, to enforce their rights pursuant to the security
interests on, or commence litigation that could ultimately result in a sale
of, certain assets of the Company. In addition, a default under the Credit
Facility could constitute a cross-default under the Indenture, and a default
under the Indenture could constitute a cross-default under the Credit
Facility. See "Description of Certain Other Indebtedness" and "Description of
the Exchange Notes--Certain Covenants."
POTENTIAL FAILURE TO MAKE PAYMENT UNDER A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of the Exchange
Notes may require the Company to purchase all or a portion of such holder's
Exchange Notes at 101% of the principal amount of the Exchange Notes, together
with accrued and unpaid interest, if any, to the date of purchase. In such
circumstances, the Company may be required to (i) repay all or a portion of
the outstanding principal of, and pay any accrued interest on, its Senior
Indebtedness, or (ii) obtain any requisite consent from its lenders to permit
the purchase. If the Company is unable to repay all of such indebtedness or is
unable to obtain the necessary consents, the Company may be unable to offer to
purchase the Exchange Notes, which will constitute an Event of Default under
the Indenture. There can be no assurance that the Company will have sufficient
funds available at the time of any Change of Control to make any debt payment
(including purchases of Exchange Notes) as described above or that the Company
will be able to refinance its outstanding indebtedness in order to permit it
to repurchase the Exchange Notes or, if such refinancing were to occur that
such financing will be on terms favorable to the Company. See "Description of
the Exchange Notes--Certain Covenants--Purchase of Notes Upon a Change of
Control."
The events that constitute a Change of Control under the Indenture may also
be events of default under the Credit Facility or other Senior Indebtedness of
the Company. Such events may permit the holders under such debt instruments to
reduce the borrowings thereunder or accelerate the debt and, if the debt is
not paid, to enforce their rights pursuant to security interests on, or
commence litigation that could ultimately result in a sale of, certain assets
of the Company, thereby limiting the Company's ability to purchase the
Exchange Notes.
ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Exchange Notes are being offered to the holders of the 144A Notes. The
144A Notes were offered and sold in October 1997 to "Qualified Institutional
Buyers" (as defined in Rule 144A under the Securities Act) and certain other
qualified buyers and are eligible for trading in the Private Offering, Resale,
and Trading through Automated Linkages ("PORTAL") market.
The Exchange Notes will be new securities for which there currently is no
established trading market. Although the Company intends to apply for listing
of the Exchange Notes on the New York Stock Exchange, there can be no
assurance that the Company's application will be approved or that an active
trading market for the Exchange Notes will develop or continue after the
Exchange Offer. Although the Initial Purchasers have informed the Company that
they currently intend to make a market in the Exchange Notes, the Initial
Purchasers are not obligated to do so, and any such market making may be
discontinued at any time without notice. The liquidity of any market for the
Exchange Notes will depend upon the number of holders of the Exchange Notes,
the interest of securities dealers in making a market in the Exchange Notes
and other factors. Accordingly, there
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can be no assurance as to the development or liquidity of any market for the
Exchange Notes. If an active trading market for the Exchange Notes does not
develop, the market price and liquidity of the Exchange Notes may be adversely
affected. If the Exchange Notes are traded, they may trade at a discount from
their initial offering price, depending upon prevailing interest rates, the
market for similar securities, the performance of the Company and certain
other factors. The liquidity of, and trading markets for, the Exchange Notes
may also be adversely affected by general declines in the market for non-
investment grade debt. Such declines may adversely affect the liquidity of,
and trading markets for, the Exchange Notes, independent of the financial
performance of or prospects for the Company.
Historically, the market for noninvestment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of
securities similar to the Exchange Notes. There can be no assurance that the
market, if any, for the Exchange Notes will not be subject to similar
disruptions. Any such disruptions may have an adverse effect on the holders of
the Exchange Notes.
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes for 144A Notes pursuant to the Exchange Offer
will be made only after timely receipt by the Exchange Agent of such 144A
Notes, a properly completed, duly executed Letter of Transmittal (or
compliance with the procedure for book-entry transfer if delivery of 144A
Notes is to be made by book-entry transfer to an account maintained by the
Exchange Agent at the DTC) and all other required documents. Therefore,
Holders desiring to tender their 144A Notes in exchange for Exchange Notes
should allow sufficient time to ensure timely delivery. The Company is under
no duty to give notification of defects or irregularities with respect to the
tenders of 144A Notes for exchange. Any 144A Notes that are not tendered or
are tendered but not accepted will, following the consummation of the Exchange
Offer, continue to be subject to the existing restrictions upon transfer
thereof and, upon consummation of the Exchange Offer, the registration rights
under the Registration Rights Agreement generally will terminate. In addition,
any Holder who tenders pursuant to the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes may be deemed to have
received restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale. Each broker-dealer that receives Exchange Notes
for its own account in exchange for 144A Notes, where such 144A Notes were
acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus
in connection with any resale of such Exchange Notes. See "The Exchange
Offer."
RESTRICTIONS ON TRANSFER
The 144A Notes were offered and sold by the Company in a private offering
exempt from registration pursuant to the Securities Act and have been resold
pursuant to Rule 144A and other exemptions under the Securities Act. As a
result, the 144A Notes may not be reoffered or resold by purchasers except
pursuant to an effective registration statement under the Securities Act, or
pursuant to an applicable exemption from such registration, and in each case
in compliance with certain other conditions and restrictions. The 144A Notes
are legended to restrict transfer as aforesaid and the 144A Notes that remain
outstanding after consummation of the Exchange Offer will continue to bear
such a legend. In addition, upon consummation of the Exchange Offer, holders
of the 144A Notes that remain outstanding will not be entitled to any rights
under the Registration Rights Agreement that by their terms terminate or cease
to have further effectiveness as a result of the making of this Exchange
Offer, including an increase in the interest rates on the 144A Notes. The
Company does not currently anticipate that it will register the 144A Notes
under the Securities Act.
The 144A Notes were issued to, and the Company believes are currently owned
by, a small number of beneficial owners. Although the 144A Notes have been
designated for trading in the PORTAL market, to the extent that 144A Notes are
tendered and accepted in connection with the Exchange Offer, any trading
market for 144A Notes that remain outstanding after the Exchange Offer could
be adversely affected.
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Each Holder (other than any Holder who is an affiliate or promoter of the
Company) who duly exchanges 144A Notes for Exchange Notes in the Exchange
Offer will receive Exchange Notes that are freely transferable under the
Securities Act. Holders who participate in the Exchange Offer should be aware,
however, that if they accept the Exchange Offer for the purpose of engaging in
a distribution, the Exchange Notes may not be publicly reoffered or resold
without complying with the registration and prospectus delivery requirements
of the Securities Act. As a result, each Holder accepting the Exchange Offer
will be deemed to have represented, by its acceptance of the Exchange Offer,
that it acquired the Exchange Notes in the ordinary course of business and
that it is not engaged in, and does not intend to engage in, a distribution of
the Exchange Notes. If existing Commission interpretations permitting free
transferability of the Exchange Notes following the Exchange Offer are changed
prior to consummation of the Exchange Offer, the Company will use its best
efforts to register the 144A Notes for resale under the Securities Act. See
"Prospectus Summary--The Exchange Offer" and "The Exchange Offer--Resale of
Exchange Notes."
The 144A Notes currently may be sold pursuant to the restrictions set forth
in Rule 144A under the Securities Act or pursuant to another available
exemption under the Securities Act without registration under the Securities
Act. To the extent that 144A Notes are tendered and accepted in the Exchange
Offer, the trading market for the untendered and tendered but unaccepted 144A
Notes could be adversely affected.
THE EXCHANGE OFFER
The following discussion sets forth or summarizes what the Company believes
are 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 Letter of Transmittal and the
Registration Rights Agreement, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part, and are
incorporated by reference herein.
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the sale of 144A Notes pursuant to the Purchase
Agreement, dated October 9, 1997 (the "Purchase Agreement"), between the
Company and the Initial Purchasers, the Initial Purchasers became entitled to
the benefits of the Registration Rights Agreement.
Under the Registration Rights Agreement, the Company must use its best
efforts to (a) file a registration statement in connection with a registered
exchange offer within 30 days after October 16, 1997, the date the 144A Notes
were issued (the "Issue Date"), (b) use reasonable best efforts to cause such
registration statement to become effective under the Securities Act within 90
days of the Issue Date, (c) use reasonable best efforts to keep such
registration statement effective until the closing of the Exchange Offer and
(d) cause such registered exchange offer to be consummated within 120 days
after the Issue Date. Within the applicable time periods, the Company will
endeavor to register under the Securities Act all of the Exchange Notes
pursuant to a registration statement under which the Company will offer each
Holder of 144A Notes the opportunity to exchange any and all of the
outstanding 144A Notes held by such Holder for Exchange Notes in an aggregate
principal amount equal to the aggregate principal amount of 144A Notes
tendered for exchange by such Holder. Subject to limited exceptions, the
Exchange Offer being made hereby, if commenced and consummated within such
applicable time periods, will satisfy those requirements under the
Registration Rights Agreement. A copy of the Registration Rights Agreement has
been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The term "Holder" with respect to the Exchange Offer
means any person in whose name the 144A Notes are registered on the books of
the Company or any other person who has obtained a properly completed bond
power from the registered holder.
Because the Exchange Offer is for any and all 144A Notes, the principal
amount of 144A Notes tendered and exchanged in the Exchange Offer will reduce
the principal amount of 144A Notes outstanding. Following
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the consummation of the Exchange Offer, Holders who did not tender their 144A
Notes generally will not have any further registration rights under the
Registration Rights Agreement, but such 144A Notes will continue to accrue
interest and remain subject to certain restrictions on transfer. Accordingly,
the liquidity of the market for such 144A Notes could be adversely affected.
Holders of 144A Notes seeking liquidity in their investment would have to rely
on exemptions to registration requirements under the securities laws,
including the Securities Act. Although the 144A Notes have been designated as
eligible for trading in the PORTAL market, because it is expected that the
holders of the 144A Notes will elect to exchange such 144A Notes for Exchange
Notes due to the absence of restrictions on the resale of Exchange Notes under
the Securities Act, the Company anticipates that the liquidity of the market
for any 144A 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 accompanying Letter of Transmittal, the Company will accept all
144A Notes properly 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 Exchange Notes in exchange for each $1,000 principal amount of
outstanding 144A Notes accepted in the Exchange Offer. Holders may tender some
or all of their 144A Notes pursuant to the Exchange Offer.
The form and terms of the Exchange Notes are the same as the form and terms
of the 144A Notes except that (i) the Exchange Notes have been registered
under the Securities Act and hence will not bear legends restricting the
transfer thereof and (ii) the holders of Exchange Notes generally will not be
entitled to certain rights under the Registration Rights Agreement, which
rights generally will terminate upon consummation of the Exchange Offer. The
Exchange Notes will evidence the same debt as the 144A Notes and will be
entitled to the benefits of the Indenture.
Holders of 144A Notes do not have any appraisal or dissenters' rights in
connection with the Exchange Offer.
The Company shall be deemed to have accepted validly tendered 144A 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
of 144A Notes for the purposes of receiving the Exchange Notes from the
Company and delivering Exchange Notes to such Holders.
If any tendered 144A Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted 144A Notes will be returned, without
expense, to the tendering Holder thereof as promptly as practicable after the
Expiration Date.
Holders of 144A Notes who tender pursuant to 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
144A Notes pursuant to the Exchange Offer. The Company will pay all charges
and expenses, other than certain applicable taxes, in connection with the
Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Exchange Offer shall remain open for acceptance for a period of not less
than 30 days after notice is mailed to Holders (the "Exchange Period"). The
Expiration Date will be 5:00 p.m., New York City time, on , 1997,
unless the Company, in its sole discretion, extends the Exchange Offer, in
which case the Expiration Date will be the latest business day to which the
Exchange Offer is extended.
In order to extend the Expiration Date, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the record
Holders an announcement thereof, each prior to 9:00 a.m., New
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York City time, on the next business day after the previously scheduled
Expiration Date. Such announcement may state that the Company is extending the
Exchange Offer for a specified period of time.
The Company reserves the right (i) to delay accepting any 144A Notes, to
extend the Exchange Offer or to terminate the Exchange Offer and not accept
144A Notes not previously accepted if any of the conditions set forth under
"--Conditions" shall have occurred and shall not have been waived by the
Company, 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 oral or written
notice 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 in a manner reasonably calculated to inform the Holders of such
amendment and the Company will extend the Exchange Offer for a period of five
to ten business days, depending upon the significance of the amendment and the
manner of disclosure to Holders, if the Exchange Offer would otherwise expire
during such five to ten business day period.
Without limiting the manner in which the Company may choose to make public
announcement of any extension, amendment or termination of the Exchange Offer,
the Company shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely
release to the Dow Jones News Service.
INTEREST ON THE EXCHANGE NOTES
Interest on the Exchange Notes is payable semi-annually on April 15 and
October 15 of each year at the rate of 9 1/4% per annum. The Exchange Notes
will bear interest from October 16, 1997, the date of issuance of the 144A
Notes, or the most recent interest payment date to which interest on such 144A
Notes has been paid, whichever is later. Accordingly, Holders of 144A Notes
that are accepted for exchange will not receive interest that is accrued but
unpaid on the 144A Notes at the time of tender, but such interest will be
payable in respect of the Exchange Notes delivered in exchange for such 144A
Notes on the first interest payment date after the Expiration Date.
PROCEDURES FOR TENDERING
Only a Holder of 144A Notes may tender such 144A Notes pursuant to the
Exchange Offer. To tender pursuant to 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 Instruction 4 of the
Letter of Transmittal, and mail or otherwise deliver such Letter of
Transmittal or such facsimile, together with the 144A Notes and any other
required documents, to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date (or comply with the procedure for book-entry
transfer described below if delivery of 144A Notes is to be made by book-entry
transfer to an account maintained by the Exchange Agent at the DTC).
Confirmation of such book-entry transfer must be received by the Exchange
Agent prior to the Expiration Date.
The tender by a Holder of 144A Notes 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 144A NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR 144A NOTES SHOULD BE SENT TO THE COMPANY.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT SUCH TENDER FOR SUCH HOLDERS.
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Any beneficial holder whose 144A Notes are registered in the name of such
holder's 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 his behalf. If such beneficial
holder wishes to tender on such beneficial holder's behalf, such beneficial
holder must, prior to completing and executing the Letter of Transmittal and
delivering his 144A Notes, either make appropriate arrangements to register
ownership of the 144A Notes in such holder's name or obtain a properly
completed bond power from the registered holder. The transfer of record
ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a member firm of the Securities Transfer Agents
Medallion Program, the New York Stock Exchange Medallion Signature Program or
the Stock Exchange Medallion Program (an "Eligible Institution") unless the
144A 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 an Eligible Institution.
If the Letter of Transmittal is signed by a person other than the registered
holder of any 144A Notes listed therein, such 144A Notes must be endorsed or
accompanied by appropriate bond powers and a proxy which authorizes such
person to tender the 144A Notes on behalf of the registered holder, in each
case signed as the name of the registered holder or holders appears on the
144A Notes with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any 144A 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.
The Company understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the
144A Notes at the DTC for the purpose of facilitating the Exchange Offer, and
subject to the establishment thereof, any financial institution that is a
participant in the DTC may make book-entry delivery of the 144A Notes by
causing the DTC to transfer such 144A Notes into the Exchange Agent's account
with respect to the 144A Notes in accordance with the DTC's procedures for
such transfer. Delivery of documents to the DTC does not constitute delivery
to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered 144A Notes and withdrawal of the tendered
144A 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 144A Notes not properly tendered or any 144A 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
irregularities or conditions of tender as to particular 144A 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 144A Notes must be cured within such time as the
Company shall determine. Neither the Company, the Exchange Agent nor any other
person shall be under any duty to give notification of defects or
irregularities with respect to tenders of 144A Notes, nor shall any of them
incur any liability for failure to give such notification. Tenders of 144A
Notes will not be deemed to have been made until such irregularities have been
cured or waived. Any 144A 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 without cost to such Holder by the Exchange
Agent to the tendering Holders of 144A Notes, unless otherwise provided in the
Letter of Transmittal, as soon as practicable following the Expiration Date.
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GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their 144A Notes and (i) whose 144A Notes are not
immediately available, or (ii) who cannot deliver their 144A Notes, the Letter
of Transmittal or any other required documents to the Exchange Agent (or
comply with 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 of the 144A Notes, the
certificate or registration number or numbers of such 144A Notes and
the principal amount of 144A Notes tendered, stating that the tender is
being made thereby, and guaranteeing that, within five business days
after the Expiration Date, the Letter of Transmittal (or facsimile
thereof) together with the certificate(s) representing the 144A Notes
to be tendered in proper form for transfer (or a confirmation of book-
entry transfer of such 144A Notes into the Exchange Agent's account at
the Depository) 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), together with the certificate(s) representing all
tendered 144A Notes in proper form for transfer (or a confirmation of
book-entry transfer of such 144A Notes into the Exchange Agent's
account at the Depository) and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within five
business days after the Expiration Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of 144A 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 144A Notes pursuant to 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 144A Notes to be withdrawn
(the "Depositor"), (ii) identify the 144A Notes to be withdrawn (including the
certificate or registration number(s) and principal amount of such 144A Notes,
or, in the case of notes transferred by book-entry transfer, the name and
number of the account at the DTC to be credited), (iii) be signed by the
Depositor in the same manner as the original signature on the Letter of
Transmittal by which such 144A Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee (as defined herein) with respect to the 144A Notes register
the transfer of such 144A Notes into the name of the Depositor withdrawing the
tender, (iv) specify the name in which any such 144A Notes are to be
registered, if different from that of the Depositor and (v) include a
statement that such Holder is withdrawing such Holder's election to have such
144A Notes exchanged. All questions as to the validity, form and eligibility
(including time of receipt) of such withdrawal notices will be determined by
the Company, whose determination shall be final and binding on all parties.
Any 144A Notes so withdrawn will be deemed not to have been validly tendered
for purposes of the Exchange Offer and no Exchange Notes will be issued with
respect thereto unless the 144A Notes so withdrawn are validly retendered. Any
144A Notes which have been tendered but which are not accepted for payment
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 144A Notes may be retendered by following
one of the procedures described under "--Procedures for Tendering" at any time
prior to the Expiration Date.
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CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or to exchange Exchange Notes for, any
144A Notes, and may terminate or amend the Exchange Offer as provided herein
before the acceptance of such 144A Notes, if:
(a) any action or proceeding is instituted or threatened in any court or by
or before any governmental agency or regulatory authority or any
injunction, order or decree is issued with respect to the Exchange
Offer which, in the sole judgment of the Company, might impair the
ability of the Company to proceed with the Exchange Offer; or
(b) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the
reasonable judgment of the Company, might materially impair the ability
of the Company to proceed with the Exchange Offer; or
(c) any governmental approval has not been obtained, which approval the
Company, in its sole discretion, deems necessary for the consummation
of the Exchange Offer; or
(d) there shall have been proposed, adopted or enacted any law, statute,
rule or regulation (or an amendment to any existing law, statute, rule
or regulation) which, in the sole judgment of the Company, might
materially impair the ability of the Company to proceed with the
Exchange Offer.
If the Company determines in its reasonable judgment that any of the
conditions are not satisfied, the Company may (i) terminate the Exchange Offer
and refuse to accept any 144A Notes and return all tendered 144A Notes to the
tendering Holders, (ii) extend the Exchange Offer and retain all 144A Notes
tendered prior to the expiration of the Exchange Offer subject, however, to
the rights of Holders to withdraw such 144A Notes (see "--Withdrawals of
Tenders") or (iii) waive such unsatisfied conditions with respect to the
Exchange Offer and accept all properly tendered 144A Notes which have not been
withdrawn. Moreover, regardless of whether any of such conditions has
occurred, the Company may amend the Exchange Offer in any manner which, in its
good faith judgment, is advantageous to holders of the 144A Notes.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any
such condition or may be waived by the Company in whole or in part at any time
and from time to time in its sole discretion. The failure by the Company at
any time to exercise any of the foregoing rights shall not be deemed a waiver
of any such right, and each such right shall be deemed an ongoing right which
may be asserted at any time and from time to time. If the Company waives or
amends the foregoing conditions, it will, if required by law, extend the
Exchange Offer for five to ten business days from the date that the Company
first gives notice, by public announcement or otherwise, of such waiver or
amendment, if the Exchange Offer would otherwise expire within such five to
ten business-day period. Any determination by the Company concerning the
events described above will be final and binding upon all parties.
In addition, the Company will not accept for exchange any 144A Notes
tendered, and no Exchange Notes will be issued in exchange for any such 144A
Notes, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or the Indenture is not qualified under the Trust Indenture Act of 1939,
as amended. In any such event, the Company is required to use every reasonable
effort to obtain the withdrawal of any stop order at the earliest possible
time.
The Exchange Offer is not conditioned upon any minimum principal amount of
144A Notes being tendered for exchange.
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EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as Exchange Agent for
the Exchange Offer. Questions and requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
By Mail By Facsimile By Hand or Overnight
(registered or certified Transmission: Courier:
mail recommended): (617) 664-5395
State Street Bank and
State Street Bank and Trust Company
Trust Company Corporate Trust
Corporate Trust Department
Department To Confirm by Telephone 4th Floor
P.O. Box 778 or for Information Call: Two International Place
Boston, MA 02102-0078 (617) 664-5587 Boston, MA 02110
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail; however, additional solicitations may be
made by telegraph, telephone or in person by officers and regular employees of
the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or other
persons soliciting acceptances of the Exchange Offer. The Company will,
however, pay the Exchange Agent reasonable and customary fees for its services
and will reimburse the Exchange Agent 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 144A Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or 144A Notes for principal amounts not tendered
or accepted for exchange are to be delivered to, or are to be registered or
issued in the name of, any person other than the registered holder of the 144A
Notes tendered, or if tendered 144A 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 144A Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be
payable by the tendering Holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
Holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the 144A
Notes, which is the aggregate principal amount of the 144A 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 cost of the Exchange Offer will be deferred and amortized
over the term of the Exchange Notes.
RESALE OF THE EXCHANGE NOTES
The Company is making the Exchange Offer in reliance on the position of the
Commission as set forth in certain interpretive letters addressed to third
parties in other transactions. However, the Company has not sought its own
interpretive letters, and there can be no assurance that the Commission would
make a similar determination with respect to the Exchange Notes. Based on
these interpretations by the staff of the Commission, the Company believes
that the Exchange Notes would, in general, be freely transferable after the
Exchange Offer by any holder of such Exchange Notes (other than any such
holder which is an "affiliate" of the Company within the meaning of Rule 405
of the Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such Exchange Notes
acquired pursuant to the Exchange Offer
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are obtained in the ordinary course of such holder's business, and such holder
does not intend to participate, and has no arrangement or understanding to
participate in the distribution of such Exchange Notes. Any holder who tenders
pursuant to the Exchange Offer with the intention to participate, or for the
purpose of participating, in a distribution of the Exchange Notes may not rely
on the position of the staff of the Commission enunciated in Exxon Capital
Holdings Corporation (available May 13, 1988) or Morgan Stanley & Co.,
Incorporated (available June 5, 1991) or similar interpretive letters, but
rather must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary 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 promulgated by the Commission. Since
the Commission has not considered the Exchange Offer in the context of a no-
action letter, there can be no assurance that the staff of the Commission
would make a similar determination with respect to the Exchange Offer.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for 144A Notes, where such 144A 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 Exchange Notes. The Company
has agreed to make available a prospectus meeting the requirements of the
Securities Act to any such broker-dealer for use in connection with any resale
of any Exchange Notes acquired in the Exchange Offer. A broker-dealer which
delivers such a prospectus to purchasers in connection with such resales will
be subject to certain of the civil liability provisions under the Securities
Act and will be bound by the provisions of the Registration Rights Agreement
(including certain indemnification rights and obligations).
By tendering pursuant to the Exchange Offer, each Holder will represent to
the Company, among other things, (i) the Exchange Notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary course of its business,
(ii) neither the holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of the
Exchange Notes and (iii) the holder and any such other person acknowledge that
if they participate in the Exchange Offer for the purpose of distributing the
Exchange 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 Exchange 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 incurring liability
under the Securities Act for which such holder is not indemnified by the
Company. Further, by tendering in the Exchange Offer, each holder that may be
deemed an "affiliate" (as defined in Rule 405 of the Securities Act) of the
Company will represent to the Company that such holder understands and
acknowledges that the Exchange Notes may not be offered for resale, resold or
otherwise transferred by that Holder without registration under the Securities
Act or an exemption therefrom.
As set forth above, affiliates of the Company are not entitled to rely on
the foregoing interpretations of the staff of the Commission with respect to
resales of the Exchange Notes without compliance with the registration and
prospectus delivery requirements of the Securities Act.
In addition, to comply with the securities laws of certain jurisdictions, if
applicable, the Exchange Notes may not be offered or sold unless they have
been registered or qualified for sale in such jurisdiction or an exemption
from registration or qualification is available and is complied with. The
Company and the Guarantors have agreed, pursuant to the Registration Rights
Agreement and subject to certain specified limitations therein, to register or
qualify the Exchange Notes for offer or sale under the securities or blue sky
laws of such jurisdictions as any holder of the Exchange Notes reasonably
requests in writing. Such registration or qualification may require the
imposition of restrictions or conditions (including suitability requirements
for offerees or purchasers) in connection with the offer or sale of any
Exchange Notes.
In the event that any changes in law or the applicable interpretations of
the staff of the Commission do not permit the Issuers to effect the Exchange
Offer, or if for any other reason the Exchange Offer Registration Statement is
not declared effective within 90 days of the date of original issuance of the
144A Notes or the Exchange Offer is not consummated within 120 days of the
date of original issuance of the 144A Notes, or upon the request of any of the
Initial Purchasers, or if a holder of the 144A Notes is not permitted by
applicable law to participate in the Exchange Offer or elects to participate
in the Exchange Offer but does not receive fully
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tradable Exchange Notes pursuant to the Exchange Offer, the Issuers will, in
lieu of effecting the registration of the Exchange Notes pursuant to the
Exchange Offer Registration Statement and at the Issuers cost, (a) as promptly
as practicable, file with the Commission a shelf registration statement (the
"Shelf Registration Statement") covering resales of the 144A Notes, (b) use
their best efforts to cause the Shelf Registration Statement to be declared
effective under the Securities Act by the 120th day after the date of original
issuance of the 144A Notes and (c) use their best efforts to keep effective
the Shelf Registration Statement for a period of two years after its effective
date (or for such shorter period that will terminate when all of the 144A
Notes covered by the Shelf Registration Statement have been sold pursuant
thereto or cease to be outstanding).
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the making of this Exchange Offer, the Company will have
fulfilled one of its obligations under the Registration Rights Agreement, and
Holders of 144A Notes who do not tender their 144A Notes generally will not
have any further registration rights under the Registration Rights Agreement
or otherwise. Accordingly, any Holder that does not exchange such Holder's
144A Notes for Exchange Notes will continue to hold the untendered 144A Notes
and will be entitled to all the rights and 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.
The 144A Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such 144A Notes
may be resold only (i) to the Company (upon redemption thereof or otherwise),
(ii) pursuant to an effective registration statement under the Securities Act,
(iii) so long as the 144A Notes are eligible for resale pursuant to Rule 144A
under the Securities Act, to a Qualified Institutional Buyer in a transaction
meeting the requirements of Rule 144A, (iv) outside the United States to a
foreign person pursuant to the exemption from the registration requirements of
the Securities Act provided by Regulation S thereunder, (v) pursuant to an
exemption from registration under the Securities Act provided by Rule 144
thereunder (if available) or (vi) to an accredited investor as such term is
defined under Rule 501 of the Securities Act in a transaction exempt from the
registration requirements of the Securities Act, in each case in accordance
with any applicable securities laws of any state of the United States or 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 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 144A Notes, to the
extent permitted by applicable law, in open market or privately negotiated
transactions, through subsequent exchange offers or otherwise. The Company has
no present plans to acquire any 144A Notes that are not tendered in the
Exchange Offer or to file a registration statement to permit resales of any
untendered 144A Notes.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), existing and proposed Treasury
Department regulations (the "Regulations") and existing administrative
interpretations and court decisions. There can be no assurance that the
Internal Revenue Service (the "IRS") will not take a contrary view, and no
ruling from the IRS has been or will be sought. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter
or modify the statements and conditions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to Holders. Certain Holders of the 144A Notes (including
insurance companies, tax-exempt organizations, financial institutions, 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 A 144A NOTE SHOULD CONSULT HIS, HER OR ITS OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES OF EXCHANGING SUCH HOLDER'S 144A NOTES FOR
EXCHANGE NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR
FOREIGN TAX LAWS.
30
<PAGE>
The issuance of the Exchange Notes to Holders of the 144A Notes pursuant to
the terms set forth in this Prospectus will not constitute an exchange for
United States federal income tax purposes because such exchange does not
represent a significant modification of the debt instruments. Consequently, no
gain or loss would be recognized by Holders of the 144A Notes upon receipt of
the Exchange Notes, and ownership of the Exchange Notes will be considered a
continuation of ownership of the 144A Notes. For purposes of determining gain
or loss upon the subsequent sale or exchange of the Exchange Notes, a Holder's
basis in the Exchange Notes should be the same as such Holder's basis in the
144A Notes exchanged therefor. A Holder's holding period for the Exchange
Notes should include the Holder's holding period for the 144A Notes exchanged
therefor.
See also "Description of Certain Federal Income Tax Consequences of an
Investment in the Exchange Notes."
USE OF PROCEEDS
There will be no proceeds to the Company from the exchange of Notes pursuant
to the Exchange Offer. The net proceeds to the Company from the 144A Notes
Offering were approximately $95.9 million. The Company used the net proceeds
from the 144A Notes Offering to repay all borrowings outstanding under the
Credit Facility and for general corporate purposes, including working capital
to fund the Company's retail expansion and for potential acquisitions. The
Company currently has no agreements or understandings with respect to any
acquisition and no portion of the net proceeds was allocated to specific
acquisitions. The indebtedness under the Credit Facility was incurred
primarily to refinance the existing debt of the Company as well as to provide
the Company with additional working capital. Amounts repaid under the
revolving portion of the Credit Facility may be reborrowed.
CAPITALIZATION
The following table sets forth the capitalization of the Company at July 31,
1997 (i) on an actual basis and (ii) as adjusted to give effect to the 144A
Notes Offering, the application of the net proceeds therefrom, the Credit
Facility and the Summerville Loan. See "Use of Proceeds" and the Company's
Consolidated Financial Statements and the related notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JULY 31, 1997
--------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt: (a)
Credit facility (b)....................................... $66,700 $ --
Summerville Loan (c)...................................... -- 30,000
Capital lease obligations................................. 2,405 2,405
144A Notes ............................................... -- 100,000
Other long-term debt...................................... 1,290 1,290
-------- --------
Total long-term debt..................................... 70,395 133,695
Total stockholders' equity................................. 123,755 123,755
-------- --------
Total capitalization................................... $194,150 $257,450
======== ========
</TABLE>
- --------
(a) Includes current portion of long-term debt. For information regarding the
Company's long-term liabilities, see Note 9 of Notes to Consolidated
Financial Statements.
(b) After giving effect to the 144A Notes Offering and the application of the
net proceeds therefrom, the Credit Facility and the Summerville Loan, the
Company has $50.0 million in available borrowings under the Credit
Facility. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" and
"Description of Certain Other Indebtedness."
(c) For information regarding the Summerville Loan, see "Description of
Certain Other Indebtedness--Summerville Loan."
31
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth certain selected consolidated financial data
and operating data of the Company for the periods indicated which have been
derived from the Consolidated Financial Statements of the Company. The
Consolidated Financial Statements of the Company as of January 31, 1996 and
1997 and for the ten month period ended January 31, 1996 and the year ended
January 31, 1997 have been audited by Arthur Andersen LLP, independent public
accountants. The Consolidated Financial Statements of the Company for the year
ended March 31, 1995 have been audited by KPMG Peat Marwick LLP, independent
auditors. The selected financial data as of and for the years ended March 31,
1993, 1994 and 1995 and as of and for the six month periods ended July 31,
1996 and 1997 are derived from the unaudited Consolidated Financial Statements
of the Company. The unaudited Consolidated Financial Statements include all
adjustments, consisting of normal recurring accruals, which the Company
considers necessary for a fair presentation of the consolidated financial
condition and results of operations for these periods. Operating results for
the six months ended July 31, 1997 are not necessarily indicative of the
results that may be expected for the entire year ending January 31, 1998.
These selected consolidated financial data should be read in conjunction with
the Consolidated Financial Statements, related notes and other financial
information included and incorporated by reference herein. Financial data give
retroactive effect to the merger of a wholly-owned subsidiary of the Company
and GCO, Inc. on September 28, 1994 and the merger of a wholly-owned
subsidiary of the Company and Image on August 30, 1996, which transactions
were accounted for as poolings-of-interests. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
TEN FISCAL
FISCAL YEAR ENDED MARCH MONTHS YEAR SIX MONTHS
31, ENDED ENDED ENDED JULY 31,
----------------------------- JANUARY 31, JANUARY 31, ------------------
1993 1994 1995 1996(A) 1997 1996 1997
------- -------- -------- ----------- ----------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Sales of floorcovering
products............. $88,676 $106,237 $174,935 $186,568 $250,968 $117,414 $148,371
Fees from franchise
services............. 5,113 9,688 13,876 13,432 26,336 13,062 14,573
Fiber and PET sales... 4,583 5,297 12,886 24,072 28,853 17,167 12,513
Other................. 479 1,369 1,644 3,479 3,564 1,680 3,011
------- -------- -------- -------- -------- -------- --------
Total revenues....... 98,851 122,591 203,341 227,551 309,721 149,323 178,468
Cost of sales.......... 71,570 85,847 139,521 161,723 222,290 108,630 122,226
------- -------- -------- -------- -------- -------- --------
Gross profit......... 27,281 36,744 63,820 65,828 87,431 40,693 56,242
Selling, general, and
administrative
expenses.............. 17,417 23,669 46,870 59,197 72,366 36,259 41,163
Replacement stock
option charge......... -- 10,388(b) -- -- -- -- --
Goodwill impairment
charge................ -- -- -- 6,569(c) -- -- --
Merger-related costs... -- -- 500(d) -- 4,900(e) -- --
Other (income) expense:
Interest income...... (20) (307) (397) (415) (613) (311) (225)
Interest expense..... 3,844 1,886 1,839 4,695 7,006 3,213 2,663
Interest expense-
related parties..... -- 977 -- -- -- -- --
Other................ 98 263 (421) (78) (302) (258) (84)
------- -------- -------- -------- -------- -------- --------
Earnings (loss) before
income taxes
and extraordinary
income................ 5,942 845 15,429 (4,140) 4,074 1,790 12,725
Income tax expense..... 947 376 5,787 105 1,929 630 4,889
------- -------- -------- -------- -------- -------- --------
Net earnings (loss)
before extraordinary
income................ 4,995 469 9,642 (4,245) 2,145 1,160 7,836
Extraordinary income... -- 190 -- -- -- -- --
------- -------- -------- -------- -------- -------- --------
Net earnings (loss).... $4,995 $659 $9,642 $(4,245) $2,145 $1,160 $7,836
======= ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA:
Cash and cash
equivalents........... $636 $3,972 $2,365 $4,207 $6,439 $3,464 $4,925
Trade accounts
receivable, net....... 11,682 14,779 29,882 33,037 43,487 38,392 49,974
Inventories............ 15,226 17,768 38,137 49,170 42,148 43,967 47,168
Property and equipment,
net................... 30,946 40,448 68,832 93,879 101,403 95,926 107,332
Total assets........... 63,809 95,281 162,423 202,085 219,673 203,946 244,194
Total debt............. 35,054 21,620 57,459 94,185 96,289 91,635 70,395
Stockholders' equity... 30,960 50,053 71,424 72,150 76,154 73,896 123,755
</TABLE>
(continued on following page)
32
<PAGE>
<TABLE>
<CAPTION>
TEN FISCAL
FISCAL YEAR ENDED MONTHS YEAR SIX MONTHS
MARCH 31, ENDED ENDED ENDED JULY 31,
--------------------------- JANUARY 31, JANUARY 31, ----------------
1993 1994 1995 1996(A) 1997 1996 1997
------- -------- -------- ----------- ----------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Image revenues(f)...... $89,480 $103,257 $127,250 $128,260 $162,681 $79,231 $88,278
Franchised revenues.... 5,172 11,873 18,764 25,761 40,877 15,430 23,300
Company-owned store
revenues.............. 4,199 7,461 57,327 73,530 106,163 54,662 66,890
EBITDA, as adjusted(g). 13,002 16,951 22,993 15,132 26,498 10,538 21,233
Depreciation and
amortization.......... 3,216 3,832 5,225 8,008 10,518 5,535 5,845
Capital expenditures... 4,439 12,734 25,941 15,580 17,444 7,051 11,837
Gross margin........... 27.6% 30.0% 31.4% 28.9% 28.2% 27.3% 31.5%
EBITDA, as adjusted,
margin................ 13.2% 13.8% 11.3% 6.6% 8.6% 7.1% 11.9%
Ratio of earnings to
fixed charges(h)...... 2.5x 1.4x 6.3x -- 1.5x 1.4x 4.6x
SELECTED OPERATING DATA:
End of period:
Company-owned stores.. 8 8 51 59 57 57 60
Franchise territories. 148 233 325 377 368 353 377
</TABLE>
- --------
(a) On January 31, 1996, the Company changed its fiscal year end from March 31
to January 31.
(b) Image granted replacement stock options on August 10, 1993, in replacement
of a like number of unvested stock appreciation units and vested and
unvested stock options. As a result of this exchange, Image recognized a
non-cash, non-recurring charge of $10.4 million in its fiscal year ending
March 31, 1994. See Note 13 of Notes to Consolidated Financial Statements.
(c) Certain of the Company's acquired stores have not performed as anticipated
at the time of purchase. The results from these operations through the end
of fiscal 1996 led management to assess the realizability of the goodwill
recorded in connection with these acquisitions, the result of which
indicated a permanent impairment of goodwill necessitating a write-off
totaling $6.6 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations--Ten
Month Period Ended January 31, 1996 Compared to Year Ended March 31,
1995--Goodwill Impairment" and Note 2 of Notes to Consolidated Financial
Statements.
(d) Represents a non-recurring charge of $500,000 related to the merger with
GCO, Inc. which was accounted for as a pooling-of-interests.
(e) Represents a non-recurring charge of $4.9 million related to the mergers
with Image and Bailey & Roberts Flooring, Inc. ("Bailey & Roberts") which
were accounted for as poolings-of-interests.
(f) Includes revenues generated from carpet, fiber and PET sales.
(g) EBITDA, as adjusted, is defined as earnings before interest, taxes,
depreciation, amortization and non-recurring charges. While EBITDA should
not be construed as a substitute for operating income or as a better
measure of liquidity than cash flows from operating activities, which are
determined in accordance with generally accepted accounting principles, it
is a measure commonly used in the Company's industry and is included
herein because management believes it is useful and provides additional
information with respect to the ability of the Company to meet future debt
service, capital expenditures and working capital requirements. EBITDA, as
adjusted, reported above excludes non-recurring charges of $10.4 million,
$500,000, $6.6 million and $4.9 million for fiscal 1994, 1995, 1996 and
1997, respectively.
(h) For purposes of computing the ratios, earnings represent income (loss)
before income taxes, the cumulative effect of accounting changes plus
fixed charges. Fixed charges represent interest expense and that portion
of rent expense under all lease commitments deemed to represent an
appropriate interest factor. Earnings were inadequate to cover fixed
charges for the ten months ended January 31, 1996. The amount of the
deficiency for this period was $4.1 million.
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements of the Company (including the notes thereto) contained
elsewhere in this Prospectus. In January 1996, the Company changed its fiscal
year end from March 31 to January 31. The following discussion compares
results of operations for the twelve month period ended January 31, 1997 with
the ten month period ended January 31, 1996 and compares the ten month period
ended January 31, 1996 with the twelve month period ended March 31, 1995.
Thus, the periods are not entirely comparable. On August 30, 1996, a wholly-
owned subsidiary of the Company merged with Image, which transaction was
accounted for as a pooling-of-interests.
GENERAL
From fiscal 1991 through fiscal 1994, the Company's operations consisted of
selling floorcovering products, securing franchise dealers and brokering the
purchase of floorcovering products, principally carpet, from major suppliers
on behalf of its franchisees. During this period, the Company derived the
majority of its revenues and operating profits from sales of floorcovering
products, franchise fees and royalties, as well as fees from the provision of
various services to the franchisees. In May 1994, the Company commenced a
strategy of acquiring independent floorcovering retailers, with the goal of
building a network of Company-owned stores in addition to its franchise
network. This acquisition program included selected CarpetMAX franchisees,
other independent dealers and GCO, Inc. (accounted for as a pooling-of-
interests). Acquisitions accounted for under the purchase method of accounting
resulted in the Company originally recording goodwill of $17.9 million, which
was adjusted for the goodwill impairment charge of $6.6 million recorded in
fiscal 1996. See"--Results of Operations."
In April 1995, the Company commenced opening additional Company-owned stores
to expand its market share. Furthermore, in June 1995 the Company opened its
new distribution center and headquarters facility. Accordingly, the Company's
results of operations for the ten months ended January 31, 1996 and for the
year ended January 31, 1997 reflect the costs and expenses associated with the
new store openings and the new distribution center and headquarters.
The Company's retail network currently consists of 54 Company-owned
CarpetMAX stores (including 18 Gallery stores), six Company-owned GCO stores
and 377 franchise dealers operating approximately 448 CarpetMAX stores and 101
GCO stores.
The Company's revenues primarily consist of (i) sales of floorcovering
products, (ii) fees from franchising services and (iii) sales of fiber and
PET, which during the six months ended July 31, 1997 accounted for
approximately 83.1%, 8.2% and 7.0% of the Company's total revenues,
respectively. Sales of floorcovering products include sales of floorcovering
products by Company-owned retail stores, as well as sales of manufactured
carpet by Image. Franchise fees are generated from three primary sources: (i)
CarpetMAX franchisees remit a one-time franchise fee of $35,000 (revenue
booked at time of franchise agreement signing), as well as a brokerage fee on
certain floorcovering products purchased by the franchisee; (ii) GCO
franchisees remit a one-time franchise fee of $25,000 (revenue booked at time
of store opening), as well as royalties of 5% on the first $500,000 of gross
sales and 3% on gross sales over $500,000 during the year; and (iii) franchise
service fees for services such as advertising, which are offered to all
CarpetMAX franchisees on a fee for service basis, and are required to be
purchased by all GCO franchisees. Fiber sales consist of polyester fiber sold
to the home furnishings industry, while PET flake and pellet is sold to other
manufacturers for multiple uses, including fiber fill, food and non-food
containers, package strapping and plastic sheeting. During fiscal 1997 and the
six months ended July 31, 1997, Image accounted for approximately 52.5% and
49.5%, respectively, of the Company's total revenues and approximately 65.4%
and 78.4%, respectively, of the Company's EBITDA.
34
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the Company's results of operations expressed
as a percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR TEN MONTHS FISCAL YEAR
ENDED ENDED ENDED SIX MONTHS
ENDED JULY 31,
--------------
MARCH 31, JANUARY 31, JANUARY 31,
1995 1996(A) 1997 1996 1997
----------- ----------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Sales of floorcovering
products............... 86.0% 82.0% 81.0% 78.6% 83.1%
Fees from franchise
services............... 6.7 5.9 8.5 8.8 8.2
Fiber and PET sales..... 6.3 10.6 9.3 11.5 7.0
Other................... 1.0 1.5 1.2 1.1 1.7
----- ----- ----- ------- -------
Total revenues......... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ======= =======
Cost of sales............ 68.6% 71.1% 71.8% 72.7% 68.5%
----- ----- ----- ------- -------
Gross profit............ 31.4 28.9 28.2 27.3 31.5
Selling, general, and
administrative expenses. 23.1 26.0 23.4 24.2 23.1
Goodwill impairment
charge.................. -- 2.9(b) -- -- --
Merger-related costs..... 0.2(c) -- 1.6(d) -- --
Other (income) expense:
Interest income......... (0.2) (0.2) (0.2) (0.2) (0.1)
Interest expense........ 1.0 2.1 2.2 2.1 1.5
Other................... (0.2) (0.1) (0.1) -- --
----- ----- ----- ------- -------
Income tax expense....... 2.9 0.1 0.6 0.4 2.6
----- ----- ----- ------- -------
Net earnings (loss)..... 4.7% (1.9)% 0.7% 0.8% 4.4%
===== ===== ===== ======= =======
</TABLE>
- --------
(a) On January 31, 1996, the Company changed its fiscal year end from March 31
to January 31.
(b) Certain of the Company's acquired stores have not performed as anticipated
at the time of purchase. The results from these operations through the end
of fiscal 1996 led management to assess the realizability of the goodwill
recorded for these acquisitions, the result of which indicated a permanent
impairment of goodwill necessitating a write-off totaling $6.6 million.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations--Ten Month Period Ended
January 31, 1996 Compared to Year Ended March 31, 1995--Goodwill
Impairment" and Note 2 of Notes to Consolidated Financial Statements.
(c) Represents a non-recurring charge of $500,000 related to the merger with
GCO, Inc. which was accounted for as a pooling-of-interests.
(d) Represents a non-recurring charge of $4.9 million related to the mergers
with Image and Bailey & Roberts which were accounted for as poolings-of-
interests.
SIX MONTHS ENDED JULY 31, 1997 COMPARED TO SIX MONTHS ENDED JULY 31, 1996
Total Revenues. Total revenues increased 19.6% to $178.5 million for the six
months ended July 31, 1997 from $149.3 million for the six months ended July
31, 1996. The primary components of total revenues are discussed below.
Sales of Floorcovering Products. Sales of floorcovering products
increased 26.4% to $148.4 million for the six months ended July 31, 1997
from $117.4 million for the six months ended July 31, 1996. Sales of
floorcovering products in Company-owned stores increased 33.8% to $66.9
million for the six months ended July 31, 1997 from $50.0 million for the
six months ended July 31, 1996. The growth in retail sales of floorcovering
products was primarily due to the impact of the acquisitions of
floorcovering retailers and, to a lesser extent, to internal growth. The
results of these acquired retailers are not fully reflected in the prior
year periods as such acquisitions were made at various times during the
year. Sales of manufactured carpet increased 23.0% to $75.4 million for the
six months ended July 31, 1997 from $61.3 million for the six months ended
July 31, 1996. Unit sales of manufactured carpet increased 25.5% to 12.8
million square yards for the six months ended July 31, 1997 from 10.2
million square yards for the six months ended July 31, 1996. Sales from the
Company's two distribution centers amounted to $6.1 million for each of the
six months ended July 31, 1997 and 1996, largely representing sales to the
Company's franchisees.
35
<PAGE>
Fees from Franchise Services. Fees from franchise services, which include
franchise license fees and royalties, brokering of floorcovering products
and advertising, increased 11.5% to $14.6 million for the six months ended
July 31, 1997 from $13.1 million for the six months ended July 31, 1996.
This increase was attributable to increases in brokering activity generated
from new CarpetMAX and GCO franchisees, growth in demand for franchise
services from existing CarpetMAX and GCO franchisees, greater utilization
of advertising and other services offered to franchisees and an expansion
of advertising services offered by the Company.
Fiber and PET Sales. Sales of fiber and PET decreased 27.3% to $12.5
million for the six months ended July 31, 1997 from $17.2 million for the
six months ended July 31, 1996, due to a 30.0% decline in the average
selling price per pound of fiber and PET sales for the six months ended
July 31, 1997 compared to the six months ended July 31, 1996, partially
offset by a 4.8% increase in unit sales to 32.6 million pounds for the six
months ended July 31, 1997 from 31.1 million pounds for the six months
ended July 31, 1996.
Gross Profit. Gross profit increased 38.1% to $56.2 million for the six
months ended July 31, 1997 from $40.7 million for the six months ended July
31, 1996. As a percentage of total revenues, gross profit was 31.5% for the
six months ended July 31, 1997 compared to 27.3% for the six months ended July
31, 1996. Contributing to the increase in gross profit as a percentage of
total revenues was the continuing change in the retail business mix of the
Company to a revenue base consisting principally of the net sales of
floorcovering products and a significantly lower cost of raw materials at
Image.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 13.5% to $41.2 million for the six months
ended July 31, 1997 from $36.3 million for the six months ended July 31, 1996.
Increases in operating expenses on an absolute basis reflect an overall growth
in the size of the Company's operations required to serve the growing retail
base, as well as increased selling costs at Image related to the addition of
12 new sales people to service newly created territories. As a percentage of
total revenues, selling, general and administrative expenses decreased to
23.1% for the six months ended July 31, 1997 from 24.3% for the six months
ended July 31, 1996 as a result of spreading fixed costs over a larger revenue
base.
Interest Expense, Net. Net interest expense decreased 17.2% to $2.4 million
for the six months ended July 31, 1997 from $2.9 million for the six months
ended July 31, 1996 due principally to a reduction in debt of approximately
$48.0 million with the net proceeds from a public equity offering in February
1997.
Income Tax Expense. The Company recorded income tax expense of $4.9 million
for the six months ended July 31, 1997 compared to $630,000 for the six months
ended July 31, 1996, due to higher net income for the six months ended July
31, 1997, as compared to the prior year period. The effective tax rate for the
six months ended July 31, 1997 was 38.4%.
Net Earnings. As a result of the foregoing factors, the Company recorded net
earnings of $7.8 million for the six months ended July 31, 1997 compared to
$1.2 million for the six months ended July 31, 1996.
YEAR ENDED JANUARY 31, 1997 COMPARED TO TEN MONTH PERIOD ENDED JANUARY 31,
1996
Total Revenues. Total revenues increased 36.1% to $309.7 million fiscal 1997
from $227.6 million for fiscal 1996. The primary components of total revenues
are discussed below.
Sales of Floorcovering Products. Sales of floorcovering products
increased 34.5% to $251.0 million for fiscal 1997 from $186.6 million for
fiscal 1996. Sales of floorcovering products in Company-owned stores
increased 44.5% to $106.2 million for fiscal 1997 from $73.5 million for
fiscal 1996. The growth in retail sales of floorcovering products was
primarily due to the impact of the acquisitions of floorcovering retailers
and, to a lesser extent, to internal growth. The results of these acquired
retailers are not fully reflected in the prior year periods as such
acquisitions were made at various times during the year. Sales of
36
<PAGE>
manufactured carpet increased 30.0% to $132.6 million for fiscal 1997 from
$102.0 million for fiscal 1996. Unit sales of manufactured carpet increased
31.8% to 22.4 million square yards for fiscal 1997 from 17.0 million square
yards for fiscal 1996. Sales from the Company's two distribution centers
amounted to $12.2 million for fiscal 1997 and $11.1 million for fiscal
1996, largely representing sales to the Company's franchisees.
Fees from Franchise Services. Fees from franchise services, which include
franchise license fees and royalties, brokering of floorcovering products
and advertising, increased 96.3% to $26.3 million for fiscal 1997 from
$13.4 million for fiscal 1996. This increase was attributable to increases
in brokering activity generated from new CarpetMAX and GCO franchisees,
growth in demand for franchise services from existing CarpetMAX and GCO
franchisees, greater utilization of advertising and other services offered
to franchisees and an expansion of advertising services offered by the
Company.
Fiber and PET Sales. Sales of fiber and PET increased 19.9% to $28.9
million for fiscal 1997 from $24.1 million for fiscal 1996. Unit sales
increased 48.3% to 56.8 million pounds for fiscal 1997 from 38.3 million
pounds for fiscal 1996 as a result of increased fiber production capacity
from the addition of a second polyester fiber extruder. The unit sales
increase was partially offset by a 20.1% decline in the average selling
price per pound of fiber and PET sales for fiscal 1997 compared to fiscal
1996.
Gross Profit. Gross profit increased 32.8% to $87.4 million for fiscal 1997
from $65.8 million for fiscal 1996. As a percentage of total revenues, gross
profit was 28.2% for fiscal 1997 compared to 28.9% for fiscal 1996. The
Company recognized a charge in the amount of $700,000 in fiscal 1997 to
increase reserves for discounts and warranties at its manufacturing
subsidiary, Image. Also contributing to the decrease in gross profit as a
percentage of total revenues was the continuing change in the retail business
mix of the Company to a revenue base consisting principally of the net sales
of floorcovering products.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 22.3% to $72.4 million for fiscal 1997 from
$59.2 million for fiscal 1996. As a percentage of total revenues, selling,
general and administrative expenses decreased to 23.4% for fiscal 1997 from
26.0% for fiscal 1996 as a result of spreading fixed costs over a larger
revenue base. Additionally, the Company reduced certain note receivable
reserves totaling $350,000 which favorably affected net earnings by
approximately $210,000.
Merger-Related Costs. The Company recorded merger-related costs of $4.9
million for fiscal 1997 relating to the mergers with Image and Bailey &
Roberts which were accounted for as poolings-of-interests. The charge includes
both transaction costs, as well as severance costs and the elimination of
redundant systems.
Interest Expense, Net. Net interest expense increased 48.8% to $6.4 million
for fiscal 1997 from $4.3 million for fiscal 1996 due principally to financing
associated with capital expenditures in the manufacturing operations and
increased working capital requirements.
Income Tax Expense. The Company recorded income tax expense of $1.9 million
for fiscal 1997 compared to $100,000 for fiscal 1996. Income tax expense for
fiscal 1997 reflects the impact of non-deductible expenses associated with the
merger with Image and Bailey and Roberts. The effective tax rate for fiscal
1997 was 47.3%.
Net Earnings. As a result of the foregoing factors, the Company recorded net
earnings of $2.1 million for fiscal 1997 compared to a net loss of $4.2
million for fiscal 1996.
TEN MONTH PERIOD ENDED JANUARY 31, 1996 COMPARED TO YEAR ENDED MARCH 31,
1995
Total Revenues. Total revenues increased 12.0% to $227.6 million for fiscal
1996 from $203.3 million for fiscal 1995. The primary components of total
revenues are discussed below.
Sales of Floorcovering Products. Sales of floorcovering products
increased 6.7% to $186.6 million for fiscal 1996 from $174.9 million for
fiscal 1995. Sales of floorcovering products in Company-owned
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stores increased 51.9% to $73.5 million for fiscal 1996 from $48.4 million
for fiscal 1995. The growth in retail revenues for fiscal 1996 largely
reflected increases in direct sales resulting from acquired retailers in
the prior fiscal year which were included in the Company's sales only for
part of fiscal 1995. Sales of manufactured carpet decreased 10.4% to $102.0
million for fiscal 1996 from $113.8 million from fiscal 1995. Units sales
decreased 15.8% to 17.0 million square yards for fiscal 1996 from 20.2
million square yards for fiscal 1995. Expressed on a per week basis (total
sales divided by number of weeks in the fiscal year), sales of manufactured
carpet represented an increase of 5.9% resulting from an increase in
average unit selling price for domestic markets. Expressed on a per week
basis (total units divided by number of weeks in the fiscal year), unit
sales decreased 0.7%. Therefore, the increase in sales was attributable to
increased average unit selling prices. Sales from the Company's two
distribution centers amounted to $11.1 million during fiscal 1996 and $12.7
million during fiscal 1995, largely representing sales to the Company's
franchisees.
Fees from Franchise Services. Fees from franchise services decreased 3.6%
to $13.4 million for fiscal 1996 from $13.9 million for fiscal 1995. The
overall decrease resulted from fewer CarpetMAX franchises granted in fiscal
1996.
Fiber and PET Sales. Sales of fiber and PET increased 86.8% to $24.1
million for fiscal 1996 from $12.9 million for fiscal 1995. Unit sales
increased 25.6% to 38.3 million pounds for fiscal 1996 from 30.5 million
pounds for fiscal 1995 as a result of increased fiber production capacity
from the addition of a second polyester fiber extruder. The remainder of
the total increase was due to increased average unit selling prices.
Gross Profit. Gross profit increased 3.1% to $65.8 million for fiscal 1996
from $63.8 million for fiscal 1995. As a percentage of total revenues, gross
profit was 28.9% in fiscal 1996 compared to 31.4% for fiscal 1995. Gross
profit as a percentage of total revenues for manufacturing decreased to 19.8%
for fiscal 1996 from 24.2% in fiscal 1995 as a result of increased costs of
PET raw materials, which were only partially offset by increased selling
prices of fiber, PET and polyester carpet.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 26.2% to $59.2 million for fiscal 1996 from
$46.9 million for fiscal 1995. As a percentage of total revenues, selling,
general and administrative expenses increased to 26.0% for fiscal 1996 from
23.1% for fiscal 1995. This increase was largely due to the Company's
recording additional reserves on accounts receivables, costs associated with
the closing of certain under-performing stores as well as additional inventory
reserves recorded in order to reflect lower inventory market prices, and costs
associated with the proposed merger with Shaw. In December 1995, the Company
announced the execution of a letter of intent for the merger of the Company
into Shaw which negotiations were subsequently terminated on January 12, 1996
resulting in non-recurring merger transaction costs and material interruptions
to advertising, brokerage and franchise revenue in fiscal 1996. In addition,
the Company incurred additional expenses resulting from the move to the new
headquarters facility as well as additional expenses associated with the
opening of new stores and significant growth in personnel.
Goodwill Impairment. Certain of the Company's acquired stores have not
performed as anticipated at the time of purchase. The results from these
operations through the end of fiscal 1996 led management to a re- evaluation
of operations that indicated significant strategic and operational changes
would be necessary at certain stores, including changes in the customer mix,
changes of location, and changes in store design and merchandising. These
factors caused management to assess the realizability of the goodwill recorded
for these acquisitions, the result of which indicated a permanent impairment
of goodwill resulting in the Company recording a goodwill impairment charge of
$6.6 million. See Note 2 of Notes to Consolidated Financial Statements.
Merger-related Costs. The Company recorded merger-related costs of $500,000
for fiscal 1995, relating to transaction costs associated with the merger with
GCO, Inc.
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Interest Expense, Net. Net interest expense increased 207.1% to $4.3 million
for fiscal 1996 from $1.4 million for fiscal 1995 due principally to increased
borrowings related to the acquisition and operation of Company-owned stores
and Pharr Yarns of Georgia, Inc., the funding of operating losses in certain
Company-owned stores, increased borrowings resulting from the move to the new
headquarters facility in Kennesaw, Georgia, as well as additions of fixed
assets and leasehold improvements associated with new stores and plant
facilities.
Income Tax Expense. The Company recorded income tax expense of $100,000 for
fiscal 1996 compared to $5.8 million for fiscal 1995. Income tax expense for
fiscal 1996 reflects the impact of certain non-deductible goodwill. The
Company's effective tax rate for fiscal 1995 was 37.5%.
Net (Loss) Earnings. As a result of the foregoing factors, the Company
recorded a net loss of $4.2 million for fiscal 1996 compared to net earnings
of $9.6 million for fiscal 1995.
QUARTERLY RESULTS AND SEASONALITY
Set forth below is certain summary information with respect to the Company's
operations for the most recent ten fiscal quarters. Historically, the
Company's retail floorcovering sales are subject to some seasonal fluctuation
typical to its industry, with higher sales occurring in the summer and fall
months of the second and third quarters, and lower sales occurring during the
fourth quarter holiday season. Increases occur in the second quarter as
construction schedules increase during the summer, and the largest increase
occurs in the third quarter as a consequence of a combination of ongoing
construction, fall and pre-Christmas home remodeling.
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1997 FISCAL 1998
---------------------------------- ----------------------------------- ---------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST SECOND
QUARTER QUARTER QUARTER QUARTER(A) QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ---------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues.......... $63,554 $69,186 $73,742 $21,069 $73,242 $76,081 $82,139 $78,259 $86,225 $92,243
Gross profit............ 20,696 20,646 20,531 3,995 20,284 20,408 23,836 22,903 27,070 29,172
Operating profit (loss). 5,013 3,253 4,345 (12,549)(b) 3,159 1,275 5,843 4,588 6,632 8,447
Net earnings (loss)..... 2,595 1,867 1,079 (9,786)(b) 1,152 8 (1,112)(c) 2,097 3,251 4,585
</TABLE>
- --------
(a)Includes only January 1996 as a result of a change of the Company's fiscal
year end.
(b)Includes goodwill impairment charge of $6.6 million.
(c)Includes merger-related costs of $4.7 million.
LIQUIDITY AND CAPITAL RESOURCES
General. The Company's primary capital requirements are for new store
openings, investments in the manufacturing operations, working capital and
acquisitions. The Company historically has met its capital requirements
through a combination of cash flow from operations, net proceeds from the sale
of the Company's Common Stock, bank lines of credit and standard payment terms
from suppliers.
In March 1997, the Board of Directors of the Company authorized management
to repurchase up to 1,000,000 shares of Common Stock of the Company. As of
August 31, 1997, the Company had repurchased 952,000 shares of its Common
Stock in the open market for a total of $10.9 million. These purchases were,
and any future purchases will be, financed from borrowings under the Company's
revolving credit facility.
Credit Facility. On August 26, 1997, the Company established the Credit
Facility providing for aggregate commitments of $130.0 million. The Credit
Facility consists of (i) a $70.0 million revolving credit facility of which
$22.6 million was available for borrowings on August 31, 1997, and which
matures in August 2000, (ii) a $29.0 million term loan that matures in
December 2002, and (iii) a special purpose letter of credit in the amount of
up to $31.0 million for use as credit support for the Summerville Loan to be
used to finance the expansion of
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Image's fiber extrusion capabilities at its plant in Summerville, Georgia that
matures in September 2017. Upon completion of the 144A Notes Offering, the
commitments under the revolving credit facility were permanently reduced to
$50.0 million. As of October 31, 1997, the Company had no borrowings
outstanding under either the revolving credit facility or the term loan. No
amounts have been drawn on the letter of credit. Amounts outstanding under the
Credit Facility bear interest at a variable rate based on LIBOR or the prime
rate, at the Company's option. The Credit Facility contains customary
covenants. The Company has obtained waivers of certain of these covenants in
connection with its investment in a company in which A.J. Nassar, the
President and Chief Executive Officer of the Company, is a director and
shareholder and in connection with certain loans to Mr. Nassar. See "Certain
Transactions." As of the date hereof, the Company was in compliance with, or
obtained waivers of all violations of, all covenants under the Credit
Facility. The Company used a portion of the net proceeds from the 144A Notes
Offering to repay all of the borrowings outstanding under the Credit Facility
prior to the sale of the 144A Notes. See "Use of Proceeds" and "Description of
Certain Other Indebtedness--Credit Facility."
Summerville Loan. Effective September 1, 1997, the Development Authority of
the City of Summerville, Georgia (the "Authority") issued Exempt Facility
Revenue Bonds in an aggregate principal amount of $30.0 million (the "Facility
Revenue Bonds"). On September 17, 1997 the Authority loaned (the "Summerville
Loan") the proceeds from the sale of the Facility Revenue Bonds to Image to
finance, in whole or in part, the expansion of Image's fiber extrusion
capabilities at its plant in Summerville, Georgia. The Facility Revenue Bonds
and the interest thereon are special, limited obligations of the Authority
payable solely from the revenues and income derived from the Loan Agreement
(as defined herein), which revenues and income have been pledged and assigned
by Image to secure payment thereof, and funds which may be drawn under the
special purpose letter of credit described above. The Facility Revenue Bonds
and the Summerville Loan will mature on September 1, 2017 and the interest
rate of the Facility Revenue Bonds is to be determined from time to time based
on the minimum rate of interest that would be necessary to sell the Facility
Revenue Bonds in a secondary market at the principal amount thereof. The
interest rate on the Summerville Loan equals the interest rate on the Facility
Revenue Bonds. See "Description of Certain Other Indebtedness--Summerville
Loan."
Other Debt. As of August 31, 1997, the Company also had approximately $1.3
million of debt outstanding under various term loans at interest rates ranging
from 6.0% to 13.0%.
Cash Flows. During the six months ended July 31, 1997, operating activities
provided $431,000 compared to $8.3 million for the six months ended July 31,
1996. The decrease in cash provided by operating activities resulted primarily
from an increase in inventories and accounts receivable. The increase in
inventories and accounts receivable was partially due to higher sales of
floorcovering products to franchisees and other carpet retailers. Also
contributing was an increase in accounts payable and accrued expenses relating
to construction in progress.
During fiscal 1997, operating activities provided $17.8 million compared to
a use of $5.2 million for fiscal 1996. The increase in cash provided by
operating activities resulted primarily from a decrease in inventories, which
was principally attributable to substantially reduced raw material unit costs
and reduced raw material quantities. The decrease in inventory was also
partially due to higher sales of floorcovering products to franchisees and
other carpet retailers. Also contributing was an increase in accounts payable
and accrued expenses relating to construction in progress.
During the six months ended July 31, 1997, investing activities used $12.8
million compared to $7.1 million for the six months ended July 31, 1996. The
increase is primarily due to an increase in capital expenditures relating to
manufacturing operations and the purchase of a carpet retailer.
During fiscal 1997, investing activities used $18.7 million compared to
$29.4 million for fiscal 1996. The decrease is primarily due to a decrease in
acquisitions during fiscal 1997, which was partially offset by a $1.9 million
increase in capital expenditures.
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During the six months ended July 31, 1997, financing activities provided
cash of $10.9 million compared to cash used of $2.0 million in the six months
ended July 31, 1996. This increase is primarily due to proceeds received from
the issuance of the Company's Common Stock in a public offering.
During fiscal 1997, financing activities provided cash of $3.1 million
compared to cash provided of $36.5 million in fiscal 1996. This decrease is
primarily due to decreased borrowings during the fiscal 1997 period, in
connection with reduced uses for investing activities and improved cash flows
from operations.
Capital Expenditures. The Company anticipates that it will require
approximately $85 million for the remainder of fiscal 1998 and in fiscal 1999
to (i) open approximately 64 new Gallery stores (assuming approximately 60% of
such stores will be located on Company-owned property and the remainder on
leased property), (ii) reconfigure three existing CarpetMAX stores, (iii)
expand its manufacturing capacity and (iv) upgrade its management information
systems. The Company estimates that capital expenditures to open a new Gallery
store at a leased location will average approximately $100,000, net of
supplier participations and landlord allowances, which average approximately
$75,000 per store. The Company estimates that capital expenditures to open a
Company-owned location will average approximately $1.0 million, net of
supplier participations. Pre-opening expenses will be approximately $50,000
per store. The actual costs that the Company will incur in opening a new
Gallery store cannot be predicted with precision because the opening costs
will vary based upon geographic location, the size of the store, the amount of
supplier contributions and the extent of the build-out required at the
selected site. The Company anticipates that it will require approximately $36
million during the remainder of fiscal 1998 and in fiscal 1999 for capital
expenditures at Image, including approximately $29 million associated with the
expansion of Image's polyester fiber production capacity. The total cost of
this project is expected to be approximately $30 million during the remainder
of fiscal 1998 and fiscal 1999.
The Company believes that the net proceeds from the 144A Notes Offering,
borrowings under the Credit Facility, the Summerville Loan and cash flows from
operating activities will be adequate to meet the Company's working capital
needs, planned capital expenditures and debt service obligations through
fiscal 1999. As the Company's debt matures, the Company may need to refinance
such debt. There can be no assurance that such debt can be refinanced or, if
so, whether it can be refinanced on terms acceptable to the Company. If the
Company is unable to service its indebtedness, it will be required to adopt
alternative strategies, which may include actions such as reducing or delaying
capital expenditures, selling assets, restructuring or refinancing its
indebtedness or seeking additional equity capital. There can be no assurance
that any of these strategies could be effected on satisfactory terms, if at
all.
ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share," effective for fiscal years and interim periods
ending after December 15, 1997. The Company has not evaluated the impact of
this pronouncement on its results of operations.
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BUSINESS
The Company operates and franchises one of the largest floorcovering
distribution networks in North America through two retail floorcovering
concepts: CarpetMAX, a full-service floorcovering store format, and GCO, a
cash-and-carry discount floorcovering store format. In addition, the Company,
through Image, is one of the largest manufacturers of polyester carpeting in
the United States. As a vertically integrated carpet manufacturer and a
leading floorcovering retailer, the Company believes that it is well
positioned to continue its leadership and growth in the approximately $15
billion floorcovering industry. For the twelve months ended July 31, 1997, the
Company's total revenues and EBITDA were $338.9 million and $37.2 million,
respectively.
Since commencing operations in 1991 as a franchisor of floorcovering stores,
the Company has grown its franchise network to include 377 franchise dealers
operating 448 CarpetMAX stores and 101 GCO stores in 49 states. The Company's
fees from franchise services consist of up front membership fees, either
ongoing royalties or product brokerage fees and fees for services such as
advertising and employee training. The rapid growth of the Company's franchise
network resulted in the development of an integrated retail infrastructure,
including store development, marketing, advertising, credit, sales training
and product sourcing resources. In an effort to leverage this retail
infrastructure, the Company began acquiring existing CarpetMAX franchisees in
fiscal 1995 and opening Company-owned stores in fiscal 1996. The Company
currently owns 54 CarpetMAX stores and six GCO stores.
The Company has further developed its full-service retail format to offer
customers a wide selection of competitively priced floorcovering products
through Gallery stores. The Company's Gallery stores are typically 6,500
square feet in size and offer approximately 20,000 SKUs, including an
extensive merchandising mix of carpet, area rugs, hardwood flooring, ceramic
tile, vinyl flooring, laminates and stone. Gallery stores are located in prime
retail locations with high consumer visibility and are staffed with
specialized floorcovering sales associates. Gallery stores offer a wide range
of services, including interior design consulting, measuring, delivery and
installation, and unconditional satisfaction guarantees. The Company's
strategy is to expand its ownership and operation of Gallery stores. The
Company currently operates 18 Gallery stores, including 10 stores which were
converted into Gallery stores from the original CarpetMAX format. For the
twelve months ended July 31, 1997, franchise operations and Company-owned
stores together accounted for 49.3% and 25.0% of the Company's total revenues
and EBITDA, respectively.
Through Image, the Company is one of the largest manufacturers of polyester
carpeting and one of the largest recyclers of PET soft drink bottles in the
United States. The Company converts PET bottles into PET flake and pellet and
polyester fiber which is either sold to third parties or spun into carpet
yarn, the raw material used in manufacturing polyester carpet. Image's
vertically integrated operations provide the Company's retail network with a
captive source of low cost, high quality private label polyester carpeting
with a price advantage relative to competitors. The Company believes that
polyester carpeting, which currently accounts for approximately 6% of
industry-wide carpet sales, will enjoy market share growth because of certain
advantages over other carpet fibers such as nylon, including superior stain
resistance and vibrant coloring. For the twelve months ended July 31, 1997,
Image sold 25.7 million square yards of polyester carpeting through the
Company's retail distribution network (13.7% of total Image sales volume) and
to over 6,000 independent domestic and international retailers and
distributors. For the twelve months ended July 31, 1997, Image accounted for
50.7% and 75.0%, of the Company's total revenues and EBITDA, respectively.
INDUSTRY OVERVIEW
According to Floor Focus, the carpet manufacturing industry has
substantially consolidated since 1986, and the Company believes that the
domestic retail floorcovering industry is also consolidating. For example,
Shaw, the largest domestic carpet manufacturer, has entered the retail
floorcovering market by acquiring independent retailers and building company-
owned stores. The approximately $15 billion floorcovering industry, however,
is still highly fragmented. With over 25,000 companies selling floorcoverings,
independent specialty flooring retailers account for 67.5% of industry sales,
while other vendors such as home centers, furniture stores, department stores
and mass merchants operate stores which account for the remainder of industry
sales. The
42
<PAGE>
typical independent floorcovering retailer operates a single store with
limited product selection and service. As a result, the Company believes that
most independent retailers face distinct competitive disadvantages, including
limited purchasing power for products and services, lack of national brand
name recognition, lack of product breadth and knowledge, and effective asset
management, merchandising, selling and store management techniques. The
floorcovering market consists of three distinct segments: residential
replacement (52% of industry sales, including full service and cash-and-
carry), specified contract (25% of industry sales) and builder (23% of
industry sales).
According to Floor Focus, the carpet manufacturing industry expanded
modestly in 1996 with total industry volume shipments up approximately 1.5% to
$10.0 billion from $9.8 billion in 1995. Floor Focus estimates that the total
value of broadloom carpet sales in 1996 was approximately $8.1 billion. It is
further estimated that polyester, nylon and polypropylene carpet comprised
approximately 6%, 62% and 31%, respectively, of the total carpet market in
calendar year 1996.
The recycled PET industry comprises a portion of the general plastics
recycling industry. The National Association for Plastic Container Recovery
("NAPCOR") reported that the recycled PET industry generated approximately 2.2
billion pounds of PET and high density polyethylene in 1996, of which PET
bottles comprised 48% with approximately 562 million pounds of PET bottles
recycled. However, the recycling rate for PET bottles decreased to 26% in 1996
from 32% in 1995, due to, among other factors, the production of certain types
of PET bottles which are less likely to be recycled. According to NAPCOR,
fiber is the largest use of recycled PET, increasing from approximately 277
million pounds in 1995 to 292 million pounds in 1996. The Freedonia Group, an
international industry study and database company, reports that the U.S.
market demand for recycled PET is expected to grow annually by 11% through the
year 2000 primarily due to expanding markets in fiber application uses in
apparel, carpet and other commercial textiles.
STRENGTHS
The Company believes that its extensive retail network, combined with its
manufacturing operations, positions the Company for continued growth in
revenues and EBITDA. Several of the Company's key business strengths include:
Distinct Retailing Strategies. The Company's retail floorcovering sales are
diversified across the residential replacement, home builder and specified
contract markets. CarpetMAX offers a wide selection of floorcovering products
with a high level of customer service to a broad consumer spectrum, while GCO
offers discount floorcovering products to the cash-and-carry, do-it-yourself
customer. The Company believes that the breadth of its retail network and the
diversity of its targeted customer markets helps to mitigate the impact of
changes in local competitive or economic conditions on revenues.
Significant Product Sourcing Capabilities. The Company's large retail
network provides significant purchasing power which enables the Company to
realize advantageous pricing, delivery terms and merchandising programs. The
Company has established close relationships with major suppliers across all
floorcovering categories. By capitalizing on suppliers' production and
delivery capabilities, the Company offers one of the largest selections of
high quality floorcovering products, generally on a private label and just-in-
time basis, thereby minimizing inventory risk and maximizing retail
profitability. Furthermore, Image's carpet manufacturing capacity provides the
Company with a captive source of high quality carpet products to support its
expanding retail network.
Extensive Retailing Infrastructure. In order to service its retail
floorcovering network, the Company has built an extensive retail
infrastructure, including store development, marketing, advertising, credit
program, sales and management training, and product sourcing resources. The
Company will continue to leverage these resources to support the opening of
new Gallery stores and the expansion of other distribution channels. In
addition, the Company has assembled a strong management team with an average
of more than 10 years of retailing experience.
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Diversified Cash Flow Streams. The Company's established franchise
operations generate stable cash flows, with a low overhead structure, from
brokerage fees earned on CarpetMAX franchisees' purchases, royalties earned on
GCO franchisees' store sales and other related fees for advertising, training
and distribution services. In addition, Image provides a strong and growing
source of cash flow, as it uses the Company's affiliated distribution network
of Company-owned and franchised floorcovering retailers to distribute high
margin, value added polyester carpet. Cash flow generated from franchise
operations and Image's operations provide a stable base to fund capital
expenditures, including the roll-out of Company-owned Gallery stores.
Strong Financial Position. The Company's total revenues and EBITDA have
increased from $122.6 million and $16.6 million, respectively, in fiscal 1994
to $338.9 million and $37.2 million, respectively, for the twelve months ended
July 31, 1997. The Company's strong financial performance has provided it with
the financial flexibility to fund its growth objectives with a combination of
cash flow from operations, proceeds from the issuance of the Company's Common
Stock and bank borrowings.
BUSINESS STRATEGY
The Company's strategic objective is to establish the largest and most
profitable floorcovering distribution network in North America. To achieve
this objective, the Company is pursuing the following strategies:
Expand Company-Owned Store Base. A key element of the Company's growth
strategy is to expand its ownership and operation of Gallery stores by opening
approximately 64 Gallery stores over the next 18 months principally in
existing and contiguous market areas. The Company intends to target areas with
significant new residential building activity or older, more established
communities where remodeling is likely to occur. The Company believes that the
roll-out of Gallery stores will enhance profitability as the Company further
leverages its retail infrastructure.
Expand GCO Franchise Network. The Company's strategy is to expand its
franchise network by adding approximately 25 GCO franchises per year, further
leveraging its retail and manufacturing infrastructure. The Company believes
that the expansion of the GCO franchise network complements the expansion of
the Gallery store base given their alternative operating formats. Further,
with only 70 of the 265 ADIs currently covered by GCO stores, the Company
believes significant growth opportunities exist.
Increase Manufacturing Capacity. In order to capitalize on the increasing
demand for polyester fiber, the Company is in the process of expanding its
fiber extrusion capacity. The additional capacity, which is expected to become
fully operational by the end of calendar 1998, will increase Image's annual
fiber production capacity to 150 million pounds from 100 million pounds. The
additional capacity will enable the Company to continue to optimize Image's
profitability by shifting output from lower margin commodity products such as
PET pellet and flake to higher margin polyester fiber and carpet.
Pursue Selected Acquisitions. The Company believes it is uniquely positioned
to capitalize on the consolidation occurring in the retail floorcovering
industry and thereby further its goal of becoming the largest floorcovering
distribution network in North America. Although the Company's primary focus is
on opening Company-owned Gallery stores, the Company intends to selectively
pursue the acquisition of independent floorcovering retailers in new markets
which offer the potential for the Company to build substantial market share.
In addition, the Company may selectively acquire existing CarpetMAX
franchisees to provide a platform for new store openings.
RETAIL OPERATIONS
CarpetMAX Stores. CarpetMAX stores carry a broad variety of CarpetMAX
private label floorcovering products from leading manufacturers, including
high quality polyester carpets manufactured by Image. In May 1994, the Company
commenced a store acquisition strategy and as of October 31, 1997, the Company
had acquired 14 full-service floorcovering operations currently representing
35 stores operating under the CarpetMAX brand name. In April 1995, the Company
began opening Company-owned CarpetMAX stores and
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as of the date hereof, the Company had opened 14 CarpetMAX stores (10 of which
have been converted into Gallery stores) and eight new Gallery stores. The
Company currently operates 54 CarpetMAX stores, including 18 Gallery stores.
CarpetMAX Flooring Idea Gallery Stores. In November 1996, the Company opened
its first Gallery store, offering an extensive merchandise mix, including
carpet, area rugs, hardwood flooring, ceramic tile, vinyl flooring, laminates
and stone and resilient surfaces, and a wide range of services, including
interior design consulting, measuring, delivery, installation and satisfaction
guarantees. The Company intends to use the Gallery store as its primary growth
vehicle and plans to open approximately 64 Gallery stores during the remainder
of fiscal 1998 and fiscal 1999 in existing, contiguous and targeted new
markets. The Company currently operates 18 Gallery stores, including 10
converted CarpetMAX stores.
The Gallery store provides customers with a "one-stop" shopping experience
for all of their floorcovering needs, catering primarily to consumers seeking
a wide selection of high quality products. The typical Gallery store is free-
standing with 6,500 square feet of retail selling space located in a prime
retail location. Gallery stores feature a race-track design and are outfitted
with innovative merchandising fixtures and displays, attractive in-store
signage, and customer conference and work areas. Gallery stores are designed
to create a more comfortable, enjoyable and productive shopping experience
supported by a well trained professional staff. Each Gallery store displays
approximately 20,000 SKUs of floorcovering products, with departmentalized
product displays dedicated to particular floorcovering products as well as
cross-merchandise displays exhibiting a combination of floorcovering products.
With a greater emphasis on hard surface floorcovering products than its
CarpetMAX store, the Company believes that the Gallery store will meet
increasing consumer demand for alternatives to traditional carpet products.
Georgia Carpet Outlets. GCO operates six discount floorcovering stores under
the name "GCO Carpet Outlets(R)" catering to the cash-and-carry floorcovering
market. GCO stores average approximately 10,000 square feet of retail selling
space and unlike CarpetMAX or Gallery stores, a GCO store maintains all of its
products in inventory. Replacement inventory is provided through the Company's
distribution center in Summerville, Georgia. GCO stores derive more than 70%
of their revenues from the sale of carpet, with the balance consisting of pad,
hardwood and vinyl flooring sales. GCO caters primarily to cash-and-carry
consumers who are price sensitive and do not require the higher levels of
customer service and broad selection of products provided by CarpetMAX stores.
Customers typically include "do-it-yourself" homeowners, home builders, rental
property owners and property managers. In contrast to the full service
operations of the CarpetMAX stores, GCO does not offer delivery or
installation services. Instead, customers requiring these services,
principally installation, are provided a list of recommended independent
contractors. Floorcovering products are sold on a limited warranty basis.
FRANCHISE OPERATIONS
The Company is the largest franchisor of floorcovering stores in the United
States. The Company currently has (i) 101 GCO franchise stores operating in 70
of the 265 ADIs in the United States and (ii) 276 franchise dealers operating
approximately 448 CarpetMAX stores. Because of the different nature of their
business, CarpetMAX and GCO franchisees may be established in the same
territory. The Company markets GCO franchises to CarpetMAX franchisees;
however, the Company does not permit GCO franchisees to use the CarpetMAX
store format and services, the Company's CarpetMAX proprietary marks or to
sell CarpetMAX private label products. Currently there are three franchisees
operating both GCO and CarpetMAX franchises. In addition to GCO and CarpetMAX
franchises, in February 1997, the Company began to offer maxCARE(TM)
franchises to address the increased demand for carpet and upholstery cleaning
services. As of the date hereof, the Company has sold 13 maxCARE franchises.
GCO Franchise Network. The Company generates revenues from GCO franchisees
through both up-front fees from store openings and royalty fees based on store
sales. The GCO franchise fee is $25,000 and each franchisee pays the Company a
royalty at the rate of 5% on the first $500,000 of gross sales and 3% on gross
sales over $500,000 during a year. The GCO franchise agreement requires
franchisees to purchase all advertising
45
<PAGE>
media services from the Company and to spend approximately 5% to 15% of
budgeted gross revenues per quarter on such services. To serve the needs of
its franchisees, the Company has continued to expand the scope of services
available to GCO franchisees. The Company now offers services relating to site
selection, merchandising, advertising and promotion, management and sales
training, credit, information systems and other store operations.
GCO franchisees have the exclusive right to use the GCO business concept and
service marks, logos, slogans and other identifying features within a specific
geographic area (the "Exclusive Territory"). Provided that the franchisee is
not in default, the Company may not grant more than one GCO franchise within
an Exclusive Territory, nor may the Company or any affiliate of the Company
operate a Company-owned discount floorcovering store using the licensed marks
or the GCO franchise system within an Exclusive Territory without the
franchisee's consent. Major metropolitan market areas, however, may be divided
into a number of Exclusive Territories. GCO franchise agreements have a term
of 10 years, may be renewed for two additional consecutive terms of five years
and may be terminated by (i) the franchisee in the event that the Company
breaches the franchise agreement or (ii) the Company upon the occurrence of
certain events of default as set forth in the franchise agreement.
CarpetMAX Franchise Network. The Company generates revenues from CarpetMAX
franchisees through three primary sources: franchise fees, brokerage fees from
franchisees' purchases of floorcovering products and additional services
provided on a fee basis. The current one-time franchise fee payable by a new
CarpetMAX franchisee is $35,000. The CarpetMAX franchise agreement requires
franchisees to purchase at least 50% of their floorcovering products through
suppliers designated by the Company on which the Company earns a brokerage fee
paid by the supplier. In addition to having better and lower cost access to
industry floorcovering products, CarpetMAX franchisees also have access to
CarpetMAX private label products and specials. Additional services, including
customized merchandising programs, advertising and promotion, credit and
training programs are offered on a fee-for-service basis.
CarpetMAX franchisees have the exclusive right to use the CarpetMAX business
concept and service marks, logos, slogans and other identifying features
within a specific geographic area (the "Exclusive Area"). Provided that the
franchisee is not in default, as defined in the franchise agreement, the
Company may not grant more than one franchise within an Exclusive Area, nor
may the Company or any affiliate of the Company operate a Company-owned store
within an Exclusive Area without the franchisee's consent. Major metropolitan
market areas, however, may be divided into a number of Exclusive Areas.
CarpetMAX franchise agreements have an indefinite term and generally may be
terminated by (i) the franchisee in the event that the Company breaches the
franchise agreement or, within three days of execution of the franchise
agreement, the franchisee disapproves of the initial price list provided to
the franchisee for the various floorcovering products and services provided by
the Company or (ii) the Company upon the occurrence of certain events of
default as set forth in the franchise agreement.
maxCARE Franchise Network. Under the maxCARE System, franchisees offer
carpet and upholstery cleaning and related services to both individuals and
businesses. These services are provided using a proprietary maxCARE carpet
cleaning machine which is mounted in a van bearing the Company's distinctive
colors and signage. Each maxCARE franchisee receives an exclusive operating
territory, which is typically one or more counties within a state, where such
franchisee is required to offer the products and services specified by the
Company. The Company expects a significant number of maxCARE franchises will
be operated by CarpetMAX franchisees or other entities who currently operate
retail businesses that are complementary with the services offered by maxCARE
franchises. Each maxCARE franchisee is required to purchase certain products
from the Company and may purchase services from several of the Company's
divisions including Maxim Marketing and Humax. Each franchisee must pay an
initial franchise fee based upon the population in the franchisee's operating
territory, with a minimum initial franchise fee of $12,500. maxCARE franchise
agreements have a term of 10 years, may be renewed for one additional term of
10 years and may be terminated by (i) the franchisee in the event that the
Company breaches the franchise agreement or (ii) the Company upon the
occurrence of certain events of default as set forth in the franchise
agreement.
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<PAGE>
In addition to the initial franchise fee, all maxCARE franchisees must
purchase one or more MaxMaster Systems from the Company before they begin
operations. The MaxMaster System includes (i) the MaxMaster carpet cleaning
machine, which is mounted in a specially equipped van and (ii) an accessory
packet which is installed in the van and which includes upholstery wands, a
maintenance kit, hoses, fresh water tank, chemical shelf, storage box arranger
and other accessories. All franchisees must pay a royalty of between 4% to 6%
of their gross sales, subject to a minimum monthly royalty payment of $200 per
month during the first year, with minimum monthly royalty increases of $200
per month during each successive year, up to a maximum of $1,000 per month
during the fifth year and thereafter. All franchisees must contribute 2% of
gross sales to a national advertising fund administered by the Company and
must spend not less than 8% of gross sales on local advertising.
RETAIL INFRASTRUCTURE
Supplier Relationships. The Company believes it obtains high quality
products at a low cost due to the collective purchasing volume of the
Company's retail network and its relationships with major floorcovering
suppliers. The ability of the Company to purchase and inventory private label
products creates significant buying opportunities. In addition, the Company's
use of its suppliers' efficient distribution networks permits it to maintain
low inventory levels.
In addition to Image's carpet products, the Company offers a full range of
floorcovering products from other leading manufacturers. The following table
lists the Company's major suppliers of certain of its floorcovering products.
<TABLE>
FLOORCOVERING PRODUCTS MANUFACTURER
---------------------- ------------
<S> <C>
Broadloom Carpet...... Shaw Industries, Inc., Mohawk Industries, Inc.,
Milliken & Co., Beaulieu of America, Inc., Queen Carpet
Corporation and World Carpet, Inc.
Vinyl Flooring........ Armstrong World Industries, Inc., Mannington Resilient Floors, Inc.
and Congoleum Corporation
Hardwood Flooring..... Bruce Hardwood Floors and Hartco Hardwood Floors (each a division
of Triangle Pacific Corporation) and Harris-Tarkett, Inc.
Ceramic Tile.......... American Marazzi Tile, Inc. and Dal-Tile International
Laminates............. Perstorp Flooring AB (Pergo), Wilsonart International, Inc. (a division of
PreMark International) and Duralast (a division of Mills Pride Company)
</TABLE>
Each of these suppliers is one of the leaders in its respective floorcovering
category. The Company's suppliers also include niche carpet, vinyl, hardwood,
laminates and ceramic tile producers worldwide, as well as leading
manufacturers and importers of area rugs and other decorative floorcovering
products.
Advertising and Promotion. The Company, through its in-house, state-of-the-
art production facilities, develops and offers to its retail network high
quality, creative marketing and promotion programs, including television,
radio, print and direct mail campaigns, sales literature and point-of-purchase
programs. The Company maintains on-site multi-track audio recording studios, a
television production facility and full-service media department, and has
produced advertising campaigns nationwide. The Company believes that it
obtains economies of scale in advertising production and media placement that
are unavailable to smaller retailers. Customized advertising packages are
available to franchisees at lower rates than those charged by most advertising
or production companies.
To further expand and develop the national brand awareness of CarpetMAX
floorcovering products and services, the Company has utilized a comprehensive
national and regional marketing strategy that emphasizes
47
<PAGE>
electronic and paper media, including television and newspaper circulars. The
Company has recently placed a greater emphasis on national media campaigns,
such as TV and magazines. In conjunction with the Gallery store roll-out, the
Company launched nationwide CarpetMAX advertisements in national magazines
such as Architectural Digest, Women's Day, Ladies Home Journal, Better Homes
and Gardens, and House Beautiful featuring CarpetMAX product selection,
quality, pricing and satisfaction guarantee as well as the Company's
commitment to superior customer service.
Retail Management and Sales Training. The Company focuses on enhancing
retail productivity by applying proven techniques to train its store managers
and sales representatives. All Company-owned store management, sales and
operating personnel receive intensive training in a variety of areas ranging
from product knowledge to sales and service techniques. The Company offers a
variety of training programs to its CarpetMAX franchisees on a fee basis.
These programs range from daily classes to intensive one-week programs. All
store personnel, whether at Company-owned stores or franchise stores, receive
a comprehensive training and orientation program which emphasizes the
Company's advertising and marketing support, proprietary credit program, store
operations, general business practices and inter-company operations.
To further enhance its training capabilities, the Company utilizes an
interactive digital video and audio satellite communications system with 170
down-links. The training system utilizes interactive communication
capabilities to broadcast training and merchandising programs to Company-owned
store locations and participating CarpetMAX franchise dealers. Broadcasts
include information on sales training, new technology, new products,
merchandising, available specials and design trends.
Site Selection and Store Development and Design. The Company has an in-house
store development department with responsibility for site selection, contract
negotiation and build-out of Company-owned and franchised GCO stores to
accelerate store openings and minimize opening costs. In locating sites, the
store development department evaluates the economic conditions, demographics,
growth and customer base of potential markets as well as possible competition.
The Company also targets areas with significant new residential building
activity or older, more established communities where remodeling is likely to
occur. Within each market, the Company seeks to locate Gallery stores in prime
retail locations with high consumer visibility. The Company's strategy is to
open multiple stores within each market to achieve management, operating and
advertising efficiencies and to create barriers to competitive entry or
expansion. In addition to performing internal market analysis, the Company has
used a nationally recognized market research group to validate internal
forecasts and to conduct additional market studies based on specific criteria
established by the store development department. Using its construction and
development expertise, the store development department will also coordinate
the redesign of certain of the Company-owned CarpetMAX stores into, or to be
consistent with, the Gallery store. See "--Retail Operations--CarpetMAX
Flooring Idea Gallery Stores." The interior store design includes pre-
determined product mix merchandised principally through samples rather than in
stock inventory, fixtures and display systems, and point-of-sale merchandising
signage and promotional materials. Once a new store site is identified, the
Company will stage the products and merchandising systems for the new store in
its distribution center and headquarters.
Management Information Systems. Company-owned stores are currently operating
their businesses with the information systems which were in place at the time
of acquisition by the Company. Using its current information systems, the
Company obtains information on a weekly basis detailing each of its Company-
owned store's sales, expenses, close ratios and various other data relating to
store operations that the Company requires for the efficient management of its
retail stores. The Company has worked with a nationally recognized information
technology consulting firm to develop a proprietary point-of-sale system for
tracking consumer demographics and purchasing patterns, and integrating store
operations and financial data into the Company's central information system.
Installation of the new information system began in August 1997 and the
Company expects to complete implementation of the system by the end of
calendar 1999.
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<PAGE>
BUILDER AND SPECIFIED CONTRACT OPERATIONS
To expand market share and enhance its management expertise in the builder
market of the floorcovering industry, the Company has acquired companies with
excellent reputations in the builder market, including Tri-R, a CarpetMAX
franchisee with a presence in the Orlando, Florida area builder market. The
Company services the builder market primarily in local areas where it has
established regional service centers and a base of CarpetMAX stores. By
leveraging the established infrastructure available in these local markets,
the Company seeks to utilize its extensive merchandise mix, product displays,
sales personnel and customer service capabilities to cater to the builder
customer's needs. Through the recent acquisition of a leading company in the
Tennessee specified contract market, the Company is developing its presence in
the specified contract market of the floorcovering industry. The specified
contract business caters primarily to the floorcovering requirements of larger
commercial customers. The Company serves specified contract customers from the
project specification stage through securing, delivering, installing and
maintaining the floorcovering product.
CUSTOMER SERVICE
The Company seeks to differentiate itself from other independent and large
retailers through its service offerings. Accordingly, CarpetMAX and Gallery
stores offer retail customers the following services:
Interior Design and Product Selection. CarpetMAX and Gallery sales
professionals assist customers in all aspects of making a floorcovering
selection (including assessment of interior design preferences), coordination
with other home furnishings and decorating preferences, and product layout and
measuring. To ensure customer satisfaction, the Company offers a 30-day
unconditional satisfaction guarantee. CarpetMAX sales professionals seek
opportunities to visit a customer's home or commercial location to verify
proper installation and to identify additional sales opportunities.
Delivery and Installation. CarpetMAX and Gallery stores rely on local
contractors for the installation of floorcovering products. Because
installation is often the Company's final contact with customers, the Company
has recently developed the "Ten Point Must System," a merit-based training
program for its installation subcontractors, to guarantee consistent high
quality installation service. Points are earned under the Ten Point Must
System by satisfying various requirements including (i) attending classes
devoted to increasing the subcontractors' knowledge of the Company's
floorcovering products and services, (ii) complying with a standardized dress
code, and (iii) the absence of customer complaints.
Consumer Credit Program. The Company, in affiliation with a national
provider of consumer financing, began offering consumer credit to its
customers in November 1996. This consumer credit program is marketed as the
"Wall-to-Wall" credit program and is exclusively for the use of the Company's
CarpetMAX and Gallery stores and participating franchisees. The Company
believes these credit programs enhance closing ratios and lead to higher
average ticket purchases. The Company uses a pre-approved listing service
which enables CarpetMAX and Gallery stores to solicit sales from 100% credit
pre-approved potential customers. With 60-day, 90-day, 6-month and 12-month
interest-free programs, plus open- and closed-end revolving credit packages,
the Company offers a variety of credit plans to its customers. For the six
months ended July 31, 1997, approximately 10% of the Company's retail sales
were to customers who financed their purchases through the Wall-to-Wall credit
program. The Company also offers longer term (up to three years) third-party
consumer credit financing for its customers. The Company is not contingently
liable for the credit extended and receives a percentage of interest
attributable to accounts outstanding.
CARPET MANUFACTURING OPERATIONS
On August 30, 1996, a wholly-owned subsidiary of the Company merged with
Image, a leading manufacturer of polyester carpet, to establish a captive
source of low cost, high quality private label polyester carpeting with a
price advantage relative to its competitors due to its vertically integrated
operations. Image is vertically integrated from the recycling of PET bottles
and other post-consumer and post-industrial PET waste
49
<PAGE>
materials through the manufacturing of polyester fiber and carpet products.
The ability of the Company to manufacture high quality polyester carpet
enables the Company and its franchisees to offer lower prices and obtain
higher margins than they might otherwise be able to obtain.
Carpet Manufacturing. Image began manufacturing carpets in 1976 primarily
for the residential market. Image designs, manufactures and markets 57 carpet
styles and maintains approximately 1,400 SKUs consisting of a range of colors,
densities and textures. Image's carpet manufacturing operations include yarn
spinning, tufting, dyeing and finishing operations. The principal raw
materials used in Image's carpet manufacturing operations are polyester fiber,
synthetic backing materials and various dyes and chemicals. Although the
Company currently has the capacity to convert approximately 70.0 million
pounds of fiber into polyester carpet annually, in fiscal 1997 the Company
converted only 57.6 million pounds of fiber into carpet. The Company intends
to manufacture additional polyester carpet by utilizing this additional
capacity.
During fiscal 1997, Image purchased recycled PET from approximately 360
suppliers for conversion into clean PET resin. Image extrudes clean PET resin
into polyester fiber, which it spins into carpet face yarn. Image's yarn
spinning mills produce either spun polyester yarn or polyester/nylon blended
yarn primarily from the polyester fiber produced internally. The staple fiber
is drawn until the desired size is produced, and then the ends are twisted
together to create a continuous strand. After twisting, the yarn is then heat-
set and wound onto cones. Image's spinning mills currently have a total
production capacity of approximately 45 million pounds of spun yarn per year.
Additional yarn spinning conversion is performed on a contract basis by
several third-party contractors with whom Image enjoys a long-term
relationship.
The yarn produced in Image's spinning mills is then tufted into undyed and
unfinished carpet and later dyed and finished into one of the Company's
various carpet styles. The process of tufting involves needling the yarn into
a primary backing at the desired pile height. This process produces a large
roll of undyed carpet. Image has tufting capacity of approximately 27.0
million square yards per year. Image utilizes a sophisticated dyeing system
which involves the placing of a roll of carpet in a heated, pressurized
chamber containing water, chemicals and dyes. Image dyes carpet manufactured
from both clear and green polyester fiber into a wide variety of colors. Image
currently has dyeing capacity of approximately 27.0 million square yards per
year. After dyeing, the carpet is ready for the final processes required to
convert tufted and dyed rolls into a finished product. The rolls receive an
application of adhesive, a sturdy secondary backing, and are dried or "cured"
through the circulation of heated air in a finishing oven. A small amount of
fiber is then sheared from the top of the carpet, and the rolls receive a
final inspection. Image has finishing capacity of approximately 30.0 million
square yards per year.
Image converts approximately 52% of its clean PET into polyester carpet. The
balance is sold as PET flake and pellet to producers of packaging and other
materials or converted into polyester fiber and sold to home furnishings
producers. During fiscal 1997, a total of 59 companies purchased approximately
32.6 million pounds of fiber and PET produced by Image. Over the next 12
months, Image expects to install an additional recycling and extrusion line
capable of extruding 50.0 million pounds of staple polyester fiber annually.
Carpet Marketing and Sales. Image has positioned its products in the medium
price range for carpets sold domestically and in the low price range for
carpets sold internationally and emphasizes quality, style and service. Image
markets its carpets domestically and internationally through a direct sales
force of approximately 66 full-time sales representatives and eight
independent sales agents. Image's carpets are sold through over 6,000
independent retailers and distributors. Following its merger with a wholly-
owned subsidiary of the Company in August 1996, the Company significantly
expanded the marketing of Image's carpets by offering and selling a greater
amount of Image's carpets through its CarpetMAX network and GCO stores.
COMPETITION
Competition in the retail floorcovering market is intense due to the
significant number of retailers in operation. In December 1995, Shaw, the
world's largest carpet manufacturer, announced its decision to move
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<PAGE>
into the retail floorcovering sector. Pursuant to this strategy, Shaw has
acquired Carpetland USA, Inc., New York Carpet World, Inc. and several other
prominent dealers and has opened a number of retail stores such that Shaw has
become a major competitor. In addition, large retailers also provide
significant competition, including The Home Depot, Inc., Lowe's Corporation
and Sears, Roebuck & Co. The principal areas of competition within the retail
floorcovering industry include store location, product selection and
merchandising, customer service and price. The Company believes that there are
two primary competitors to its CarpetMAX franchise business: Carpet One and
Abbey Rug, two buying cooperative associations. The Company distinguishes
itself from its competition by directly offering a full range of services to
its members in addition to the traditional services of purchasing and
merchandising. Management believes that the Company's competitors subcontract
most services (except floorcovering purchasing) to outside vendors.
The Company's carpet manufacturing business competes with other carpet
manufacturers and manufacturers of alternative floorcoverings such as wood or
tile. Certain of the Company's competitors in the carpet manufacturing
business have greater financial and other resources than the Company. The
carpet manufacturing industry currently has one dominant participant, Shaw,
whose 1996 sales were estimated to represent approximately 28% of the total
industry sales. In addition, carpet sales by Mohawk Industries, Inc. in 1996
were estimated to represent approximately 18% of the total industry sales.
Carpet manufacturers also face competition from the hard surface floorcovering
industry. The principal methods of competition within the carpet manufacturing
industry are price, style, quality and service. In both the residential and
commercial markets, price competition and market coverage are particularly
important because of the relatively small differentiation perceived among most
competing product lines.
PROPERTIES
In June 1995, to accommodate a growing distribution and retail business, the
Company relocated its entire corporate staff and distribution center to a
150,000 square foot facility on a 13 acre site in Kennesaw, Georgia, a suburb
of Atlanta. The Company stores inventory and distributes products to its
retail floorcovering network from this facility. The Company previously
occupied a 62,000 square foot building in nearby Marietta, Georgia. The
Marietta facility is currently being leased to an unrelated third party.
As of October 31, 1997, the Company also leased 60 facilities, through which
it conducts its retail operations.
The executive offices of the Company's manufacturing subsidiary, Image, are
located in Armuchee, Georgia. In addition, plants are located in Georgia,
Alabama and South Carolina. The following is a summary of the plants and other
properties owned or leased by Image:
<TABLE>
<CAPTION>
APPROXIMATE
ENCLOSED
AREA
(SQUARE
IMAGE LOCATIONS PRIMARY USE FEET)
--------------- ----------- -----------
<S> <C> <C>
Armuchee, Georgia(a).... Executive Office, Carpet Tufting, 232,000
Finishing and Storage
Calhoun, Georgia(b)..... PET Storage 92,000
Lylerly, Georgia(b)..... PET Storage 54,000
Rome, Georgia(a)........ Carpet Dyeing and Sample Processing 216,000
Rome, Georgia(b)........ PET Storage 140,000
PET Storage 41,000
Rome, Georgia(a)........ Yarn Spinning 211,000
Shannon, Georgia(a)..... Finished Carpet Storage and Distribution 308,000
Summerville, Georgia(a). PET Sortation, Granulation, Washing, Fiber 366,000
Fiber Extrusion and PET Pellet
Extrusion, Storage and Shipping
Talladega, Alabama(a)... Yarn Spinning 82,000
Melville, New York(b)... PET Purchasing Office 425
Dillon, South
Carolina(a)............ Yarn Spinning 102,000
</TABLE>
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- --------
(a) These plants are owned, with the exception that the plant in Summerville,
Georgia is leased pursuant to a capital lease from the Authority. Image
has the option to purchase the Summerville plant, which includes 14 acres,
for $100 upon expiration of the lease in 2003. These plants include owned
approximate acreages as follows: 168 acres at Armuchee, Georgia; 20 acres
at Rome, Georgia (carpet dyeing); 48 acres at Rome (yarn spinning); 10
acres at Talladega, Alabama; 12 acres at Dillon, South Carolina; 44 acres
at Summerville, Georgia; and 35 acres at Shannon, Georgia.
(b) These facilities are leased under leases which expire within the next
three years. Management believes that these leases can be renewed on
substantially the same terms and conditions as the existing leases.
TRADEMARKS, SERVICE MARKS, TRADE NAMES AND COMMERCIAL SYMBOLS
The Company has registered a number of marks with the U.S. Patent and
Trademark Office including CARPETMAX(R), CARPET MAX(R), CARPETMAX THE NATIONAL
CARPET EXCHANGE(R), MAKING A WORLD OF DIFFERENCE(R) and CARPETMAX Making a
World of Difference(R). The Company has also applied for registration of
several other marks including carpetMAX Flooring Idea Gallery(TM), maxCARE(TM)
and maxCARE-Professional Cleaning Systems(TM). GCO has registered a number of
marks with the U.S. Patent and Trademark Office, including GCO(R) and GCO
CARPET OUTLETS(R). GCO also uses a number of service marks in association with
its standard GCO franchise including a word mark consisting of the words "GCO
Carpet Outlets(TM)" and design and word marks consisting of "GCO Carpet
Outlets(TM)" or "Georgia Carpet Outlets(TM)." Image uses several trademarks in
the marketing of its polyester fiber and carpet, including Duratron(R),
Duratron Gold(TM), Image Resist-Gard(R), Resistron(R), Ecolon(R), Permalon(R),
Enviro-Tech(R), Image(TM) and Classique(R).
There are no infringing uses actually known to the Company which could
materially affect the Company's use of the service marks, logos or slogans in
any state in which the Company is, or is proposed to be, located. There are no
patents or copyrights relevant to the Company and the Company is not the owner
or licensee of any patent or copyrights relevant to the franchise.
EMPLOYEES
As of August 31, 1997, the Company employed approximately 2,600 persons,
including approximately 900 persons at its retail operations and approximately
1,700 persons at its manufacturing operations. No employee is a party to any
collective bargaining agreement and the Company believes that its relationship
with its employees is good.
GOVERNMENTAL REGULATION
The Company is subject to Federal Trade Commission ("FTC") regulations
governing the offer and sale of franchises. The FTC's Trade Regulation Rule on
Franchising (the "FTC Rule") requires the Company to furnish to prospective
franchisees a franchise offering circular containing certain information
prescribed by the FTC Rule.
State laws that regulate the offer and sale of franchises and the
franchisor-franchisee relationship currently exist in a substantial number of
states. Such laws generally require registration of the franchise offering
circular with state authorities prior to the offer or sale of franchises and
regulate the franchise relationship by, for example, requiring the franchisor
to deal with its franchisees in good faith, prohibiting misrepresentations and
interference with the right of free association among franchisees, limiting
the imposition of standards of performance on a franchisee and regulating
discrimination against franchisees in charges, royalties or fees. Although
such laws may restrict a franchisor in the termination of a franchise
agreement by, for example, requiring "good cause" to exist as a basis for the
termination, advance notice to the franchisee of the termination, an
opportunity to cure a default and a requirement to repurchase inventory or
other compensation, these provisions have not had a significant effect on the
Company's franchise operations.
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<PAGE>
The Company is not aware of any pending franchise legislation which in its
view is likely to have a material adverse effect on the operations of the
Company. The Company is aware, however, that various legislative proposals
have been or are being debated at both the state and federal levels which
could result in new laws regulating the offer and sale of franchises and other
aspects of the franchisor-franchisee relationship. It is possible that such
legislation, if enacted, could adversely affect the Company's franchise
operations. The Company believes, however, that its operations comply in all
material respects with current federal and state franchise regulations.
The Company is also subject to numerous existing and proposed state and
federal laws and regulations designed to protect the environment from wastes
and emissions of hazardous substances. Management believes it is either in
material compliance with all currently applicable laws and regulations or is
acting in accordance with the appropriate variances or similar arrangements.
The Company believes that compliance with current laws and regulations will
not require significant capital expenditures or have a material adverse effect
on its operations. However, the enactment of new or expanded environmental
regulations could adversely affect the Company's operations.
Each Company-owned store and franchise location is subject to licensing and
regulation by a number of governmental authorities, which may include health,
sanitation, safety, fire, building and other agencies in the state or
municipality in which the business is located. Difficulties in obtaining or
failure to obtain the required licenses or approvals could delay or prevent
the procurement of new Company store sites or franchises in a particular area.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a
party or of which any of its properties are subject; nor are there material
proceedings known to the Company to be contemplated by any governmental
authority; nor are there material proceedings known to the Company in which
any director, officer or affiliate or any principal security holder of the
Company, or any associate of any of the foregoing is a party or has an
interest adverse to the Company.
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MANAGEMENT
The following table sets forth certain information regarding the executive
officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<C> <C> <S>
M.B. Seretean.............. 73 Chairman of the Board
President, Chief Executive Officer and
A.J. Nassar................ 41 Director
James W. Inglis............ 54 Chief Operating Officer, Senior Executive
Vice President and Director
Senior Executive Vice President and Director;
H. Stanley Padgett......... 50 President of Image
Executive Vice President, Finance and
Thomas P. Leahey........... 36 Treasurer
Sandra Fowler.............. 35 Executive Vice President, Administration
Herbert A. Biggers......... 47 Executive Vice President, Operations
H. Gene Harper............. 36 Chief Financial Officer and Secretary
David E. Cicchinelli....... 45 Director
Richard A. Kaplan.......... 52 Chairman Emeritus and Director
J. Michael Nixon........... 52 Director
Herb Wolk.................. 65 Director
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS
The following persons serve as the directors and executive officers of the
Company:
M.B. Seretean has served as a Director of the Company since September 1993
and as its Chairman of the Board since February 1995. Mr. Seretean was a
founder of Coronet Industries, Inc., a carpet manufacturer, in 1956 and served
as its President and Chairman of the Board until his retirement in 1987. Mr.
Seretean serves as a director of Trend Laboratories, Inc., a cosmetics
company. He is a former director of RCA Corporation, Turner Broadcasting
Corporation, the Atlanta Hawks and the Atlanta Braves.
A. J. Nassar has served as President, Chief Executive Officer and a Director
of the Company since December 1990. From 1986 to 1990, Mr. Nassar served as
Vice President and Chief Operating Officer of Kenny Carpet and Linoleum, Inc.,
a multistore retail carpet chain in western New York. He was previously
employed in the carpet manufacturing industry by Trend Carpet Mills and Queen
Carpet Mills, where he was responsible for sales of floorcovering products to
floorcovering retailers. Mr. Nassar also serves as a director of North
Atlantic Acquisition Corp.
James W. Inglis has served as Chief Operating Officer, Senior Executive Vice
President and as a Director of the Company since May 1996. From 1983 to 1996,
Mr. Inglis served in various capacities with The Home Depot, Inc., a home
improvement retailer, including most recently as its Executive Vice President
of Strategic Development and as a member of its board of directors. Mr. Inglis
serves as a director of K&G Men's Center, Inc., a clothing retailer.
H. Stanley Padgett has served as a Senior Executive Vice President and
Director of the Company since August 1996. Since joining Image in 1976, Mr.
Padgett has served as Vice President of Manufacturing and Vice President of
Operations of Image prior to becoming its President and Chief Executive
Officer in July 1990. Mr. Padgett has been a member of the Board of Directors
of Image since September 1990. Mr. Padgett was elected to the Board of
Directors of the Company in August 1996 in accordance with the terms of the
merger agreement with Image.
Thomas P. Leahey has served as Executive Vice President, Finance of the
Company since August 1993 and as Treasurer since July 1994. Mr. Leahey was
employed by the Wachovia Bank of Georgia, N.A. from September 1991 to August
1993 as a Vice President in the Corporate Banking Division. Mr. Leahey's
banking career began in January 1984 and included service with Barnett Bank of
Central Florida, N.A. and, from March 1987 to July 1991, with Fleet/Norstar
Financial Group.
54
<PAGE>
Sandra Fowler has served as Executive Vice President, Administration of the
Company since September 1993. From 1982 to September 1993, Ms. Fowler served
in various capacities with Shaw, the nation's largest carpet manufacturer,
including Manager of Corporate Accounts, where she acted as the liaison
between that company and its corporate customers in all areas, ranging from
sales to administration.
Herbert A. Biggers has served as Executive Vice President, Operations of the
Company since August 1997 and as President of CarpetMAX Retail from April 1997
to August 1997. From July 1996 to April 1997, Mr. Biggers served as the
Company's Senior Vice President of Retail Operations. Mr. Biggers was a
General Manager in the Expo division of The Home Depot, Inc. from January 1994
to October 1995, and the President and Chief Executive Officer of Hancock Park
Associates from 1988 to 1994. Mr. Biggers' retail experience includes
positions of Chief Operating Officer of Seattle Lighting Corporation, the
President and Chief Executive Officer of Forecast Lighting, Inc., and
President and Chief Executive Officer of Homestead Fan Company.
H. Gene Harper has served as Chief Financial Officer and Secretary of the
Company since September 1994. Mr. Harper was employed by KPMG Peat Marwick LLP
from 1983 to September 1994 as a senior manager in the audit department.
David E. Cicchinelli has served as a director of the Company since October
1997. Mr. Cicchinelli has served as the President and Chief Executive Officer
of Color Tile, Inc., a retail floorcovering company, since April 1996. Prior
to joining Color Tile, Inc., Mr. Cicchinelli served as the President and Chief
Operating Officer of Carpetland USA, Inc., a retail floorcovering company,
from 1984 to April 1996.
Richard A. Kaplan has served as Chairman Emeritus of the Company since
February 1995 and served as Chairman of the Board of the Company from 1989 to
February 1994. Mr. Kaplan founded the Company in 1989. Mr. Kaplan has also
served as Chairman of the Board of Worksmart International, Inc., a personnel
consulting company, since 1995. Mr. Kaplan served as Chairman of the Board of
Richland Industries Corp., a retail floorcovering chain based in Rochester,
New York, from 1972 to 1995.
J. Michael Nixon has served as a Director of the Company since February
1996. Mr. Nixon has served as the President and co-owner of Q.I. Corporation,
a building materials contractor, since 1967.
Herb Wolk has served as a Director of the Company since 1991. Mr. Wolk is
the owner and President of Cadillac Carpet Distributors and has served in
various capacities with that Company since 1976. Mr. Wolk is the Chairman-
elect of the American Floorcovering Association.
KEY EMPLOYEES
Each of the following persons is a key employee, but not an executive
officer of the Company.
Ben S. Wu, age 46, has served as Senior Vice President of Real Estate
Operations of the Company since July 1996. Prior to joining the Company, Mr.
Wu served the McDonald's Corporation from 1990 to 1996, most recently as
Senior Real Estate Manager responsible for the Southern California market. Mr.
Wu also served as the Director of Real Estate and Licensing for McDonald's
China Development Company in Hong Kong.
Cristina L. Smith, age 33, has served as Vice President of Marketing of the
Company since November 1996. Prior to joining the Company, Ms. Smith was a
Marketing and Advertising Manager for the Expo division of The Home Depot,
Inc. from March 1995 to November 1996. She began her retail marketing career
with Mercantile Corporation in 1987 as a Computer Graphic Designer and left as
Director of Newspaper Advertising and Catalogs to join Pet Stuff in 1993,
where she served as the Creative Director until March 1995.
Paul R. Renn, age 42, has served as Director of the Company's Idea Gallery
Store program since June 1996. Mr. Renn served as Retail Regional Manager of
the Company from October 1995 through June 1996. Prior to joining the Company,
Mr. Renn served as a franchise sales person for Abbey Carpet from April 1995
to October 1995, and as a general manager for The Carpet Exchange, Inc., a
retail floor covering company, from 1989 to 1995.
55
<PAGE>
EXECUTIVE COMPENSATION
The following table provides certain summary information for fiscal 1997,
1996 and 1995 concerning compensation paid or accrued by the Company to or on
behalf of the Company's Chief Executive Officer and the other executive
officers of the Company whose total annual salary and bonus exceeded $100,000
during fiscal 1997 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------- ------------
OTHER NUMBER OF
NAME AND ANNUAL OPTIONS OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(A) AWARDED COMPENSATION
------------------ ---- -------- ------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
A.J. Nassar............. 1997 $229,479 $ -- $2,295 200,000 --
President and Chief 1996(b) 165,456 25,000 1,654 142,400(c) --
Executive Officer 1995 205,750 -- 1,653 110,000(d) --
James W. Inglis......... 1997(e) $175,176 $ -- $ -- 200,000 $116,250(f)
Chief Operating Officer
H. Stanley Padgett...... 1997(g) $170,200 $ -- $ -- -- --
Senior Executive 1996(h) 284,200 -- -- -- --
Vice President 1995(i) 262,500 20,000 -- -- --
Larry M. Miller(j) ..... 1997(g) $138,500 $ -- $ -- -- --
1996(h) 231,900 -- -- -- --
1995(i) 212,500 20,000 -- -- --
</TABLE>
- --------
(a) Represents the Company's matching contribution under its 401(k) plan.
(b) Represents compensation for the ten month period ended January 31, 1996,
which period was the result of a change in the fiscal year end of the
Company from March 31 to January 31.
(c) Includes options to purchase 40,000 shares of Common Stock which were
subsequently canceled.
(d) Includes options to purchase 62,400 shares of Common Stock which were
subsequently canceled.
(e) Mr. Inglis joined the Company in May 1996.
(f) Represents the discount to fair market value in connection with the
purchase by Mr. Inglis of 50,000 shares of Common Stock from the Company
in May 1996.
(g) Amounts indicated include compensation paid to Messrs. Miller and Padgett
by (i) the Company and Image subsequent to the acquisition of Image by the
Company on August 30, 1996 and (ii) Image for the period from June 30,
1996 to August 30, 1996.
(h) Represents compensation paid to Messrs. Miller and Padgett by Image for
its fiscal year ended June 29, 1996.
(i) Represents compensation paid to Messrs. Miller and Padgett by Image for
its fiscal year ended July 1, 1995.
(j) Mr. Miller served as a Senior Executive Vice President of the Company and
on the Board of Directors of the Company until August 1997.
EMPLOYMENT AGREEMENTS
On June 4, 1997, the Company entered into an Employment Agreement with A.J.
Nassar, pursuant to which Mr. Nassar will serve as Chief Executive Officer of
the Company. The Employment Agreement is for a term of three years, expiring
on June 4, 2000, and provides for an annual base salary of $400,000 plus an
annual bonus of $200,000 for each fiscal year in which the Company attains
certain earnings targets established by the Board of Directors. The Employment
Agreement will automatically renew unless it is earlier terminated or either
the Company or Mr. Nassar elect not to renew the Employment Agreement. The
Employment Agreement provides for certain severance payments to be paid to Mr.
Nassar in the event of a change in control of the Company. In the event of a
change in control, Mr. Nassar will be entitled, during the term of his
Employment Agreement, to
56
<PAGE>
terminate his employment with the Company and, subject to certain adjustments,
to receive a lump sum cash payment equal to two years' salary, as well as 12
months' provision of employee benefits and a pro rata portion of his annual
bonus. In the event Mr. Nassar is terminated by the Company without cause, he
will receive during the balance of his term of employment (not to exceed 24
months), the annual base salary which would otherwise be payable to Mr. Nassar
had he remained in the employ of the Company. In addition, all unvested stock
options will become immediately exercisable and Mr. Nassar will receive 12
months provision of employee benefits and a pro rata portion of his annual
bonus. The Employment Agreement contains non-compete and non-solicitation
provisions, effective through the actual date of termination of the Employment
Agreement and for a period of two years thereafter.
On August 30, 1996 and again on July 30, 1997, H. Stanley Padgett entered
into amendments to his employment agreement with Image. Under the amended
agreement, which will expire on July 30, 2000, Mr. Padgett serves as a Senior
Executive Vice President of the Company and as the President and Chief
Executive Officer of Image. Mr. Padgett will be entitled to receive an annual
base salary of $295,000 which is subject to increase at the discretion of the
Compensation Committee, plus certain specified benefits and other benefits
generally available to other senior executive officers of Image. The
employment agreement provides that the Compensation Committee may also grant
an annual bonus to Mr. Padgett. In the event that Mr. Padgett's employment is
terminated without cause, as defined under the agreement, he is entitled to a
severance payment equal to the salary which would be owed to him through the
remainder of the term of the agreement, but in no event less than one years'
then-current salary, as well as a bonus equal to the average of the two prior
years annual bonuses. In addition, certain benefits shall be continued for a
period of six months, and all unvested options held by Mr. Padgett which would
vest in the year of termination shall vest in full. In the event of
termination of Mr. Padgett's employment for any reason other than cause within
12 months after a change in control, the Company shall pay Mr. Padgett an
amount equal to his annual base salary as then in effect, in lieu of any other
severance payment, and shall continue certain benefits, including a company
automobile and medical, life and disability insurance, for a period of six
months. If Mr. Padgett's employment is terminated for cause, or if he
voluntarily terminates his employment with Image, he shall not be entitled to
a severance payment or bonus and shall be subject to a one-year noncompetition
covenant. Termination of employment includes death, disability, voluntary
termination by the employee or involuntary termination by Image with or
without cause, which would include a material change in position or
responsibility.
On August 30, 1996, and again on June 30, 1997, Larry M. Miller entered into
amendments to his employment agreement with Image. Mr. Miller's amended
employment agreement contains substantially the same terms as described above
for Mr. Padgett except that under the amended employment agreement, which
expires on December 31, 1997, Mr. Miller serves as the Marketing Advisor of
Image and is entitled to receive a base salary of $240,000. In addition, in
August 1997, the Company made a lump sum payment of $175,000 to Mr. Miller
pursuant to the terms of his employment agreement. In the event that Mr.
Miller's employment is terminated without cause, Mr. Miller is entitled to a
severance payment equal to the salary which would be owed to him through the
remainder of the term of the agreement. In addition, certain benefits would be
continued until December 31, 1997 and all unvested options held by Mr. Miller
which would vest prior to the end of his term of employment shall vest in
full. If Mr. Miller's employment is terminated for cause, or if he voluntarily
terminates his employment with Image, Mr. Miller shall not be entitled to a
severance payment. Under the terms of the amended employment agreement, after
December 31, 1997, Mr. Miller is not bound by any non-competition or non-
solicitation covenants contained in the amended employment agreement. The
amended employment agreement further requires Mr. Miller to resign from the
Board of Directors of the Company on or before December 31, 1997. Mr. Miller
resigned from the Board of Directors of the Company and as a Senior Executive
Vice President of the Company in August 1997.
DIRECTORS' FEES
Directors of the Company who are compensated as officers of the Company
serve without compensation for their services as directors. All directors of
the Company are reimbursed by the Company for all out-of-pocket
57
<PAGE>
expenses reasonably incurred by them in the discharge of their duties as
directors, including out-of-pocket expenses incurred in attending meetings of
the Board of Directors and of any committees of the Board of Directors. In
addition, from time to time, certain of the Company's outside directors assist
in conducting workshops and orientation sessions for the Company's
franchisees, for which they customarily have been paid consulting fees of
$10,000 annually.
In addition, the Company has from time to time granted options to purchase
Common Stock to certain of its outside directors. Option grants are generally
exercisable over a period of ten years at an exercise price equal to the fair
market value of the Company's Common Stock on the date of grant. The following
directors have been granted stock options by the Company: M.B. Seretean
(options to purchase 425,000 shares of Common Stock), J. Michael Nixon
(options to purchase 55,000 shares of Common Stock) and David E. Cicchinelli
(options to purchase 15,000 shares of Common Stock).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following persons served as members of the Compensation Committee of the
Board of Directors during fiscal 1997: Ronald McSwain and M.B. Seretean. None
of the members of the Compensation Committee has been an officer or employee
of the Company or any of its subsidiaries. Except as set forth herein under
"Certain Transactions," there were no material transactions between the
Company and any of the members of the Compensation Committee during fiscal
1997.
STOCK OPTION PLAN
The Company has adopted a 1993 Stock Option Plan, as amended (the "1993
Plan") for employees who are contributing significantly to the management or
operation of the business of the Company or its subsidiaries as determined by
the Company's Board of Directors or the committee administering the 1993 Plan.
The 1993 Plan provides for the grant of options to purchase up to 3,000,000
shares of the Company's Common Stock at the discretion of the Board of
Directors of the Company or a committee designated by the Board of Directors
to administer the 1993 Plan. The option exercise price must be at least 100%
(110% in the case incentive stock options granted to a holder of 10% or more
of the Common Stock) of the fair market value of the Common Stock on the date
the option is granted and the options are exercisable by the holder thereof in
full at any time prior to their expiration in accordance with the terms of the
1993 Plan. Stock options granted pursuant to the 1993 Plan will expire on or
before (1) the date which is the tenth anniversary of the date the option is
granted, or (2) the date which is the fifth anniversary of the date an
incentive stock option is granted in the event that the option is granted to a
key employee who owns more than 10% of the total combined voting power of all
classes of stock of the Company or any subsidiary of the Company.
The following table provides certain information concerning individual
grants of stock options under the 1993 Plan made during fiscal 1997 to the
Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF STOCK
OPTIONS EXERCISE PRICE APPRECIATION
GRANTED TO OR BASE FOR
OPTIONS EMPLOYEES IN PRICE OPTION TERM (A)
GRANTED FISCAL ($ PER EXPIRATION ---------------------
NAME (#) YEAR SHARE) DATE 5% 10%
---- ------- ------------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
A.J. Nassar............. 200,000(b) 26% $11.25 4/26/06 $1,415,000 $3,586,000
James W. Inglis......... 200,000(c) 26% $11.25 4/26/06 $1,415,000 $3,586,000
H. Stanley Padgett...... -- -- -- -- -- --
Larry M. Miller......... -- -- -- -- -- --
</TABLE>
- --------
(a) The dollar amounts under these columns represent the potential realizable
value of each grant of option assuming that the market price of the
Company's Common Stock appreciates in value from the date of grant at the
5% and 10% annual rates prescribed by the Commission and therefore are not
intended to forecast possible future appreciation, if any, of the price of
the Company's Common Stock.
(b) Options are immediately exercisable. In addition, on May 1, 1997, Mr.
Nassar was granted an option to purchase 175,000 shares of Common Stock at
an exercise price of $11.00 per share, which options are immediately
exercisable.
(c) Options to purchase 100,000 shares of Common Stock are immediately
exercisable. Options to purchase 100,000 shares of Common Stock are
exercisable in increments of 20% per year commencing on April 26, 1997.
58
<PAGE>
The following table provides certain information concerning the value of
unexercised options held by the Named Executive Officers as of January 31,
1997. No stock options were exercised during fiscal 1997 by the Named
Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS AT FISCAL YEAR THE-MONEY OPTIONS AT
END FISCAL YEAR-END(A)
------------------------- ------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABE
---- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
A. J. Nassar................. 321,440 28,560 $1,912,248 $141,372
James W. Inglis.............. 100,000 100,000 $525,000 $525,000
H. Stanley Padgett........... 441,320 -- $6,864,600 $ --
Larry M. Miller.............. 155,020 -- $2,556,280 $ --
</TABLE>
- --------
(a) Dollar values were calculated by determining the difference between the
fair market value of the underlying securities at January 31, 1997 ($16.50
per share) and the exercise price of the options.
EMPLOYEE RETIREMENT SAVINGS PLAN
The Company has established a savings and profit-sharing plan that qualifies
as a tax-deferred savings plan under Section 401(k) of the Internal Revenue
Code (the "401(k) Plan") for its salaried employees who are at least 21 years
old and who have completed one year of service with the Company. Under the
401(k) Plan, eligible employees may contribute up to 20% of their gross salary
to the 401(k) Plan or $9,650 whichever is less. Each participating employee is
fully vested in contributions made by such employee. The Company presently
matches 25% of the amount contributed by an employee up to 6% of the
employee's salary, but the Company's policy regarding matching contributions
may be changed annually in the discretion of the Board of Directors. All
amounts contributed under the 401(k) Plan are invested in one or more
investment accounts administered by an independent plan administrator.
59
<PAGE>
CERTAIN TRANSACTIONS
In August 1995, the Company loaned $820,987 to Kevodrew Realty, Inc.
("Kevodrew") a company controlled by A.J. Nassar, the President and Chief
Executive Officer of the Company, which loan bore interest at an annual rate
of prime. These funds were loaned to Kevodrew to provide interim financing for
the purchase by Kevodrew of a retail shopping center in Louisville, Kentucky.
This loan was repaid in May 1996. A primary tenant in the shopping center is a
Company-owned store, which has entered into a five-year lease agreement with
Kevodrew providing for annual lease payments of $89,155. In addition to the
foregoing, the Company loaned to Mr. Nassar an additional $141,650, $349,265
and $318,104 during fiscal 1995, 1996 and 1997, respectively. On September 19,
1997, the Company loaned Mr. Nassar an additional $738,100, which loan was
repaid with interest on September 24, 1997. The Company subsequently obtained
a waiver of certain covenants under the Credit Facility in connection with
this loan.
As of September 25, 1997, a total of $1.0 million was owed to the Company by
Mr. Nassar. The largest aggregate amount of indebtedness outstanding from Mr.
Nassar to the Company since the beginning of fiscal 1997 was $1.8 million. All
amounts owed by Mr. Nassar bear interest at an annual rate of 8%. Mr. Nassar
has agreed to repay all outstanding obligations to the Company in five annual
installments of $200,000 per year (plus accrued interest) commencing on March
1, 1998. Certain of the loans made to Mr. Nassar in the past were done without
prior approval of the Board of Directors of the Company, but were later
ratified by the Board. All borrowings were made by Mr. Nassar to fund certain
of his personal expenses. No additional loans will be made by the Company to
Mr. Nassar. The Company may in the future, however, make loans to other
officers and employees in furtherance of proper corporate purposes.
In September 1997, Kevodrew entered into an agreement to purchase a retail
shopping center in Brandon, Florida. This transaction is expected to close in
March 1998. A primary tenant in the shopping center is a Company-owned store,
which has a lease agreement expiring in April 1998 providing for annual lease
payments of $83,000, subject to adjustment for changes in the consumer price
index.
In August 1997, the Company invested $1.0 million in North Atlantic
Acquisition Corp. ("North Atlantic"), a blind pool investment vehicle. A.J.
Nassar, the President and Chief Executive Officer of the Company, is a
director and a shareholder of North Atlantic. At the time of the Company's
investment in North Atlantic, Mr. Nassar owned 14.1% of the outstanding Class
A common stock of North Atlantic. As a result of North Atlantic's recently
completed initial public offering, Mr. Nassar's percentage of ownership has
been reduced to 1.7% of the outstanding shares of Class A common stock. The
Company subsequently obtained a waiver of certain covenants under the Credit
Facility in connection with its investment in North Atlantic.
GCO leases two facilities in Montgomery, Alabama, from Dicky W. McAdams, a
former director, who served on the Board of Directors of the Company from 1991
to August 1997, and the former Chairman of GCO. One of these facilities is
owned directly by Mr. McAdams and the other facility is owned by a partnership
in which Mr. McAdams has a 50% interest. Lease payments to Mr. McAdams and the
partnership totaled $147,039, $162,887 and $170,990 in fiscal 1995, 1996 and
1997, respectively.
In connection with the employment by the Company of James W. Inglis as its
Chief Operating Officer and Senior Executive Vice President, the Company
issued to Mr. Inglis on May 15, 1996 50,000 shares of the Company's Common
Stock at a purchase price of $9.80 per share. This represented a discount of
$116,250 or $2.325 per share, based on the closing price of the Company's
Common Stock as previously reported on The Nasdaq National Market on May 15,
1996, which was charged to earnings in the quarter ended July 31, 1996.
Currently, the Company's Common Stock is listed on the New York Stock
Exchange.
60
<PAGE>
Richard A. Kaplan and Herb Wolk, directors of the Company, and Ronald
McSwain, a former director of the Company, own or owned floorcovering
retailers which are franchisees of the Company. The following table sets forth
for the periods indicated, the amounts paid to the Company by the franchisees
controlled by these directors and rebates received by these franchisees.
Rebate payments to these franchisees by the Company represent a pass through
of volume rebates paid by various floorcovering manufacturers to the Company.
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1996 FISCAL 1997
--------------------- --------------------- ---------------------
AMOUNTS PAID AMOUNTS PAID AMOUNTS PAID
NAME TO COMPANY REBATES TO COMPANY REBATES TO COMPANY REBATES
---- ------------ -------- ------------ -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Richard A. Kaplan....... $106,682 $74,118 $55,187 $35,909 $ -- $ --
Ronald McSwain.......... 323,175 274,550 242,550 206,453 330,602 210,113
Herb Wolk............... 72,134 48,328 47,604 26,863 61,485 25,553
-------- -------- -------- -------- -------- --------
Total................. $501,991 $396,996 $345,341 $269,225 $392,087 $235,666
======== ======== ======== ======== ======== ========
</TABLE>
The ability of the Company to enter into future transactions with affiliates
is limited by the terms of the Notes and the Credit Facility. See "Description
of the Exchange Notes--Certain Covenants--Limitation on Transactions with
Affiliates."
61
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of November 1, 1997, with respect
to (i) each person known by the Company to own beneficially more than 5% of
the outstanding shares of Common Stock, (ii) each of the Company's directors,
(iii) each of the Named Executive Officers, and (iv) all directors and
executive officers as a group. Unless otherwise indicated, each of the
stockholders has sole voting and investment power with respect to the shares
beneficially owned.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS BENEFICIALLY PERCENTAGE OF
OF BENEFICIAL OWNER OWNED(A) TOTAL
- ------------------- ---------------- -------------
<S> <C> <C>
Richard A. Kaplan.............................. 918,500 5.5%
7 Far View Hill
Rochester, New York 14620
A.J. Nassar(b)................................. 1,010,960 5.9
210 TownPark Drive
Kennesaw, Georgia 30144
M.B. Seretean(c)............................... 677,000 4.0
H. Stanley Padgett(d).......................... 304,497 1.8
Larry M. Miller(e)............................. 305,978 1.8
Herb Wolk...................................... 200,000 1.2
James W. Inglis(f)............................. 170,000 *
J. Michael Nixon(g)............................ 115,000 *
David E. Cicchinelli(h)........................ 15,000 *
FMR Corp.(i)................................... 985,700 5.9
82 Devonshire Street,
Boston, Massachusetts 02109
The Kaufmann Fund, Inc.(j)..................... 1,250,000 7.5
140 E. 45th Street, 43rd Floor
New York, New York 10017
All directors and executive officers as a group
(12 persons)(k)............................... 3,533,957 19.5
</TABLE>
- --------
* Less than one percent of outstanding shares
(a) "Beneficial Ownership" includes shares for which an individual, directly
or indirectly, has or shares voting or investment power or both and also
includes options which are exercisable within sixty days of the date
hereof. Beneficial ownership as reported in the above table has been
determined in accordance with Rule 13d-3 under the Exchange Act. The
percentages are based upon shares outstanding as of November 1, 1997,
except for certain parties who hold presently exercisable options to
purchase shares. The percentages for those parties who hold presently
exercisable options are based upon the sum of 16,615,345 shares plus the
number of shares subject to presently exercisable options held by them, as
indicated in the following notes.
(b) Includes 505,960 shares of Common Stock subject to presently exercisable
stock options.
(c) Includes 425,000 shares of Common Stock subject to presently exercisable
stock options.
(d) Includes 291,320 shares of Common Stock subject to presently exercisable
stock options.
(e) Includes 155,020 shares of Common Stock subject to presently exercisable
stock options.
(f) Includes 120,000 shares of Common Stock subject to presently exercisable
stock options.
(g) Includes 55,000 shares of Common Stock subject to presently exercisable
stock options.
(h) Represents shares of Common Stock subject to presently exercisable stock
options.
(i) According to a Schedule 13G filed with the Commission on February 12, 1997
by FMR Corp. ("FMR"), Edward C. Johnson and Abigail P. Johnson, Mr.
Johnson is the Chairman of FMR and the owner of 12% of the aggregate
outstanding voting stock of FMR and Ms. Johnson is a director of FMR and
the owner of 24.5% of the aggregate outstanding voting stock of FMR and
each may be deemed to be members of a controlling group with respect to
FMR. The Schedule 13G states that, at December 31, 1996, (i) Fidelity
Management & Research Company, a registered investment adviser and a
wholly-owned subsidiary of FMR ("Fidelity"), was the beneficial owner of
754,300 shares of Common Stock as a result of acting as investment advisor
to various registered investment companies (the "Funds"), (ii) Mr.
Johnson, FMR (through its control of Fidelity) and the Funds each has sole
power to dispose of the 754,300 shares owned by the Funds, and (iii) the
power to vote all of the 754,300 shares resides with the Board of Trustees
of the Funds. The Schedule 13G further states that, at December 31, 1996,
(i) Fidelity Management Trust Company ("Fidelity Management"), a wholly-
owned subsidiary of FMR and a bank as defined in Section 3(a)(6) of the
Exchange Act, is the beneficial owner of 231,400 shares of Common Stock as
a result of it serving as investment manager of the institutional
account(s) and (ii) each of Mr. Johnson and FMR (through its control of
Fidelity Management) has sole voting and dispositive power over 231,400
shares of Common Stock owned by such institutional account(s). The Company
makes no representation as to the accuracy or completeness of the
information reported.
(j) Based on a Schedule 13G filed with the Commission by The Kaufmann Fund on
February 28, 1997. The Company makes no representation as to the accuracy
or completeness of the information reported.
(k) Includes an aggregate of 1,532,280 shares of Common Stock subject to stock
options which are presently exercisable or exercisable within the next 60
days.
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DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS
The following summary of certain agreements and instruments of the Company
does not purport to be complete and is qualified in its entirety by reference
to the various agreements and instruments described. Capitalized terms that
are used but not defined in this section have the meanings given such terms in
their respective agreement, unless the context otherwise requires.
CREDIT FACILITY
On August 26, 1997, the Company and the Guarantors, as co-borrowers, entered
into the Credit Facility with the lenders named therein (the "Lenders") and
First Union National Bank, as administrative agent for the Lenders.
The Credit Facility provides for (i) a revolving credit facility (the
"Revolving Credit Facility") of up to $70.0 million (subject to Borrowing Base
availability) which includes a Conventional Letter of Credit subfacility and a
short term "swingline" loan subfacility, (ii) a Term Loan in the amount of
$29.0 million, and (iii) a Special Purpose Letter of Credit in the amount of
up to $31.0 million for use as credit support for the Summerville Loan to be
used to finance the expansion of Image's fiber extrusion capabilities at its
plant in Summerville, Georgia. The total amount of (i) Revolver Loans, and
(ii) Conventional Letter of Credit obligations may not exceed the Borrowing
Base. The "Borrowing Base" is defined as an amount equal to the lesser of (a)
$70 million and (b)(i) for any date of determination prior to April 30, 1998,
an amount equal to four (4) times Consolidated EBITDAR, for the period of four
consecutive fiscal quarters then most recently ended, less an amount equal to
Consolidated Senior Debt at such date, plus an amount equal to Debt
outstanding under the Revolving Credit Facility at such date, and (ii) for any
date of determination on or after April 30, 1998, an amount equal to three and
three quarters (3.75) times Consolidated EBITDAR, for the period of four
consecutive fiscal quarters then most recently ended, less an amount equal to
Consolidated Senior Debt at such date, plus an amount equal to Debt
outstanding under the Revolving Credit Facility at such date. As of October
31, 1997, the Borrowing Base was equal to approximately $50.0 million. On
September 24, 1997, the Company and the Lenders amended the Credit Facility to
provide, among other things, that upon completion of the 144A Notes Offering,
the commitments under the Revolving Credit Facility were permanently reduced
to $50.0 million and the maximum Borrowing Base under the Credit Facility was
reduced from $70.0 million to $50.0 million.
Borrowings under the Credit Facility are secured by the accounts receivable,
inventories, certain real and personal property and certain intangible assets
of the Company and the Guarantors, as well as the capital stock of all the
Guarantors.
The Revolver Loan Commitment expires in August 2000. The Term Loan matures
in December 2002 and all of the Conventional Letters of Credit will mature not
later than August 2000. The Special Purpose Letter of Credit matures on April
15, 2000.
Loans bear interest at a variable rate equal to, at the Company's option,
(i) the Base Rate (defined as the greater of the Prime Rate or the Federal
Funds Rate plus one-half of one percent) or (ii) the adjusted LIBOR Rate, in
each case plus the Applicable Margin. The Applicable Margin is 0% for loans
which bear interest at the Base Rate and ranges from 0.50% to 1.25% for loans
which bear interest at the adjusted LIBOR Rate depending on the Company's
Total Debt to Consolidated EBITDAR ratio.
The Company will be required to pay the Lenders under the Credit Facility,
on a quarterly basis, a commitment fee ranging from 0.1875% to 0.25% depending
on the ratio of Total Debt to Consolidated EBITDAR for the period of four
consecutive quarters ending on the last day of such quarter. The Company will
also be required to pay administration fees, to be computed on an annual basis
and paid quarterly.
The Credit Facility contains a number of covenants, including, among others,
covenants restricting the Company and certain of its subsidiaries with respect
to the incurrence of indebtedness (including contingent obligations); the
creation of liens; the sale, lease, assignment transfer or other disposition
of assets; the making
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of certain investments, loans, advances and acquisitions; the consummation of
certain transactions such as mergers or consolidations; transactions with
affiliates; terminating any Governmental Approval or Material Contract;
changing the Company's fiscal year end; winding up, liquidating or dissolving;
and entering into agreements which, among other things, limit the ability to
create Liens. In addition, the Credit Facility contains affirmative covenants
including, among other things, requirements regarding compliance with laws;
preservation of entity existence; maintenance of insurance; payment of taxes
and other obligations; maintenance of properties; environmental compliance;
the keeping of books and records; and the continuance in the same or
complementary lines of business.
The Company has obtained waivers of certain of these covenants in connection
with its investment in North Atlantic and certain loans to A.J. Nassar, the
President and Chief Executive Officer of the Company. See "Certain
Transactions."
The Company and its subsidiaries are also required to comply with certain
financial tests and maintain certain financial ratios. Certain of these
financial tests and ratios include: (i) preventing the ratio of Total Debt to
the sum of Consolidated Net Worth plus Total Debt from exceeding agreed upon
ratios set forth in the Credit Facility; (ii) maintaining a maximum ratio of
Consolidated Senior Debt to Consolidated EBITDAR; (iii) maintaining a minimum
ratio of EBITDAR to Interest Expense plus retail store rental related-expense
and (iv) preventing the ratio of Total Debt to Consolidated EBITDAR from
exceeding agreed upon ratios set forth in the Credit Facility.
The Credit Facility contains customary events of default. An event of
default under the Credit Facility would allow the lenders thereunder to
accelerate or, in certain cases, would automatically cause the acceleration
of, the maturity of the indebtedness under the Credit Facility and would
restrict the ability of the Company to meet its obligations with respect to
the Notes.
SUMMERVILLE LOAN
In connection with the expansion of Image's fiber extrusion capabilities at
its plant in Summerville, Georgia, effective September 1, 1997, the Authority
issued Facility Revenue Bonds in an aggregate principal amount of $30.0
million pursuant to the provisions of the Development Authorities Law of the
State of Georgia, as amended, and the Trust Indenture, dated as of September
1, 1997 (the "Summerville Indenture"), by and between the Authority and
Reliance Trust Company, as trustee thereunder (the "Summerville Trustee"). The
Facility Revenue Bond issuance closed on September 17, 1997. On September 17,
1997, the Authority used the proceeds from the sale of the Facility Revenue
Bonds to make the Summerville Loan to Image to finance, in whole or in part,
the cost of certain solid waste recycling facilities constituting an expansion
of existing fiber manufacturing facilities owned and operated by Image
including land, approximately 200,000 square feet of additional buildings, and
equipment to be used in connection with the manufacture of fiber, to be
located at the site of the existing fiber manufacturing facility of Image
located in Summerville, Georgia. The Summerville Loan was made pursuant to a
loan agreement, dated as of September 1, 1997 (the "Loan Agreement"), under
which Image delivered to the Authority its promissory note in the principal
amount of $30.0 million, dated as of September 1, 1997.
The Facility Revenue Bonds and the Summerville Loan will mature on September
1, 2017. The Facility Revenue Bonds bear interest at the Weekly Rate until the
date on which the interest rate determination method is converted with respect
to the Facility Revenue Bonds. On and after the first Conversion Date, the
Facility Revenue Bonds may bear interest at the Flexible Rate or the Fixed
Rate or the Weekly Rate at the Company's option. While the Bonds bear interest
at the Weekly Rate, interest is payable monthly in arrears on the first day of
each month, commencing October 1, 1997. While the Facility Revenue Bonds bear
interest at the Flexible Rate, interest is payable on the first day after the
last day of each Flexible Rate Term. While the Facility Revenue Bonds bear
interest at a Fixed Rate, interest is payable semiannually in arrears, on each
March 1 and September 1. The Weekly, Flexible and Fixed Rates are determined
by the Remarketing Agent as the minimum rate of
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interest, based upon market conditions, that the Remarketing Agent determines,
in its sole discretion, would be necessary to sell the Facility Revenue Bonds
in a secondary market at the principal amount thereof. The interest rate on
the Summerville Loan equals the interest rate on the Facility Revenue Bonds.
The Facility Revenue Bonds and the interest thereon are special, limited
obligations of the Authority payable solely from (i) the revenues and income
derived from the Loan Agreement, which revenues and income have been pledged
and assigned to the Summerville Trustee to secure payment of the Facility
Revenue Bonds, and (ii) funds which, while the Facility Revenue Bonds bear
interest at the Weekly Rate or the Flexible Rate, may be drawn under the
Special Purpose Letter of Credit described under "--Credit Facility." Pursuant
to the Loan Agreement, Image is obligated to repay such loan by making
payments at such times and in such amounts as shall be required to pay the
principal of, premium, if any, and interest on the Facility Revenue Bonds and
certain other fees and expenses and to make payments sufficient to pay the
purchase price of Facility Revenue Bonds tendered or deemed tendered for
purchase to the extent that other moneys are not available therefor, as
described in the Loan Agreement. The Company's obligations to make loan
payments will be reduced to the extent of moneys which become available as a
result of drawings under the Special Purpose Letter of Credit.
The Facility Revenue Bonds are subject to optional redemption at the request
of the Company and mandatory redemption, including redemption at par, and
optional tender for purchase at the direction of the holders thereof and
mandatory repurchase, in the manner and at the times set forth in the
Summerville Indenture.
As long as the Company is not in default under the Loan Agreement and the
Authority is not obligated to call the Facility Revenue Bonds pursuant to the
terms of the Summerville Indenture, neither the Authority nor the Summerville
Trustee is permitted to redeem any Facility Revenue Bond prior to its maturity
unless requested to do so by the Company. The Loan Agreement contains
customary events of default including, among others, (i) the failure by the
Company to satisfy any payment obligation thereunder, or (ii) an event of
default under the Summerville Indenture or the related reimbursement agreement
thereto. Upon the occurrence of certain events of default, the Summerville
Trustee shall declare all payments under the Summerville Loan immediately due
and payable and may exercise those remedies as provided for in the Summerville
Indenture.
Upon the Determination of Taxability or upon certain circumstances of
redemption of the Facility Revenue Bonds pursuant to the Summerville
Indenture, the Company shall be obligated to prepay the Summerville Loan in
whole or in part. In the event that there has been a Determination of
Taxability in which there has been a determination by the Internal Revenue
Service that the interest on the Facility Revenue Bonds is or was includable
in the gross income of the holder, the Company shall cause moneys sufficient
to pay such holders the principal amount of the Facility Revenue Bonds being
redeemed, together with accrued interest thereon without premium (except as
provided in the Summerville Indenture with respect to Facility Revenue Bonds
which bear interest at the Fixed Rate).
The Facility Revenue Bonds are subject to mandatory repurchase on each
Conversion Date, Interest Payment Date or the date of any Substitute Letter of
Credit delivered pursuant to the Summerville Indenture, as the case may be;
provided, however, the holders shall not have the right or be required to
tender any Facility Revenue Bond for purchase, whether pursuant to an optional
tender or mandatory repurchase, if on such a date the Special Purpose Letter
of Credit is in effect and, following the occurrence of an event of default
under the Summerville Indenture, the Summerville Trustee shall have declared
the principal of, premium, if any and interest on the Facility Revenue Bonds
to be immediately due and payable.
Additionally, the Facility Revenue Bonds are subject to mandatory redemption
by First Union National Bank at a redemption price equal to the principal
amount thereof plus accrued interest to the date of redemption upon an event
of default under the Reimbursement Agreement, or if First Union National Bank
owns Facility Revenue Bonds under the Summerville Indenture and such Facility
Revenue Bonds have not been remarketed. The Facility Revenue Bonds are also
subject to redemption upon termination of the Special Purpose Letter of
Credit, in which event the Summerville Loan shall become immediately due and
payable.
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DESCRIPTION OF THE EXCHANGE NOTES
The Exchange Notes offered hereby will be issued and the 144A Notes were
issued under an Indenture dated October 16, 1997 (the "Indenture") among the
Company, the Guarantors and State Street Bank and Trust Company, as trustee
(the "Trustee"). References to "(Section )" mean the applicable Section of
the Indenture.
Upon the effectiveness of the Registration Statement of which this
Prospectus forms a part, the Indenture will be subject to and governed by the
Trust Indenture Act. The following summaries of the material provisions of the
Indenture do not purport to be complete, and where reference is made to
particular provisions of the Indenture, such provisions, including the
definitions of certain terms, are qualified in their entirety by reference to
all of the provisions of the Indenture and those terms made a part of the
Indenture by reference to the Trust Indenture Act. A copy of the Indenture is
filed as an exhibit to the Registration Statement of which this Prospectus
forms a part, and is incorporated by reference herein. For definitions of
certain capitalized terms used in the following summary, see "--Certain
Definitions" or "Exchange Offer; Registration Rights."
GENERAL
The Exchange Notes will mature on October 15, 2007, will be limited to
$100,000,000 aggregate principal amount, and will be unsecured senior
subordinated obligations of the Company. Each Exchange Note will bear interest
at the rate set forth on the cover page hereof from October 16, 1997 or from
the most recent interest payment date to which interest has been paid, payable
semiannually on April 15 and October 15 in each year, commencing April 15,
1998, to the Person in whose name the Note (or any predecessor Note) is
registered at the close of business on the April 1 or October 1 next preceding
such interest payment date. Interest will be computed on the basis of a 360-
day year comprised of twelve 30-day months. (Sections 202, 301 and 309)
Principal of, premium, if any, and interest on the Exchange Notes will be
payable, and the Exchange Notes will be exchangeable and transferable, at the
office or agency of the Company in The City of New York maintained for such
purposes (which initially will be a corporate trust office of the Trustee);
provided, however, that payment of interest may be made at the option of the
Company by check or wire transfer to the Person entitled thereto as shown on
the security register. (Sections 301, 305 and 1002) The Exchange Notes will be
issued only in fully registered form without coupons, in denominations of
$1,000 and any integral multiple thereof. (Section 302) No service charge will
be made for any registration of transfer, exchange or redemption of Notes,
except in certain circumstances for any tax or other governmental charge that
may be imposed in connection therewith. (Section 305)
Settlement for the Exchange Notes will be made in same day funds. All
payments of principal and interest will be made by the Company in same day
funds. The Exchange Notes will trade in the Same-Day Funds Settlement System
of The Depository Trust Company (the "DTC") until maturity, and secondary
market trading activity for the Exchange Notes will therefore settle in same
day funds.
GUARANTEES
All of the Company's subsidiaries will, jointly and severally, fully and
unconditionally guarantee the Company's obligations under the Exchange Notes.
In addition, if any Restricted Subsidiary of the Company becomes a guarantor
or obligor in respect of any other Indebtedness of the Company or any of the
Restricted Subsidiaries, the Company shall cause such Restricted Subsidiary to
enter into a supplemental Indenture pursuant to which such Restricted
Subsidiary shall agree to guarantee the Company's obligations under the
Exchange Notes. If the Company defaults in payment of the principal of,
premium, if any, or interest on the Exchange Notes, each of the Guarantors
will be unconditionally, jointly and severally obligated to duly and
punctually pay the same.
The obligations of each Guarantor under its Guarantee are limited to the
maximum amount which, after giving effect to all other contingent and fixed
liabilities of such Guarantor, and after giving effect to any
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collections from or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Guarantor under its Guarantee or
pursuant to its contribution obligations under the Indenture, will result in
the obligations of such Guarantor under its Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under Federal or state law. Each
Guarantor that makes a payment or distribution under its Guarantee shall be
entitled to a contribution from each other Guarantor in a pro rata amount
based on the net assets of each Guarantor determined in accordance with GAAP.
See "--Certain Covenants--Limitation on Issuances of Guarantees of
Indebtedness."
Notwithstanding the foregoing, but subject to the requirements described
under "--Consolidation, Merger, Sale of Assets, Etc.," any Guarantee by a
Guarantor shall be automatically and unconditionally released and discharged
(i) upon any sale, exchange or transfer, to any Person (other than an
Affiliate of the Company), of all of the Capital Stock of such Restricted
Subsidiary, or all or substantially all of the assets of such Restricted
Subsidiary, pursuant to a transaction which is in compliance with the
Indenture (including, but not limited to, the covenant described in "Certain
Covenants--Limitation on Sale of Assets" below) or (ii) at the request of the
Company, in the event that the lenders under the Credit Facility (or any other
revolving credit or term loan facility entitled to a guarantee from such
Guarantor) unconditionally release such Guarantor from its co-borrower
obligations under such facility. The Company may, at any time, cause a
Restricted Subsidiary to become a Guarantor by executing and delivering a
supplemental indenture providing for the guarantee of payment of the Notes by
such Restricted Subsidiary on the basis provided in the Indenture.
The Guarantees will be unsecured senior subordinated obligations of the
Guarantors and will be subordinated to all existing and future Guarantor
Senior Indebtedness, which includes all indebtedness of the Guarantors as co-
obligors under the Credit Facility. As of July 31, 1997, on a pro forma basis
after giving effect to the 144A Notes Offering and the application of the net
proceeds therefrom, the Credit Facility and the Summerville Loan, the
Guarantors would have had outstanding approximately $1.1 million in aggregate
principal amount of Guarantor Senior Indebtedness which ranked senior in right
of payment to the Guarantees.
OPTIONAL REDEMPTION
(a) The Exchange Notes will be subject to redemption at any time on or after
October 15, 2002, at the option of the Company, in whole or in part, on not
less than 30 nor more than 60 days' prior notice in amounts of $1,000 or an
integral multiple thereof at the following redemption prices (expressed as
percentages of the principal amount), if redeemed during the 12-month period
beginning October 15 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2002............................................................ 104.625%
2003............................................................ 102.313%
2004............................................................ 101.156%
</TABLE>
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to but not including the redemption date
(subject to the rights of holders of record on relevant record dates to
receive interest due on an interest payment date).
(b) At any time prior to October 15, 2000, the Company may, at its option,
use the net proceeds of one or more Public Equity Offerings to redeem up to an
aggregate of 30% of the aggregate principal amount of Notes originally issued
under the Indenture at a redemption price equal to 109.25% of the aggregate
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the redemption date; provided that at least $70 million of the principal
amount of Notes remains outstanding immediately after the occurrence of such
redemption. In order to effect the foregoing redemption, the Company must mail
a notice of redemption no later than 60 days after the closing of the related
Public Equity Offering and must consummate such redemption within 90 days of
the closing of the Public Equity Offering.
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(c) If less than all of the Notes are to be redeemed, the Trustee shall
select the Notes or portions thereof to be redeemed pro rata, by lot or by any
other method the Trustee shall deem fair and reasonable. (Sections 203, 1101,
1105 and 1107)
SINKING FUND
The Exchange Notes will not be entitled to the benefit of any sinking fund.
RANKING
The payment of the principal of, premium, if any, and interest on the
Exchange Notes will be subordinated, as set forth in the Indenture, in right
of payment to the prior payment in full of all Senior Indebtedness. The
Exchange Notes will be senior subordinated indebtedness of the Company ranking
pari passu with all other existing and future senior subordinated indebtedness
of the Company and senior to all existing and future Subordinated Indebtedness
of the Company. (Sections 1301 and 1302) The Company has not issued, and does
not have any current arrangements to issue, any significant additional
indebtedness to which the Notes would be senior, subordinate or pari passu in
right of payment. The Notes will be effectively subordinate to essentially all
of the currently outstanding indebtedness of the Company and its subsidiaries.
Upon the occurrence and during the continuance of any default in the payment
of any principal of, premium, if any, or interest on, or any other obligation
owing in respect of, any Designated Senior Indebtedness beyond any applicable
grace period and after the receipt by the Trustee from representatives of
holders of any Designated Senior Indebtedness (collectively, a "Senior
Representative") of written notice of such default, no payment (other than
payments previously made pursuant to the provisions described under "--
Defeasance or Covenant Defeasance of Indenture") or distribution of any assets
of the Company or any Subsidiary of any kind or character (excluding certain
permitted equity interests or subordinated securities) may be made on account
of the principal of, premium, if any, or interest on, the Exchange Notes, or
on account of the purchase, redemption, defeasance or other acquisition of or
in respect of, the Exchange Notes unless and until such default shall have
been cured or waived or shall have ceased to exist or such Designated Senior
Indebtedness shall have been discharged or paid in full, after which the
Company shall resume making any and all required payments in respect of the
Exchange Notes, including any missed payments.
Upon the occurrence and during the continuance of any non-payment default
with respect to any Designated Senior Indebtedness pursuant to which the
maturity thereof may then be accelerated immediately (a "Non-payment Default")
and after the receipt by the Trustee and the Company from a Senior
Representative of written notice of such Non-payment Default, no payment
(other than payments previously made pursuant to the provisions described
under "--Defeasance or Covenant Defeasance of Indenture") or distribution of
any assets of the Company or any Subsidiary of any kind or character
(excluding certain permitted equity interests or subordinated securities) may
be made by the Company or any Subsidiary on account of the principal of,
premium, if any, or interest on the Exchange Notes or on account of the
purchase, redemption, defeasance or other acquisition of, or in respect of,
the Exchange Notes for the period specified below (the "Payment Blockage
Period").
The Payment Blockage Period shall commence upon the receipt of notice of the
Non-payment Default by the Trustee and the Company from a Senior
Representative and shall end on the earliest of (i) the 179th day after such
commencement, (ii) the date on which such Non-payment Default (and all Non-
payment Defaults as to which notice is also given after such Payment Blockage
Period is initiated) is properly cured, waived or ceases to exist or on which
such Designated Senior Indebtedness is discharged or paid in full or (iii) the
date on which such Payment Blockage Period (and all Non-payment Defaults as to
which notice is given after such Payment Blockage Period is initiated) shall
have been terminated by written notice to the Company or the Trustee from the
Senior Representative initiating such Payment Blockage Period, after which, in
the case of each of clauses (i), (ii) and (iii), the Company will promptly
resume making any and all required payments in respect of the Exchange Notes,
including any missed payments. In no event will a Payment Blockage Period
extend beyond 179 days from the date of the receipt by the Company and the
Trustee of the notice initiating such Payment Blockage Period (such 179-day
period referred to as the "Initial Period"). Any number of notices of Non-
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payment Defaults may be given during the Initial Period; provided that during
any period of 365 days only one Payment Blockage Period, during which payment
of principal of, premium, if any, or interest on, the Exchange Notes may not
be made, may commence and the duration of such period may not exceed 179 days.
No Non-payment Default with respect to any Designated Senior Indebtedness that
existed or was continuing on the date of the commencement of any Payment
Blockage Period will be, or can be, made the basis for the commencement of a
second Payment Blockage Period, whether or not within a period of 365
consecutive days, unless such default has been cured or waived for a period of
not less than 90 consecutive days. (Section 1303)
If the Company fails to make any payment on the Notes when due or within any
applicable grace period, whether or not on account of the payment blockage
provisions referred to above, such failure would constitute an Event of
Default under the Indenture and would enable the holders of the Notes to
accelerate the maturity thereof. See "--Events of Default."
The Indenture will provide that in the event of any insolvency or bankruptcy
case or proceeding, or any receivership, liquidation, reorganization or other
similar case or proceeding in connection therewith, relative to the Company or
its assets, or any liquidation, dissolution or other winding up of the
Company, whether voluntary or involuntary, or whether or not involving
insolvency or bankruptcy, or any assignment for the benefit of creditors or
any other marshaling of assets or liabilities of the Company, all Senior
Indebtedness must be paid in full before any payment or distribution
(excluding distributions of certain permitted equity interests or subordinated
securities) is made on account of the principal of, premium, if any, or
interest on the Notes or on account of the purchase, redemption, defeasance or
other acquisition of, or in respect of, the Notes (other than payments
previously made pursuant to the provisions described under "--Defeasance or
Covenant Defeasance of Indenture"). (Section 1302)
By reason of such subordination, in the event of liquidation or insolvency,
creditors of the Company who are holders of Senior Indebtedness may recover
more, ratably, than the holders of the Notes, and funds which would be
otherwise payable to the holders of the Notes will be paid to the holders of
the Senior Indebtedness to the extent necessary to pay the Senior Indebtedness
in full, and the Company may be unable to meet its obligations fully with
respect to the Notes.
"Senior Indebtedness" under the Indenture means the principal of, premium,
if any, and interest (including interest accruing after the filing of a
petition initiating any proceeding under any state, federal or foreign
bankruptcy law whether or not allowable as a claim in such proceeding) and all
other monetary obligations (including fees) on any Indebtedness of the Company
(other than as otherwise provided in this definition), whether outstanding on
the date of the Indenture or thereafter created, incurred or assumed, and
whether at any time owing, actually or contingently, unless, in the case of
any particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the Notes.
Notwithstanding the foregoing, "Senior Indebtedness" shall not include (i)
Indebtedness evidenced by the Notes, (ii) Indebtedness that is by its terms
subordinate or junior in right of payment to any Indebtedness of the Company,
(iii) Indebtedness which, when incurred and without respect to any election
under Section 1111(b) of Title 11 of the United States Code, is without
recourse to the Company, (iv) Indebtedness which is represented by Redeemable
Capital Stock, (v) any liability for foreign, federal, state, local or other
tax owed or owing by the Company to the extent such liability constitutes
Indebtedness, (vi) Indebtedness of the Company to a Subsidiary or any other
Affiliate of the Company or any of such Affiliate's subsidiaries and (vii)
that portion of any Indebtedness which at the time of issuance is issued in
violation of the Indenture.
"Designated Senior Indebtedness" under the Indenture means (i) all Senior
Indebtedness under, or in respect of, the Credit Facility, and (ii) any other
Senior Indebtedness which at the time of determination has an aggregate
principal amount outstanding of at least $10 million and is specifically
designated in the instrument evidencing such Senior Indebtedness or the
agreement under which such Senior Indebtedness arises as "Designated Senior
Indebtedness" by the Company.
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As of July 31, 1997, on a pro forma basis after giving effect to the 144A
Notes Offering and the application of the net proceeds therefrom, the Credit
Facility and the Summerville Loan, the Company would have had outstanding
approximately $33.7 million in aggregate principal amount of Senior
Indebtedness, no Pari Passu Indebtedness and no Subordinated Indebtedness, and
the Guarantors would have had approximately $1.1 million outstanding in
aggregate principal amount of Guarantor Senior Indebtedness.
The Indenture will limit, but not prohibit, the incurrence by the Company
and its Restricted Subsidiaries of additional Indebtedness, and the Indenture
will prohibit the incurrence by the Company of Indebtedness that is
subordinated in right of payment to any Senior Indebtedness of the Company and
senior in right of payment to the Notes.
Each Guarantee of a Guarantor will be an unsecured senior subordinated
obligation of such Guarantor, ranking pari passu with, or senior in right of
payment to, all other existing and future Indebtedness of such Guarantor that
is expressly subordinated to Guarantor Senior Indebtedness. The Indebtedness
evidenced by the Guarantees will be subordinated to Guarantor Senior
Indebtedness to the same extent as the Notes are subordinated to Senior
Indebtedness and during any period when payment on the Notes is blocked by
Designated Senior Indebtedness, payment on the Guarantees is similarly
blocked.
"Guarantor Senior Indebtedness" is defined as the principal of, premium, if
any, and interest (including interest accruing after the filing of a petition
initiating any proceeding under any state, federal or foreign bankruptcy laws
whether or not allowable as a claim in such proceeding) and all other monetary
obligations (including fees) on any Indebtedness of any Guarantor (other than
as otherwise provided in this definition), whether outstanding on the date of
the Indenture or thereafter created, incurred or assumed, and whether at any
time owing, actually or contingent, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to any Guarantee. Notwithstanding the
foregoing, "Guarantor Senior Indebtedness" shall not include (i) Indebtedness
evidenced by the Guarantees, (ii) Indebtedness that is subordinate or junior
in right of payment to any Indebtedness of any Guarantor, (iii) Indebtedness
which when incurred and without respect to any election under Section 1111(b)
of Title 11 of the United States Code, is without recourse to any Guarantor,
(iv) Indebtedness which is represented by Redeemable Capital Stock, (v) any
liability for foreign, federal, state, local or other taxes owed or owing by
any Guarantor to the extent such liability constitutes Indebtedness, (vi)
Indebtedness of any Guarantor to a Subsidiary or any other Affiliate of the
Company or any of such Affiliate's subsidiaries, (vii) Indebtedness evidenced
by any guarantee of any Subordinated Indebtedness or Pari Passu Indebtedness
and (viii) that portion of any Indebtedness which at the time of issuance is
issued in violation of the Indenture.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Indebtedness. The Company will not, and will not permit any of
its Restricted Subsidiaries to, create, issue, incur, assume, guarantee or
otherwise in any manner become directly or indirectly liable for the payment
of or otherwise incur (collectively, "incur"), any Indebtedness (including any
Acquired Indebtedness), unless such Indebtedness is incurred by the Company or
a Guarantor or constitutes Acquired Indebtedness of a Restricted Subsidiary
(which is not a Guarantor) and, in each case, the Company's Consolidated Fixed
Charge Coverage Ratio for the four full fiscal quarters for which financial
statements are available immediately preceding the incurrence of such
Indebtedness taken as one period (and after giving pro forma effect to (i) the
incurrence of such Indebtedness and (if applicable) the application of the net
proceeds therefrom, including the refinancing of other Indebtedness, as if
such Indebtedness was incurred, and the application of such proceeds occurred,
on the first day of such applicable period; (ii) the incurrence, repayment or
retirement of any other Indebtedness by the Company and its Restricted
Subsidiaries since the first day of such applicable period as if such
Indebtedness was incurred, repaid or retired at the beginning of such
applicable period (except that, in making such computation, the amount of
Indebtedness under any revolving credit facility shall be computed based upon
the average daily balance of such Indebtedness during such applicable period);
(iii) in the case of Acquired
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Indebtedness or any acquisition occurring at the time of the incurrence of
such Indebtedness, the related acquisition, assuming such acquisition had been
consummated on the first day of such applicable period; and (iv) any
acquisition or disposition by the Company and its Restricted Subsidiaries of
any company or any business or any assets out of the ordinary course of
business, whether by merger, stock purchase or sale or asset purchase or sale,
or any related repayment of Indebtedness, in each case since the first day of
such applicable period, assuming such acquisition or disposition had been
consummated on the first day of such applicable period) is at least equal to
or greater than 2.00 to 1.
Notwithstanding the foregoing, the Company and, to the extent specifically
set forth below, the Restricted Subsidiaries may incur each and all of the
following (collectively, the "Permitted Indebtedness"):
(i) Indebtedness of the Company or any Guarantor under the Credit
Facility and under any revolving credit facility or bank term loans in an
aggregate principal amount at any one time outstanding not to exceed $115
million;
(ii) Indebtedness of the Company pursuant to the Notes and Indebtedness
of any Guarantor pursuant to a Guarantee of the Notes;
(iii) Indebtedness of the Company or any Restricted Subsidiary
outstanding on the date of the Indenture and listed on a schedule thereto;
(iv) Indebtedness of the Company owing to a Restricted Subsidiary;
provided that any Indebtedness of the Company owing to a Restricted
Subsidiary is made pursuant to an intercompany note in the form attached to
the Indenture and is unsecured and subordinated in right of payment from
and after such time as the Notes shall become due and payable (whether at
Stated Maturity, acceleration or otherwise) to the payment and performance
of the Company's obligations under the Notes; provided, further, that any
disposition, pledge or transfer of any such Indebtedness to a Person (other
than a disposition, pledge or transfer to a Restricted Subsidiary) shall be
deemed to be an incurrence of such Indebtedness by the Company not
permitted by this clause (iv);
(v) Indebtedness of a Wholly Owned Restricted Subsidiary owing to the
Company or any Guarantor; provided that any such Indebtedness is made
pursuant to an intercompany note in the form attached to the Indenture;
provided, further, that (a) any disposition, pledge or transfer of any such
Indebtedness to a Person (other than the Company or a Guarantor) shall be
deemed to be an incurrence of such Indebtedness by the obligor not
permitted by this clause (v), and (b) any transaction pursuant to which any
Wholly Owned Restricted Subsidiary, which has Indebtedness owing to the
Company or any Guarantor, ceases to be a Wholly Owned Restricted Subsidiary
shall be deemed to be the incurrence of Indebtedness by such Wholly Owned
Restricted Subsidiary that is not permitted by this clause (v);
(vi) guarantees of any Restricted Subsidiary made in accordance with the
provisions of "--Certain Covenants--Limitation on Issuances of Guarantees
of Indebtedness;"
(vii) obligations of the Company entered into in the ordinary course of
business (a) pursuant to Interest Rate Agreements designed to protect the
Company or any Restricted Subsidiary against fluctuations in interest rates
in respect of Indebtedness of the Company or any Restricted Subsidiary as
long as such obligations do not exceed the aggregate principal amount of
such Indebtedness then outstanding, (b) under any Currency Hedging
Arrangements, which if related to Indebtedness do not increase the amount
of such Indebtedness other than as a result of currency price fluctuations,
or (c) under any Commodity Price Protection Agreements, which if related to
Indebtedness do not increase the amount of such Indebtedness other than as
a result of commodity price fluctuations;
(viii) Indebtedness of the Company or any Guarantor represented by
Capital Lease Obligations or Purchase Money Obligations or other
Indebtedness incurred or assumed in connection with the acquisition or
development of real or personal, movable or immovable, property in each
case incurred for the purpose of financing or refinancing all or any part
of the purchase price or cost of construction or improvement of property
used in the business of the Company or such Guarantor, in an aggregate
principal amount pursuant to this clause (viii) not to exceed $10 million
outstanding at any time;
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(ix) (a) letters of credit (other than the Special Purpose Letter of
Credit) in the ordinary course of business in the aggregate amount of $15
million at any one time outstanding to the extent that such letters of
credit are not drawn upon or, to the extent drawn upon, such drawings are
fully reimbursed by the Company within 10 business days from the receipt by
the Company of a demand for reimbursement thereof (collectively "Undrawn
Letters of Credit") and (b) letters of credit (other than the Special
Purpose Letter of Credit and Undrawn Letters of Credit) and banker's
acceptances in the ordinary course of business in the aggregate amount of
$5 million at any one time outstanding;
(x) any renewals, extensions, substitutions, refundings, refinancings or
replacements (collectively, a "refinancing") of any Indebtedness described
in clauses (ii) and (iii) of this definition of "Permitted Indebtedness,"
including any successive refinancings so long as the aggregate principal
amount of Indebtedness represented thereby (or, if such Indebtedness
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration of the maturity thereof, the
original issue price of such Indebtedness plus any accreted value
attributable thereto since the original issuance of such Indebtedness) is
not increased by such refinancing plus the lesser of (1) the stated amount
of any premium or other payment required to be paid in connection with such
a refinancing pursuant to the terms of the Indebtedness being refinanced or
(2) the amount of premium or other payment actually paid at such time to
refinance the Indebtedness, plus, in either case, the amount of expenses of
the Company or a Restricted Subsidiary incurred in connection with such
refinancing and (A) in the case of any refinancing of Subordinated
Indebtedness, such new Subordinated Indebtedness is (I) made subordinated
to the Notes at least to the same extent as the Subordinated Indebtedness
being refinanced, (II) has an Average Life to Stated Maturity greater than
the lesser of (x) the remaining Average Life to Stated Maturity of the
Subordinated Indebtedness being refinanced or (y) the remaining Average
Life to Stated Maturity of the Notes, and (III) has a Stated Maturity for
its final scheduled principal payment later than the earlier of (x) the
Stated Maturity for the final scheduled principal payment of the
Subordinated Debt being refinanced or (y) the Stated Maturity for the final
scheduled principal payment of the Notes, and (B) in the case of Pari Passu
Indebtedness, such refinancing does not reduce the Average Life to Stated
Maturity or the Stated Maturity of such Pari Passu Indebtedness; and
(xi) Indebtedness of the Company or any Guarantor in addition to that
described in clauses (i) through (x) above, and any renewals, extensions,
substitutions, refinancings or replacements of such Indebtedness, so long
as the aggregate principal amount of all Indebtedness pursuant to this
clause (xi) shall not exceed in the aggregate $25 million at any one time
outstanding. (Section 1008)
Limitation on Restricted Payments. (a) The Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly:
(i) declare or pay any dividend on, or make any distribution to holders
of, any shares of the Company's Capital Stock (other than dividends or
distributions payable solely in its shares of Qualified Capital Stock or in
options, warrants or other rights to acquire shares of such Qualified
Capital Stock);
(ii) purchase, redeem or otherwise acquire or retire for value, directly
or indirectly, the Company's Capital Stock or any Capital Stock of any
Affiliate of the Company (other than Capital Stock of any Wholly Owned
Restricted Subsidiary) or options, warrants or other rights to acquire such
Capital Stock;
(iii) make any principal payment on, or repurchase, redeem, defease,
retire or otherwise acquire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, any Subordinated Indebtedness;
(iv) declare or pay any dividend or distribution on any Capital Stock of
any Restricted Subsidiary to any Person (other than (a) to the Company or
any of its Wholly Owned Restricted Subsidiaries or (b) to all holders of
Capital Stock of such Restricted Subsidiary on a pro rata basis); or
(v) make any Investment in any Person (other than any Permitted
Investments)
(any of the foregoing actions described in clauses (i) through (v), other
than any such action that is a Permitted Payment (as defined below),
collectively, "Restricted Payments") (the amount of any such
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Restricted Payment, if other than cash, shall be determined by the board of
directors of the Company, whose determination shall be conclusive and
evidenced by a board resolution), unless (1) immediately before and
immediately after giving effect to such proposed Restricted Payment on a
pro forma basis, no Default or Event of Default shall have occurred and be
continuing and such Restricted Payment shall not be an event which is, or
after notice or lapse of time or both, would be, an "event of default"
under the terms of any Indebtedness of the Company or its Restricted
Subsidiaries; (2) immediately before and immediately after giving effect to
such Restricted Payment on a pro forma basis, the Company could incur $1.00
of additional Indebtedness (other than Permitted Indebtedness) under the
provisions described under "--Limitation on Indebtedness;" and (3) after
giving effect to the proposed Restricted Payment, the aggregate amount of
all such Restricted Payments declared or made after the date of the
Indenture, does not exceed the sum of:
(A) $3.0 million;
(B) 50% of the aggregate cumulative Consolidated Net Income of the
Company accrued on a cumulative basis during the period beginning on
the first day of the fiscal quarter beginning after the date of the
Indenture and ending on the last day of the Company's last fiscal
quarter ending prior to the date of the Restricted Payment (or, if such
aggregate cumulative Consolidated Net Income shall be a loss, minus
100% of such loss);
(C) the aggregate Net Cash Proceeds received after the date of the
Indenture by the Company from the issuance or sale (other than to any
of its Subsidiaries) of Qualified Capital Stock of the Company or any
options, warrants or rights to purchase such Qualified Capital Stock of
the Company (except, in each case, to the extent such proceeds are used
to purchase, redeem or otherwise retire Capital Stock or Subordinated
Indebtedness as set forth below in clause (ii) or (iii) of paragraph
(b) below);
(D) the aggregate Net Cash Proceeds received after the date of the
Indenture by the Company (other than from any of its Restricted
Subsidiaries) upon the exercise of any options, warrants or rights to
purchase Qualified Capital Stock of the Company;
(E) the aggregate Net Cash Proceeds received after the date of the
Indenture by the Company from the conversion or exchange, if any, of
debt securities or Redeemable Capital Stock of the Company or its
Subsidiaries into or for Qualified Capital Stock of the Company plus,
to the extent such debt securities or Redeemable Capital Stock were
issued after the date of the Indenture, the aggregate of Net Cash
Proceeds from their original issuance; and
(F) in the case of the disposition or repayment of any Investment
constituting a Restricted Payment made after the date of the Indenture,
an amount which was treated as a Restricted Payment made after the date
of the Indenture (to the extent not included in Consolidated Net
Income) equal to the lesser of the return of capital with respect to
such Investment and the initial amount of such Investment, in either
case, less the cost of disposition of such Investment.
(b) Notwithstanding the foregoing, and in the case of clauses (ii) through
(vii) below, so long as there is no Default or Event of Default continuing,
the foregoing provisions shall not prohibit the following actions (each of
clauses (i) through (v) being referred to as a "Permitted Payment"):
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment was
permitted by the provisions of paragraph (a) of this Section and such
payment shall have been deemed to have been paid on such date of
declaration and shall not have been deemed a "Permitted Payment" for
purposes of the calculation required by paragraph (a) of this Section;
(ii) the repurchase, redemption, or other acquisition or retirement of
any shares of any class of Capital Stock of the Company in exchange for
(including any such exchange pursuant to the exercise of a conversion right
or privilege in connection with which cash is paid in lieu of the issuance
of fractional shares or scrip), or out of the Net Cash Proceeds of a
substantially concurrent issue and sale for cash (other than to a
Subsidiary) of, other shares of Qualified Capital Stock of the Company;
provided that such Net
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Cash Proceeds from the issuance of such shares of Qualified Capital Stock
are excluded from clause (3)(C) of paragraph (a) of this Section;
(iii) the repurchase, redemption, defeasance, retirement or acquisition
for value or payment of principal of any Subordinated Indebtedness in
exchange for, or in an amount not in excess of the Net Cash Proceeds of, a
substantially concurrent issuance and sale for cash (other than to any
Subsidiary of the Company) of any Qualified Capital Stock of the Company,
provided that the Net Cash Proceeds from the issuance of such shares of
Qualified Capital Stock are excluded from clause (3)(C) of paragraph (a) of
this Section;
(iv) the repurchase, redemption, defeasance, retirement, refinancing,
acquisition for value or payment of principal of any Subordinated
Indebtedness (other than Redeemable Capital Stock) (a "refinancing")
through the substantially concurrent issuance of new Subordinated
Indebtedness of the Company, provided that any such new Subordinated
Indebtedness (1) shall be in a principal amount that does not exceed the
principal amount so refinanced (or, if such Subordinated Indebtedness
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration thereof, then such lesser amount
as of the date of determination), plus the lesser of (I) the stated amount
of any premium or other payment required to be paid in connection with such
a refinancing pursuant to the terms of the Subordinated Indebtedness being
refinanced or (II) the amount of premium or other payment actually paid at
such time to refinance the Subordinated Indebtedness, plus, in either case,
the amount of expenses of the Company incurred in connection with such
refinancing; (2) has an Average Life to Stated Maturity greater than the
lesser of (x) the remaining Average Life to Stated Maturity of the
Subordinated Indebtedness being refinanced or (y) the remaining Average
Life to Stated Maturity of the Notes; (3) has a Stated Maturity for its
final scheduled principal payment later than the earlier of (x) the Stated
Maturity for the final scheduled principal payment of the Subordinated
Indebtedness being refinanced or (y) the Stated Maturity for the final
scheduled principal payment of the Notes; and (4) is expressly subordinated
in right of payment to the Notes at least to the same extent as the
Subordinated Indebtedness to be refinanced;
(v) repurchases of Capital Stock (or warrants or options convertible into
or exchangeable for such Capital Stock) deemed to occur upon exercise of
stock options to the extent that shares of such Capital Stock (or warrants
or options convertible into or exchangeable for such Capital Stock)
represents a portion of the exercise price of such options;
(vi) the repurchase of any Subordinated Indebtedness of the Company or
any Guarantor at a purchase price not greater than 101% of the principal
amount of such Subordinated Indebtedness in the event of a Change of
Control (as defined below) pursuant to a provision similar to the "--
Purchase of Notes upon Change of Control" covenant; provided that prior to
or simultaneously with such repurchase, the Company has made the Change of
Control Offer as provided in such covenant and has repurchased all Notes
validly tendered for payment in connection with such Change of Control
Offer; and
(vii) the repurchase of any Subordinated Indebtedness of the Company or
any Guarantor, at a purchase price not greater than 100% of the principal
amount of such Indebtedness in the event of an Asset Sale pursuant to a
provision similar to the "--Limitation on Sale of Assets" covenant;
provided that prior to such repurchase the Company has made an Offer to
purchase the Notes as provided in such covenant and has repurchased all
Notes validly tendered for payment in connection with such Offer. (Section
1009)
Limitation on Transactions with Affiliates. The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly,
enter into any transaction or series of related transactions (including,
without limitation, the sale, purchase, exchange or lease of assets, property
or services) with any Affiliate of the Company (other than the Company or a
Wholly Owned Restricted Subsidiary) unless such transaction or series of
related transactions is entered into in good faith and in writing and (a) such
transaction is on terms that are no less favorable to the Company or such
Restricted Subsidiary, as the case may be, than those that would be available
in a comparable transaction in arm's-length dealings with an unrelated third
party, (b) with respect to any transaction or series of related transactions
involving aggregate value in excess of $5 million, the Company delivers an
officers' certificate to the Trustee certifying that such transaction or
series of related transactions complies with clause (a) above and (c) with
respect to any transaction or series of related transactions involving
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aggregate payments in excess of $10 million, either (i) such transaction or
series of related transactions has been approved by a majority of the
Disinterested Directors of the Company, or in the event there is only one
Disinterested Director, by such Disinterested Director, or (ii) the Company
delivers to the Trustee a written opinion of an investment banking firm of
national standing or other recognized independent expert with experience
appraising the terms and conditions of the type of transaction or series of
related transactions for which an opinion is required stating that the
transaction or series of related transactions is fair to the Company or such
Restricted Subsidiary from a financial point of view; provided, however, that
this provision shall not apply to any transaction with an officer or director
of the Company entered into in the ordinary course of business (including
compensation and employee benefit arrangements with any officer, director or
employee of the Company, including under any stock option or stock incentive
plans). (Section 1010)
Limitation on Liens. (a) The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create, incur or affirm any
Lien of any kind securing any Pari Passu Indebtedness or Subordinated
Indebtedness (including any assumption, guarantee or other liability with
respect thereto by any Restricted Subsidiary) upon any property or assets
(including any intercompany notes) of the Company or any Subsidiary owned on
the date of the Indenture or acquired after the date of the Indenture, or any
income or profits therefrom, unless the Notes are directly secured equally and
ratably with (or, in the case of Subordinated Indebtedness, prior or senior
thereto, with the same relative priority as the Notes shall have with respect
to such Subordinated Indebtedness) the obligation or liability secured by such
Lien, except for Liens (A) securing any Indebtedness or Acquired Indebtedness
which, in each case, were created prior to (and not created in connection
with, or in contemplation of) the incurrence of such Pari Passu Indebtedness
or Subordinated Indebtedness (including any assumption, guarantee or other
liability with respect thereto by any Restricted Subsidiary) and which
Indebtedness is permitted under the provisions of "--Limitation on
Indebtedness" or (B) securing any Indebtedness incurred in connection with any
refinancing, renewal, substitution or replacement of any such Indebtedness
described in clause (A), so long as the aggregate principal amount of
Indebtedness represented thereby is not increased by such refinancing by an
amount greater than the lesser of (i) the stated amount of any premium or
other payment required to be paid in connection with such a refinancing
pursuant to the terms of the Indebtedness being refinanced or (ii) the amount
of premium or other payment actually paid at such time to refinance the
Indebtedness, plus, in either case, the amount of expenses of the Company
incurred in connection with such refinancing; provided, however, that in the
case of clauses (A) and (B), any such Lien only extends to the assets that
were subject to such Lien securing such Indebtedness prior to the related
acquisition by the Company or its Restricted Subsidiaries.
(b) Notwithstanding the foregoing, any Lien securing the Notes granted
pursuant to clause (a) above shall be automatically and unconditionally
released and discharged upon the release by the holders of the Pari Passu
Indebtedness or Subordinated Indebtedness described in clause (a) above of
their Lien on the property or assets of the Company or any Restricted
Subsidiary (including any deemed release upon payment in full of all
obligations under such Indebtedness), at such time as the holders of all such
Pari Passu Indebtedness or Subordinated Indebtedness also release their Lien
on the property or assets of the Company or such Restricted Subsidiary.
(Section 1011)
Limitation on Senior Subordinated Indebtedness. The Company will not, and
will not permit any Guarantor to, directly or indirectly, create, incur,
issue, assume, guarantee or otherwise in any manner become directly or
indirectly liable for or with respect to or otherwise permit to exist any
Indebtedness that is subordinate in right of payment to any Indebtedness of
the Company or such Guarantor, as the case may be, unless such Indebtedness is
also pari passu with the Notes or the Guarantee of such Guarantor or
subordinate in right of payment to the Notes or such Guarantee at least to the
same extent as the Notes or such Guarantee are subordinate in right of payment
to Senior Indebtedness or Senior Indebtedness of such Guarantor, as the case
may be. (Section 1012)
Limitation on Sale of Assets. (a) The Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, consummate an
Asset Sale unless (i) at least 80% of the consideration from
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such Asset Sale is received in cash or Cash Equivalents and (ii) the Company
or such Subsidiary receives consideration at the time of such Asset Sale at
least equal to the Fair Market Value of the shares or assets subject to such
Asset Sale (as determined by the board of directors of the Company and
evidenced in a board resolution). For the purposes of this covenant, "Cash
Equivalents" means (x) the assumption of Indebtedness of the Company or any
Restricted Subsidiary and the release of the Company or such Restricted
Subsidiary from all liability on such Indebtedness in connection with such
Asset Sale, (y) Temporary Cash Investments, and (z) securities received by the
Company or any Restricted Subsidiary from the transferee that are promptly
converted by the Company or such Restricted Subsidiary into cash.
(b) If all or a portion of the Net Cash Proceeds of any Asset Sale are not
required to be applied to repay permanently any Senior Indebtedness
outstanding as required by the terms thereof, or the Company determines not to
apply such Net Cash Proceeds to the permanent repayment of the Senior
Indebtedness, or if no such Senior Indebtedness is outstanding then, the
Company or a Subsidiary may, within 365 days of the Asset Sale invest the Net
Cash Proceeds in capital expenditures, properties, inventories and other
assets that (as determined by the board of directors of the Company) replace
the properties and assets that were the subject of the Asset Sale or in
capital expenditures, properties, inventories and other assets that will be
used in the businesses of the Company or its Restricted Subsidiaries existing
on the date of the Indenture or in businesses reasonably related thereto. The
amount of such Net Cash Proceeds not used or invested as set forth in this
paragraph constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $10 million or
more, the Company will apply the Excess Proceeds to the repayment of the Notes
and any other Pari Passu Indebtedness outstanding with similar provisions
requiring the Company to make an offer to purchase such Indebtedness with the
proceeds from any Asset Sale as follows: (A) the Company will make an offer to
purchase (an "Offer") from all holders of the Notes in accordance with the
procedures set forth in the Indenture in the maximum principal amount
(expressed as a multiple of $1,000) of Notes that may be purchased out of an
amount (the "Note Amount") equal to the product of such Excess Proceeds
multiplied by a fraction, the numerator of which is the outstanding principal
amount of the Notes, and the denominator of which is the sum of the
outstanding principal amount of the Notes and such Pari Passu Indebtedness
(subject to proration in the event such amount is less than the aggregate
Offered Price (as defined herein) of all Notes tendered) and (B) to the extent
required by such Pari Passu Indebtedness to permanently reduce the principal
amount of such Pari Passu Indebtedness, the Company will make an offer to
purchase or otherwise repurchase or redeem Pari Passu Indebtedness (a "Pari
Passu Offer") in an amount (the "Pari Passu Debt Amount") equal to the excess
of the Excess Proceeds over the Note Amount; provided that in no event will
the Company be required to make a Pari Passu Offer in a Pari Passu Debt Amount
exceeding the principal amount of such Pari Passu Indebtedness plus the amount
of any premium required to be paid to repurchase such Pari Passu Indebtedness.
The offer price for the Notes will be payable in cash in an amount equal to
100% of the principal amount of the Notes plus accrued and unpaid interest, if
any, to the date (the "Offer Date") such Offer is consummated (the "Offered
Price"), in accordance with the procedures set forth in the Indenture. To the
extent that the aggregate Offered Price of the Notes tendered pursuant to the
Offer is less than the Note Amount relating thereto or the aggregate amount of
Pari Passu Indebtedness that is purchased in a Pari Passu Offer is less than
the Pari Passu Debt Amount, the Company may use any remaining Excess Proceeds
for general corporate purposes. If the aggregate principal amount of Notes and
Pari Passu Indebtedness surrendered by holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro
rata basis. Upon the completion of the purchase of all the Notes tendered
pursuant to an Offer and the completion of a Pari Passu Offer, the amount of
Excess Proceeds, if any, shall be reset at zero.
(d) When the aggregate amount of Excess Proceeds exceeds $10 million, such
Excess Proceeds will, prior to any purchase of Notes described in paragraph
(c) above, be set aside by the Company in a separate account pending (i)
deposit with the depository or a paying agent of the amount required to
purchase the Notes tendered in an Offer or Pari Passu Indebtedness tendered in
a Pari Passu Offer, (ii) delivery by the Company of the Offered Price to the
holders of the Notes tendered in an Offer or Pari Passu Indebtedness tendered
in a Pari Passu Offer and (iii) application, as set forth above, of Excess
Proceeds in the business of the Company and its Subsidiaries
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for general corporate purposes. Such Excess Proceeds may be invested in
Temporary Cash Investments, provided that the maturity date of any such
investment made after the amount of Excess Proceeds exceeds $10 million shall
not be later than the Offer Date. The Company shall be entitled to any
interest or dividends accrued, earned or paid on such Temporary Cash
Investments; provided that the Company shall not withdraw such interest from
the separate account if an Event of Default has occurred and is continuing.
(e) If the Company becomes obligated to make an Offer pursuant to clause (c)
above, the Notes and the Pari Passu Indebtedness shall be purchased by the
Company, at the option of the holders thereof, in whole or in part in integral
multiples of $1,000, on a date that is not earlier than 45 days and not later
than 60 days from the date the notice of the Offer is given to holders, or
such later date as may be necessary for the Company to comply with the
requirements under the Exchange Act.
(f) The Company will comply with the applicable tender offer rules,
including Rule 14e-1 under the Exchange Act, and any other applicable
securities laws or regulations in connection with an Offer. (Section 1013)
Limitation on Issuances of Guarantees of Indebtedness. (a) The Company will
not permit any Restricted Subsidiary, other than the Guarantors, directly or
indirectly, to secure the payment of any Senior Indebtedness of the Company
and the Company will not, and will not permit any Restricted Subsidiary to,
pledge any intercompany notes representing obligations of any Restricted
Subsidiary (other than the Guarantors) to secure the payment of any Senior
Indebtedness unless in each case such Restricted Subsidiary simultaneously
executes and delivers a supplemental indenture to the Indenture providing for
a guarantee of payment of the Notes by such Restricted Subsidiary, which
guarantee shall be on the same terms as the guarantee of the Senior
Indebtedness (if a guarantee of Senior Indebtedness is granted by any such
Restricted Subsidiary) except that the guarantee of the Notes need not be
secured and shall be subordinated to the claims against such Restricted
Subsidiary in respect of Senior Indebtedness to the same extent as the Notes
are subordinated to Senior Indebtedness of the Company under the Indenture.
(b) The Company will not permit any Restricted Subsidiary, directly or
indirectly, to guarantee, assume or in any other manner become liable with
respect to any Indebtedness of the Company unless such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture to the Indenture
providing for a Guarantee of the Notes, on the same terms as the guarantee of
such Indebtedness except that (A) such guarantee need not be secured unless
required pursuant to "--Limitation on Liens," (B) if such Indebtedness is by
its terms Senior Indebtedness, any such assumption, guarantee or other
liability of such Restricted Subsidiary with respect to such Indebtedness
shall be senior to such Restricted Subsidiary's Guarantee of the Notes to the
same extent as such Senior Indebtedness is senior to the Notes and (C) if such
Indebtedness is by its terms expressly subordinated to the Notes, any such
assumption, guarantee or other liability of such Restricted Subsidiary with
respect to such Indebtedness shall be subordinated to such Restricted
Subsidiary's Guarantee of the Notes at least to the same extent as such
Indebtedness is subordinated to the Notes.
(c) Notwithstanding the foregoing, any Guarantee by a Restricted Subsidiary
of the Notes shall provide by its terms that it (and all Liens securing the
same) shall be automatically and unconditionally released and discharged upon
(i) any sale, exchange or transfer, to any Person not an Affiliate of the
Company, of all of the Company's Capital Stock in, or all or substantially all
the assets of, such Restricted Subsidiary, which transaction is in compliance
with the terms of the Indenture and such Restricted Subsidiary is released
from all guarantees, if any, by it of other Indebtedness of the Company or any
Restricted Subsidiaries or (ii) (with respect to any Guarantees created after
the date of the Indenture) the release by the holders of the Indebtedness of
the Company described in clauses (a) and (b) above of their security interest
or their guarantee by such Restricted Subsidiary (including any deemed release
upon payment in full of all obligations under such Indebtedness), at such time
as (A) no other Indebtedness of the Company has been secured or guaranteed by
such Restricted Subsidiary, as the case may be, or (B) the holders of all such
other Indebtedness which is secured or guaranteed by such Restricted
Subsidiary also release their security interest in, or guarantee by such
Restricted Subsidiary (including any deemed release upon payment in full of
all obligations under such Indebtedness). (Section 1014)
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Restriction on Transfer of Assets. The Company and the Guarantors will not
sell, convey, transfer or otherwise dispose of assets or property to any
Restricted Subsidiaries, except for sales, conveyances, transfers or other
dispositions (a) made in the ordinary course of business or (b) to any
Restricted Subsidiary if such Subsidiary is a Guarantor or simultaneously
executes and delivers a supplemental indenture to the Indenture providing for
a Guarantee of the payment of the Notes by such Restricted Subsidiary on a
senior subordinated basis. For purposes of this provision any sale,
conveyance, transfer, lease or other disposition of property or assets having
a Fair Market Value in excess of (a) $5 million for any sale, conveyance,
transfer or disposition or series of related sales, conveyances, transfers,
leases or dispositions and (b) $10 million in the aggregate for all such
sales, conveyances, transfers, leases or dispositions in any fiscal year of
the Company shall not be considered "in the ordinary course of business."
(Section 1015)
Purchase of Notes Upon a Change of Control. If a Change of Control shall
occur at any time, then each holder of Notes shall have the right to require
that the Company purchase such holder's Notes in whole or in part in integral
multiples of $1,000, at a purchase price (the "Change of Control Purchase
Price") in cash in an amount equal to 101% of the principal amount of such
Notes, plus accrued and unpaid interest, if any, to the date of purchase (the
"Change of Control Purchase Date"), pursuant to the offer described below (the
"Change of Control Offer") and in accordance with the other procedures set
forth in the Indenture.
Within 30 days following any Change of Control, the Company shall notify the
Trustee thereof and give written notice of such Change of Control to each
holder of Notes, by first-class mail, postage prepaid, at his address
appearing in the security register, stating, among other things: (i) the
purchase price and the purchase date which shall be fixed by the Company on a
business day no earlier than 30 days nor later than 60 days from the date such
notice is mailed, or such later date as is necessary to comply with
requirements under the Act; (ii) that any Note not tendered will continue to
accrue interest, (iii) that, unless the Company defaults in the payment of the
purchase price, any Notes accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of Control
Purchase Date and (iv) certain other procedures that a holder of Notes must
follow to accept a Change of Control Offer or to withdraw such acceptance.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Notes that might be delivered by holders of the
Notes seeking to accept the Change of Control Offer. See "--Ranking." The
failure of the Company to make or consummate the Change of Control Offer or
pay the Change of Control Purchase Price when due will give the Trustee and
the holders of the Notes the rights described under "--Events of Default."
The term "all or substantially all" as used in the definition of "Change of
Control" has not been interpreted under New York law (which is the governing
law of the Indenture) to represent a specific quantitative test. As a
consequence, in the event the holders of the Notes elected to exercise their
rights under the Indenture and the Company elected to contest such election,
there could be no assurance as to how a court interpreting New York law would
interpret the phrase.
The existence of a holder's right to require the Company to repurchase such
holder's Notes upon a Change of Control may deter a third party from acquiring
the Company in a transaction which constitutes a Change of Control.
In addition to the obligations of the Company under the Indenture with
respect to the Notes in the event of a "Change of Control," substantially all
of the Company's long-term Indebtedness also contains an event of default upon
a "Change of Control" as defined therein which obligates the Company to repay
amounts outstanding under such indebtedness upon an acceleration of the
Indebtedness issued thereunder. See "Description of Certain Other
Indebtedness."
The provisions of the Indenture will not afford holders of Notes the right
to require the Company to repurchase the Notes in the event of a highly
leveraged transaction or certain transactions with the Company's management or
its Affiliates, including a reorganization, restructuring, merger or similar
transaction (including,
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in certain circumstances, an acquisition of the Company by management or its
Affiliates) involving the Company that may adversely affect holders of the
Notes, if such transaction is not a transaction defined as a Change of
Control. A transaction involving the Company's management or its Affiliates,
or a transaction involving a recapitalization of the Company, will result in a
Change of Control if it is the type of transaction specified by such
definition.
The Company will comply with the applicable tender offer rules, including
Rule 14e-1 under the any other applicable securities laws or regulations in
connection with a Change of Control Offer. (Section 1016)
Limitation on Restricted Subsidiary Capital Stock. The Company will not
permit (a) any Restricted Subsidiary of the Company to issue, sell or transfer
any Capital Stock, except for (i) Capital Stock issued or sold to, held by or
transferred to the Company or a Wholly Owned Restricted Subsidiary, and (ii)
Capital Stock issued by a Person prior to the time (A) such Person becomes a
Restricted Subsidiary, (B) such Person merges with or into a Restricted
Subsidiary or (C) a Restricted Subsidiary merges with or into such Person;
provided that such Capital Stock was not issued or incurred by such Person in
anticipation of the type of transaction contemplated by subclause (A), (B) or
(C) or (b) any Person (other than the Company or a Wholly Owned Restricted
Subsidiary) to acquire Capital Stock of any Restricted Subsidiary from the
Company or any Wholly Owned Restricted Subsidiary except, in the case of
clause (a) or (b), upon the acquisition of all the outstanding Capital Stock
of such Restricted Subsidiary in accordance with the terms of the Indenture.
(Section 1017)
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other distribution on
its Capital Stock, (ii) pay any Indebtedness owed to the Company or any other
Restricted Subsidiary, (iii) make any Investment in the Company or any other
Restricted Subsidiary or (iv) transfer any of its properties or assets to the
Company or any other Restricted Subsidiary, except for: (a) any agreement in
effect on the date of the Indenture and listed on a schedule thereto; (b) any
encumbrance or restriction, with respect to a Restricted Subsidiary that is
not a Restricted Subsidiary of the Company on the date of the Indenture, in
existence at the time such Person becomes a Restricted Subsidiary of the
Company and not incurred in connection with, or in contemplation of, such
Person becoming a Restricted Subsidiary; and (c) any encumbrance or
restriction existing under any agreement that extends, renews, refinances or
replaces the agreements containing the encumbrances or restrictions in the
foregoing clauses (a) and (b), or in this clause (c), provided that the terms
and conditions of any such encumbrances or restrictions are no more
restrictive in any material respect than those under or pursuant to the
agreement evidencing the Indebtedness so extended, renewed, refinanced or
replaced. (Section 1018)
Limitations on Unrestricted Subsidiaries. The Company will not make, and
will not permit its Restricted Subsidiaries to make, any Investment in
Unrestricted Subsidiaries if, at the time thereof, the aggregate amount of
such Investments would exceed the amount of Restricted Payments then permitted
to be made pursuant to the "--Limitation on Restricted Payments" covenant. Any
Investments in Unrestricted Subsidiaries permitted to be made pursuant to this
covenant (i) will be treated as a Restricted Payment in calculating the amount
of Restricted Payments made by the Company and (ii) may be made in cash or
property. (Section 1019)
Provision of Financial Statements. The Indenture provides that, whether or
not the Company or any Guarantor is subject to Section 13(a) or 15(d) of the
Exchange Act, the Company and such Guarantor will, to the extent permitted
under the Exchange Act, file with the Commission the annual reports, quarterly
reports and other documents which the Company and such Guarantor would have
been required to file with the Commission pursuant to such Section 13(a) or
15(d) if the Company and such Guarantor were so subject, such documents to be
filed with the Commission on or prior to the date (the "Required Filing Date")
by which the Company and such Guarantor would have been required so to file
such documents if the Company were so subject. The Company and such Guarantor
will also in any event (x) within 15 days of each Required Filing Date (i)
transmit by mail to all holders, as their names and addresses appear in the
security register, without cost to such holders and (ii) file with the Trustee
copies of the annual reports, quarterly reports and other documents which the
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Company and such Guarantor would have been required to file with the
Commission pursuant to Section 13(a) or 15(d) of the Exchange Act if the
Company and such Guarantor were subject to either of such Sections and (y) if
filing such documents by the Company and such Guarantor with the Commission is
not permitted under the Exchange Act, promptly upon written request and
payment of the reasonable cost of duplication and delivery, supply copies of
such documents to any prospective holder at the Company's and such Guarantor's
cost. (Section 1020)
Additional Covenants. The Indenture also contains covenants with respect to
the following matters: (i) payment of principal, premium and interest; (ii)
maintenance of an office or agency in The City of New York; (iii) arrangements
regarding the handling of money held in trust; (iv) maintenance of corporate
existence; (v) payment of taxes and other claims; (vi) maintenance of
properties; and (vii) maintenance of insurance.
CONSOLIDATION, MERGER, SALE OF ASSETS
The Company will not, in a single transaction or through a series of related
transactions, consolidate with or merge with or into any other Person or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially
all of its properties and assets to any Person or group of affiliated Persons,
or permit any of its Subsidiaries to enter into any such transaction or series
of related transactions if such transaction or series of related transactions,
in the aggregate, would result in a sale, assignment, conveyance, transfer,
lease or disposition of all or substantially all of the properties and assets
of the Company and its Restricted Subsidiaries on a Consolidated basis to any
other Person or group of affiliated Persons, unless at the time and after
giving effect thereto (i) either (a) the Company will be the continuing
corporation or (b) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person which acquires
by sale, assignment, conveyance, transfer, lease or disposition all or
substantially all of the properties and assets of the Company and its
Subsidiaries on a Consolidated basis (the "Surviving Entity") will be a
corporation duly organized and validly existing under the laws of the United
States of America, any state thereof or the District of Columbia and such
Person expressly assumes, by a supplemental indenture, in a form satisfactory
to the Trustee, all the obligations of the Company under the Notes and the
Indenture, as the case may be, and the Notes and the Indenture will remain in
full force and effect as so supplemented; (ii) immediately before and
immediately after giving effect to such transaction on a pro forma basis (and
treating any Indebtedness not previously an obligation of the Company or any
of its Restricted Subsidiaries which becomes the obligation of the Company or
any of its Restricted Subsidiaries as a result of such transaction as having
been incurred at the time of such transaction), no Default or Event of Default
will have occurred and be continuing; (iii) immediately after giving effect to
such transaction on a pro forma basis (and treating any Indebtedness not
previously an obligation of the Company or any of its Restricted Subsidiaries
which becomes the obligation of the Company or any of its Subsidiaries as a
result of such transaction as having been incurred at the time of such
transaction), the Consolidated Net Worth of the Company (or the Surviving
Entity if the Company is not the continuing obligor under the Indenture) is
equal to or greater than the Consolidated Net Worth of the Company immediately
prior to such transaction; (iv) immediately before and immediately after
giving effect to such transaction on a pro forma basis (on the assumption that
the transaction occurred on the first day of the four-quarter period
immediately prior to the consummation of such transaction with the appropriate
adjustments with respect to the transaction being included in such pro forma
calculation), the Company (or the Surviving Entity if the Company is not the
continuing obligor under the Indenture) could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the provisions of "--
Certain Covenants--Limitation on Indebtedness;" (v) at the time of the
transaction each Guarantor, if any, unless it is the other party to the
transactions described above, will have by supplemental indenture confirmed
that its Guarantees shall apply to such Person's obligations under the
Indenture and the Notes; (vi) at the time of the transaction if any of the
property or assets of the Company or any of its Restricted Subsidiaries would
thereupon become subject to any Lien, the provisions of "--Certain Covenants--
Limitation on Liens" are complied with; and (vii) at the time of the
transaction the Company or the Surviving Entity will have delivered, or caused
to be delivered, to the Trustee, in form and substance reasonably satisfactory
to the Trustee, an officers' certificate and an opinion of counsel, each to
the effect that such consolidation, merger, transfer, sale, assignment,
conveyance, transfer, lease or other transaction and the supplemental
indenture in
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respect thereof comply with the Indenture and that all conditions precedent
therein provided for relating to such transaction have been complied with.
(Section 801)
Each Guarantor shall not, and the Company will not permit a Guarantor to, in
a single transaction or through a series of related transactions, consolidate
with or merge with or into any other Person (other than the Company or any
Restricted Subsidiary) or sell, assign, convey, transfer, lease or otherwise
dispose of all or substantially all of its properties and assets on a
Consolidated basis to any Person or group of affiliated Persons (other than
the Company or any Restricted Subsidiary), or permit any of its Restricted
Subsidiaries to enter into any such transaction or series of related
transactions if such transaction or series of related transactions, in the
aggregate, would result in a sale, assignment, conveyance, transfer, lease or
disposition of all or substantially all of the properties and assets of the
Guarantor and its Restricted Subsidiaries on a Consolidated basis to any other
Person or group of affiliated Persons (other than the Company or any
Guarantor), unless at the time and after giving effect thereto (i) either (a)
the Guarantor will be the continuing corporation or (b) the Person (if other
than the Guarantor ) formed by such consolidation or into which such Guarantor
is merged or the Person which acquires by sale, assignment, conveyance,
transfer, lease or disposition all or substantially all of the properties and
assets of the Guarantor and its Subsidiaries on a Consolidated basis (the
"Surviving Guarantor Entity") will be a corporation duly organized and validly
existing under the laws of the United States of America, any state thereof or
the District of Columbia and such Person expressly assumes, by a supplemental
indenture, in a form satisfactory to the Trustee, all the obligations of such
Guarantor under its Guarantee of the Notes and the Indenture and such
Guarantee will remain in full force and effect; (ii) immediately before and
immediately after giving effect to such transaction on a pro forma basis, no
Default or Event of Default will have occurred and be continuing; and (iii) at
the time of the transaction such Guarantor or the Surviving Guarantor Entity
will have delivered, or caused to be delivered, to the Trustee, in form and
substance reasonably satisfactory to the Trustee, an officers' certificate and
an opinion of counsel, each to the effect that such consolidation, merger,
transfer, sale, assignment, conveyance, transfer, lease or other transaction
and the supplemental indenture in respect thereof comply with the Indenture
and that all conditions precedent therein provided for relating to such
transaction have been complied with. (Section 801)
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the two immediately preceding
paragraphs in which the Company or any Guarantor, as the case may be, is not
the continuing corporation, the successor Person formed or remaining shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company, and the Company or any Guarantor, as the case may be, would be
discharged from all obligations and covenants under the Indenture and the
Notes or its Guarantee, as the case may be. (Section 802)
EVENTS OF DEFAULT
An Event of Default will occur under the Indenture if:
(i) there shall be a default in the payment of any interest on any Note
when it becomes due and payable, and such default shall continue for a
period of 30 days;
(ii) there shall be a default in the payment of the principal of (or
premium, if any, on) any Note at its Maturity (upon acceleration, optional
or mandatory redemption, if any, required repurchase or otherwise);
(iii) (a) there shall be a default in the performance, or breach, of any
covenant or agreement of the Company or any Guarantor under the Indenture
or any Guarantee (other than a default in the performance, or breach, of a
covenant or agreement which is specifically dealt with in clause (i) or
(ii) or in clause (b), (c) or (d) of this clause (iii)) and such default or
breach shall continue for a period of 30 days after written notice has been
given, by certified mail, (x) to the Company by the Trustee or (y) to the
Company and the Trustee by the holders of at least 25% in aggregate
principal amount of the outstanding Notes; (b) there shall be a default in
the performance or breach of the provisions described in "--Consolidation,
Merger, Sale of Assets;" (c) the Company shall have failed to make or
consummate an Offer in accordance with the provisions of "--Certain
Covenants--Limitation on Sale of Assets;" or (d) the Company shall have
failed to make or consummate a Change of Control Offer in accordance with
the provisions of "--Certain Covenants--Purchase of Notes Upon a Change of
Control;"
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(iv) one or more defaults shall have occurred under any agreements,
indentures or instruments under which the Company, any Guarantor or any
Restricted Subsidiary then has outstanding Indebtedness in excess of $5
million, individually or in the aggregate, and either (a) such default
results from the failure to pay such Indebtedness at its final maturity or
(b) such default or defaults have resulted in the acceleration of the
maturity of such Indebtedness;
(v) any Guarantee shall for any reason cease to be, or shall for any
reason be asserted in writing by any Guarantor or the Company not to be, in
full force and effect and enforceable in accordance with its terms except
to the extent contemplated by the Indenture and any such Guarantee;
(vi) one or more judgments, orders or decrees for the payment of money in
excess of $5 million, either individually or in the aggregate, shall be
rendered against the Company, any Guarantor or any Restricted Subsidiary or
any of their respective properties and shall not be discharged and either
(a) any creditor shall have commenced an enforcement proceeding upon such
judgment, order or decree or (b) there shall have been a period of 60
consecutive days during which a stay of enforcement of such judgment or
order, by reason of an appeal or otherwise, shall not be in effect;
(vii) any holder or holders of at least $10 million in aggregate
principal amount of Indebtedness of the Company, any Guarantor or any
Restricted Subsidiary after a default under such Indebtedness shall notify
the Trustee of the intended sale or disposition of any assets of the
Company, any Guarantor or any Subsidiary that have been pledged to or for
the benefit of such holder or holders to secure such Indebtedness or shall
commence proceedings, or take any action (including by way of set-off), to
retain in satisfaction of such Indebtedness or to collect on, seize,
dispose of or apply in satisfaction of Indebtedness, assets of the Company,
any Guarantor or any Restricted Subsidiary (including funds on deposit or
held pursuant to lock-box and other similar arrangements);
(viii) there shall have been the entry by a court of competent
jurisdiction of (a) a decree or order for relief in respect of the Company,
any Guarantor or any Significant Restricted Subsidiary in an involuntary
case or proceeding under any applicable Bankruptcy Law or (b) a decree or
order adjudging the Company, any Guarantor or any Significant Restricted
Subsidiary bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment or composition of or in respect of the Company, any Guarantor or
any Significant Restricted Subsidiary under any applicable federal or state
law, or appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Company, any Guarantor or
any Significant Restricted Subsidiary or of any substantial part of their
respective properties, or ordering the winding up or liquidation of their
respective affairs, and any such decree or order for relief shall continue
to be in effect, or any such other decree or order shall be unstayed and in
effect, for a period of 60 consecutive days; or
(ix) (a) the Company, any Guarantor or any Significant Restricted
Subsidiary commences a voluntary case or proceeding under any applicable
Bankruptcy Law or any other case or proceeding to be adjudicated bankrupt
or insolvent, (b) the Company, any Guarantor or any Significant Restricted
Subsidiary consents to the entry of a decree or order for relief in respect
of the Company, such Guarantor or such Significant Restricted Subsidiary in
an involuntary case or proceeding under any applicable Bankruptcy Law or to
the commencement of any bankruptcy or insolvency case or proceeding against
it, (c) the Company, any Guarantor or any Significant Restricted Subsidiary
files a petition or answer or consent seeking reorganization or relief
under any applicable federal or state law, (d) the Company, any Guarantor
or any Significant Restricted Subsidiary (I) consents to the filing of such
petition or the appointment of, or taking possession by, a custodian,
receiver, liquidator, assignee, trustee, sequestrator or similar official
of the Company, any Guarantor or such Significant Restricted Subsidiary or
of any substantial part of their respective properties, (II) makes an
assignment for the benefit of creditors or (III) admits in writing its
inability to pay its debts generally as they become due or (e) the Company,
any Guarantor or any Significant Restricted Subsidiary takes any corporate
action in furtherance of any such actions in this paragraph (ix). (Section
501)
If an Event of Default (other than as specified in clauses (viii) and (ix)
of the prior paragraph) shall occur and be continuing with respect to the
Indenture, the Trustee or the holders of not less than 25% in aggregate
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principal amount of the Notes then outstanding may, and the Trustee at the
request of such holders shall, declare all unpaid principal of, premium, if
any, and accrued interest on all Notes to be due and payable, by a notice in
writing to the Company (and to the Trustee if given by the holders of the
Notes) and upon any such declaration, such principal, premium, if any, and
interest shall become due and payable immediately. If an Event of Default
specified in clause (viii) or (ix) of the prior paragraph occurs with respect
to the Company, any Guarantor or any Significant Restricted Subsidiary and is
continuing, then all the Notes shall ipso facto become and be due and payable
immediately in an amount equal to the principal amount of the Notes, together
with accrued and unpaid interest, if any, to the date the Notes become due and
payable, without any declaration or other act on the part of the Trustee or
any holder. Thereupon, the Trustee may, at its discretion, proceed to protect
and enforce the rights of the holders of Notes by appropriate judicial
proceedings.
At any time after a declaration of acceleration, but before a judgment or
decree for payment of the money due has been obtained by the Trustee, the
holders of a majority in aggregate principal amount of Notes outstanding by
written notice to the Company and the Trustee, may rescind and annul such
declaration and its consequences if (a) the Company has paid or deposited with
the Trustee a sum sufficient to pay (i) all sums paid or advanced by the
Trustee under the Indenture and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, (ii) all
overdue interest on all Notes then outstanding, (iii) the principal of and
premium, if any, on any Notes then outstanding which have become due otherwise
than by such declaration of acceleration and interest thereon at a rate borne
by the Notes and (iv) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate borne by the Notes; and (b) all
Events of Default, other than the non-payment of principal of the Notes which
have become due solely by such declaration of acceleration, have been cured or
waived as provided in the Indenture. (Section 502)
The holders of not less than a majority in aggregate principal amount of the
Notes outstanding may on behalf of the holders of all outstanding Notes waive
any past default under the Indenture and its consequences, except a default in
the payment of the principal of, premium, if any, or interest on any Note or
in respect of a covenant or provision which under the Indenture cannot be
modified or amended without the consent of the holder of each Note affected by
such modification or amendment. (Section 513)
The Company is also required to notify the Trustee within five business days
of the occurrence of any Default. The Company is required to deliver to the
Trustee, on or before a date not more than 60 days after the end of each
fiscal quarter and not more than 120 days after the end of each fiscal year, a
written statement as to compliance with the Indenture, including whether or
not any Default has occurred. (Section 1021) The Trustee is under no
obligation to exercise any of the rights or powers vested in it by the
Indenture at the request or direction of any of the holders of the Notes
unless such holders offer to the Trustee security or indemnity satisfactory to
the Trustee against the costs, expenses and liabilities which might be
incurred thereby. (Section 603)
The Trust Indenture Act contains limitations on the rights of the Trustee,
should it become a creditor of the Company or any Guarantor, if any, to obtain
payment of claims in certain cases or to realize on certain property received
by it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions, provided that if it acquires any
conflicting interest it must eliminate such conflict upon the occurrence of an
Event of Default or else resign.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, elect to have the
obligations of the Company, any Guarantor and any other obligor upon the Notes
discharged with respect to the outstanding Notes ("defeasance"). Such
defeasance means that the Company, any such Guarantor and any other obligor
under the Indenture shall be deemed to have paid and discharged the entire
Indebtedness represented by the outstanding Notes, except for (i) the rights
of holders of such outstanding Notes to receive payments in respect of the
principal of, premium, if any, and interest on such Notes when such payments
are due, (ii) the Company's obligations with respect to the Notes concerning
issuing temporary Notes, registration of Notes, mutilated,
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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, trusts, duties and immunities of the Trustee and (iv) the 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 any Guarantor
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 an Event of Default with respect
to the Notes. In the event covenant defeasance occurs, certain events (not
including non-payment, bankruptcy and insolvency events) described under "--
Events of Default" will no longer constitute an Event of Default with respect
to the Notes. (Sections 401, 402 and 403)
In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Notes cash in United States dollars, U.S. Government
Obligations (as defined in the Indenture), or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm
of independent public accountants or a nationally recognized investment
banking firm, to pay and discharge the principal of, premium, if any, and
interest on the outstanding Notes on the Stated Maturity (or on any date after
October 15, 2002 (such date being referred to as the "Defeasance Redemption
Date"), if at or prior to electing either defeasance or covenant defeasance,
the Company has delivered to the Trustee an irrevocable notice to redeem all
of the outstanding Notes on the Defeasance Redemption Date); (ii) in the case
of defeasance, the Company shall have delivered to the Trustee an opinion of
independent counsel in the United States stating 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 independent counsel in the United States shall
confirm that, the holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such 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 defeasance
had not occurred; (iii) in the case of covenant defeasance, the Company shall
have delivered to the Trustee an opinion of independent counsel in the United
States to the effect that the holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such covenant defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such covenant defeasance had not occurred; (iv) no Default or Event of
Default (other than a Default or Event of Default under the Indenture
resulting from the borrowing of funds to be applied to such deposit) shall
have occurred and be continuing on the date of such deposit or insofar as
clauses (viii) or (ix) under the first paragraph under "--Events of Default"
are concerned, at any time during the period ending on the 91st day after the
date of deposit; (v) such defeasance or covenant defeasance shall not cause
the Trustee for the Notes to have a conflicting interest as defined in the
Indenture and for purposes of the Trust Indenture Act with respect to any
securities of the Company or any Guarantor; (vi) such 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, any Guarantor or any Subsidiary is a party or by which it
is bound; (vii) such defeasance or covenant defeasance shall not result in the
trust arising from such deposit constituting an investment company within the
meaning of the Investment Company Act of 1940, as amended, unless such trust
shall be registered under such Act or exempt from registration thereunder;
(viii) the Company will have delivered to the Trustee an opinion of
independent counsel in the United States to the effect that after the 91st day
following the deposit, the trust funds will not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; (ix) 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 the Notes or any
Guarantee over the other creditors of the Company or any Guarantor with the
intent of defeating, hindering, delaying or defrauding creditors of the
Company, any Guarantor or others; (x) no event or condition shall exist that
would prevent the Company from making payments of the principal of, premium,
if any, and interest on the Notes on the date of such deposit or at any time
ending on the 91st day after the date of such deposit; and (xi) the Company
will have delivered to the Trustee an officers' certificate and an opinion of
independent counsel, each stating that all conditions precedent provided for
relating to either the defeasance or the covenant defeasance, as the case may
be, have been complied with. (Section 404)
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SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
Notes as expressly provided for in the Indenture) as to all outstanding Notes
under the Indenture when (a) either (i) all such Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Notes which have
been replaced or paid or Notes whose payment has been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust as provided for in the Indenture) have
been delivered to the Trustee for cancellation or (ii) all Notes not
theretofore delivered to the Trustee for cancellation (x) have become due and
payable, (y) will become due and payable at their Stated Maturity within one
year, or (z) are to be called for redemption within one year under
arrangements satisfactory to the applicable Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of the Company;
and the Company or any Guarantor has irrevocably deposited or caused to be
deposited with the Trustee as trust funds in trust an amount in United States
dollars sufficient to pay and discharge the entire indebtedness on the Notes
not theretofore delivered to the Trustee for cancellation, including principal
of, premium, if any, and accrued interest at such Maturity, Stated Maturity or
redemption date; (b) the Company or any Guarantor has paid or caused to be
paid all other sums payable under the Indenture by the Company and any
Guarantor; and (c) the Company has delivered to the Trustee an officers'
certificate and an opinion of independent counsel each stating that (i) all
conditions precedent under the Indenture relating to the satisfaction and
discharge of such Indenture have been complied with and (ii) such satisfaction
and discharge will 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, any Guarantor or any Subsidiary is a party or by which the
Company, any Guarantor or any Subsidiary is bound. (Section 1201)
MODIFICATIONS AND AMENDMENTS
Modifications and amendments of the Indenture may be made by the Company,
each Guarantor, if any, and the Trustee with the consent of the holders of at
least a majority of aggregate principal amount of the Notes then outstanding;
provided, however, that no such modification or amendment may, without the
consent of the holder of each outstanding Note affected thereby: (i) change
the Stated Maturity of the principal of, or any installment of interest on, or
change to an earlier date any redemption date of, or waive a default in the
payment of the principal or interest on any such Note or reduce the principal
amount thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or change the coin or currency in which the principal of
any such 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, on or after the
redemption date); (ii) amend, change or modify the obligation of the Company
to make and consummate an Offer with respect to any Asset Sale or Asset Sales
in accordance with "--Certain Covenants--Limitation on Sale of Assets" or the
obligation of the Company to make and consummate a Change of Control Offer in
the event of a Change of Control in accordance with "--Certain Covenants--
Purchase of Notes Upon a Change of Control," including, in each case,
amending, changing or modifying any definitions relating thereto; (iii) reduce
the percentage in principal amount of such outstanding Notes, the consent of
whose holders is required for any such supplemental indenture, or the consent
of whose holders is required for any waiver or compliance with certain
provisions of the Indenture; (iv) modify any of the provisions relating to
supplemental indentures requiring the consent of holders or relating to the
waiver of past defaults or relating to the waiver of certain covenants, except
to increase the percentage of such outstanding Notes required for such actions
or to provide that certain other provisions of the Indenture cannot be
modified or waived without the consent of the holder of each such Note
affected thereby; (v) except as otherwise permitted under "--Consolidation,
Merger, Sale of Assets," consent to the assignment or transfer by the Company
or any Guarantor of any of its rights and obligations under the Indenture; or
(vi) amend or modify any of the provisions of the Indenture relating to the
subordination of the Notes or any Guarantee thereof in any manner adverse to
the holders of the Notes or any such Guarantee. (Section 902) No amendment or
modification of the Indenture shall adversely affect the rights of any holders
of Senior Indebtedness under the subordination provisions of the Indenture
unless the requisite holders of such issue of Senior Indebtedness affected
thereby shall have consented to such amendment or modification. (Section 909)
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Notwithstanding the foregoing, without the consent of any holders of the
Notes, the Company, any Guarantor, any other obligor under the Notes and the
Trustee may modify or amend the Indenture: (a) to evidence the succession of
another Person to the Company or a Guarantor, and the assumption by any such
successor of the covenants of the Company or such Guarantor in the Indenture
and in the Notes and in any Guarantee in accordance with "--Consolidation,
Merger, Sale of Assets"; (b) to add to the covenants of the Company, any
Guarantor or any other obligor upon the Notes for the benefit of the holders
of the Notes or to surrender any right or power conferred upon the Company or
any Guarantor or any other obligor upon the Notes, as applicable, in the
Indenture, in the Notes or in any Guarantee; (c) to cure any ambiguity, or to
correct or supplement any provision in the Indenture, the Notes or any
Guarantee which may be defective or inconsistent with any other provision in
the Indenture, the Notes or any Guarantee or make any other provisions with
respect to matters or questions arising under the Indenture, the Notes or any
Guarantee; provided that, in each case, such provisions shall not adversely
affect the interest of the holders of the Notes; (d) to comply with the
requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act; (e) to add a
Guarantor under the Indenture; (f) to evidence and provide the acceptance of
the appointment of successor Trustee under the Indenture; or (g) to mortgage,
pledge, hypothecate or grant a security interest in favor of the Trustee for
the benefit of the holders of the Notes as additional security for the payment
and performance of the Company's and any Guarantor's obligations under the
Indenture, in any property, or assets, including any of which are required to
be mortgaged, pledged or hypothecated, or in which a security interest is
required to be granted to the Trustee pursuant to the Indenture or otherwise.
(Section 901)
The holders of a majority in aggregate principal amount of the Notes
outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture. (Section 1022)
GOVERNING LAW
The Indenture and the Guarantees are, and the Exchange Notes will be,
governed by, and construed in accordance with, the laws of the State of New
York, without giving effect to the conflicts of law principles thereof.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a Person (i) existing at the
time such Person becomes a Restricted Subsidiary or (ii) assumed in connection
with the acquisition of assets from such Person, in each case, other than
Indebtedness incurred in connection with, or in contemplation of, such Person
becoming a Restricted Subsidiary or such acquisition, as the case may be.
Acquired Indebtedness shall be deemed to be incurred on the date of the
related acquisition of assets from any Person or the date the acquired Person
becomes a Restricted Subsidiary, as the case may be.
"Affiliate" means, with respect to any specified Person: (i) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person; (ii) any other Person that
owns, directly or indirectly, 5% or more of such specified Person's Capital
Stock or any officer or director of any such specified Person or other Person
or, with respect to any natural Person, any person having a relationship with
such Person by blood, marriage or adoption not more remote than first cousin;
or (iii) any other Person 5% or more of the Voting Stock of which is
beneficially owned or held directly or indirectly by such specified Person.
For the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition (including, without limitation, by way of merger, consolidation or
Sale and Leaseback Transaction) (collectively, a "transfer"), directly or
indirectly, in one or a series of related transactions, of: (i) any Capital
Stock of any Subsidiary; (ii) all or substantially all of the properties and
assets of any division or line of business of the Company or its
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Subsidiaries; or (iii) any other properties or assets of the Company or any
Subsidiary other than in the ordinary course of business. For the purposes of
this definition, the term "Asset Sale" shall not include any transfer of
properties and assets (A) that is governed by the provisions described under
"--Consolidation, Merger, Sale of Assets," (B) that is by the Company to any
Guarantor, or by any Subsidiary to the Company or any Wholly Owned Subsidiary
in accordance with the terms of the Indenture, (C) that is of damaged, worn-
out or obsolete equipment in the ordinary course of business or (D) the Fair
Market Value of which in the aggregate does not exceed $1 million.
"Average Life to Stated Maturity" means, as of the date of determination
with respect to any Indebtedness, the quotient obtained by dividing (i) the
sum of the products of (a) the number of years from the date of determination
to the date or dates of each successive scheduled principal payment of such
Indebtedness multiplied by (b) the amount of each such principal payment by
(ii) the sum of all such principal payments.
"Bankruptcy Law" means Title 11, United States Bankruptcy Code of 1978, as
amended, or any similar United States federal or state law relating to
bankruptcy, insolvency, receivership, winding up, liquidation, reorganization
or relief of debtors or any amendment to, succession to or change in any such
law.
"Capital Lease Obligation" of any Person means any obligation of such Person
and its Subsidiaries on a Consolidated basis under any capital lease of real
or personal property which, in accordance with GAAP, has been recorded as a
capitalized lease obligation.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of such Person's
capital stock or other equity interests whether now outstanding or issued
after the date of the Indenture.
"Change of Control" means the occurrence of any of the following events: (i)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed
to have beneficial ownership of all shares that such Person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 50% of the total
outstanding Voting Stock of the Company; (ii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the board of directors of the Company (together with any new directors whose
election to such board of directors or whose nomination for election by the
stockholders of the Company was approved by a vote of 66 2/3% of the directors
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved),
cease for any reason to constitute a majority of such board of directors then
in office; (iii) the Company consolidates with or merges with or into any
Person or conveys, transfers or leases all or substantially all of its assets
to any Person, or any corporation consolidates with or merges into or with the
Company in any such event pursuant to a transaction in which the outstanding
Voting Stock of the Company is changed into or exchanged for cash, securities
or other property, other than any such transaction where the outstanding
Voting Stock of the Company is not changed or exchanged at all (except to the
extent necessary to reflect a change in the jurisdiction of incorporation of
the Company) or where (A) the outstanding Voting Stock of the Company is
changed into or exchanged for (x) Voting Stock of the surviving corporation
which is not Redeemable Capital Stock or (y) cash, securities and other
property (other than Capital Stock of the surviving corporation) in an amount
which could be paid by the Company as a Restricted Payment as described under
"--Certain Covenants--Limitation on Restricted Payments" (and such amount
shall be treated as a Restricted Payment subject to the provisions in the
Indenture described under "--Certain Covenants--Limitation on Restricted
Payments") and (B) no "person" or "group" owns immediately after such
transaction, directly or indirectly, more than 50% of the total outstanding
Voting Stock of the surviving corporation; or (iv) the Company is liquidated
or dissolved or adopts a plan of liquidation or dissolution other than in a
transaction which complies with the provisions described under "--
Consolidation, Merger, Sale of Assets."
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or if at any time after the
execution of the Indenture such Commission is not existing
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and performing the duties now assigned to it under the Trust Indenture Act
then the body performing such duties at such time.
"Commodity Price Protection Agreement" means any forward contract, commodity
swap, commodity option or other similar financial agreement or arrangement
relating to, or the value of which is dependent upon, fluctuations in
commodity prices.
"Common Stock" means the common stock, $.001 par value per share, of the
Company.
"Company" means The Maxim Group, Inc., a corporation incorporated under the
laws of Delaware, until a successor Person shall have become such pursuant to
the applicable provisions of the Indenture, and thereafter "Company" shall
mean such successor Person.
"Consolidated Fixed Charge Coverage Ratio" of any Person means, for any
period, the ratio of (a) the sum of Consolidated Net Income (Loss),
Consolidated Interest Expense, Consolidated Income Tax Expense and
Consolidated Non-cash Charges deducted in computing Consolidated Net Income
(Loss) in each case, for such period, of such Person and its Restricted
Subsidiaries on a Consolidated basis, all determined in accordance with GAAP
to (b) the sum of Consolidated Interest Expense for such period and cash and
non-cash dividends paid on any Preferred Stock of such Person during such
period; provided that (i) in making such computation, the Consolidated
Interest Expense attributable to interest on any Indebtedness computed on a
pro forma basis and (A) bearing a floating interest rate shall be computed as
if the rate in effect on the date of computation had been the applicable rate
for the entire period and (B) which was not outstanding during the period for
which the computation is being made but which bears, at the option of such
Person, a fixed or floating rate of interest, shall be computed by applying at
the option of such Person either the fixed or floating rate and (ii) in making
such computation, the Consolidated Interest Expense of such Person
attributable to interest on any Indebtedness under a revolving credit facility
computed on a pro forma basis shall be computed based upon the average daily
balance of such Indebtedness during the applicable period.
"Consolidated Income Tax Expense" of any Person means, for any period, the
provision for federal, state, local and foreign income taxes of such Person
and its Consolidated Restricted Subsidiaries for such period as determined in
accordance with GAAP.
"Consolidated Interest Expense" of any Person means, without duplication,
for any period, the sum of (a) the interest expense of such Person and its
Restricted Subsidiaries for such period, on a Consolidated basis, including,
without limitation, (i) amortization of debt discount, (ii) the net costs
associated with Interest Rate Agreements, Currency Hedging Arrangements and
Commodity Price Protection Agreements (including amortization of discounts),
(iii) the interest portion of any deferred payment obligation and (iv) accrued
interest, plus (b) (i) the interest component of the Capital Lease Obligations
paid, accrued and/or scheduled to be paid or accrued by such Person and its
Subsidiaries during such period and (ii) all capitalized interest of such
Person and its Subsidiaries plus (c) the interest expense under any Guaranteed
Debt of such Person and any Restricted Subsidiary to the extent not included
under clause (a)(iv) above.
"Consolidated Net Income (Loss)" of any Person means, for any period, the
Consolidated net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a Consolidated basis as determined in
accordance with GAAP, adjusted, to the extent included in calculating such net
income (or loss), by excluding, without duplication, (i) all extraordinary
gains or losses, net of taxes (less all fees and expenses relating thereto),
(ii) the portion of net income (or loss) of such Person and its Restricted
Subsidiaries on a Consolidated basis allocable to minority interests in
unconsolidated Persons to the extent that cash dividends or distributions have
not actually been received by such Person or one of its Consolidated
Restricted Subsidiaries, (iii) net income (or loss) of any Person combined
with such Person or any of its Restricted Subsidiaries on a "pooling of
interests" basis attributable to any period prior to the date of combination,
(iv) any gain or loss, net of taxes, realized upon the termination of any
employee pension benefit plan, (v) net gains (or losses), net of taxes (less
all fees and expenses relating thereto), in respect of dispositions of assets
other than in the ordinary course of business,
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(vi) the net income of any Restricted Subsidiary to the extent that the
declaration of dividends or similar distributions by that Restricted
Subsidiary of that income is not at the time permitted, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders, (vii) any
restoration to income of any contingency reserve, net of taxes, except to the
extent provision for such reserve was made out of income accrued at any time
following the date of the Indenture, or (viii) any gain, net of taxes, arising
from the acquisition of any securities, or the extinguishment, under GAAP, of
any Indebtedness of such Person.
"Consolidated Net Worth" of any Person, as of a date, means the Consolidated
stockholders' equity (excluding Redeemable Capital Stock) of such Person and
its Restricted Subsidiaries, as of such date, as determined in accordance with
GAAP.
"Consolidated Non-cash Charges" of any Person means, for any period, the
aggregate depreciation, amortization and other non-cash charges of such Person
and its Restricted Subsidiaries on a Consolidated basis for such period, as
determined in accordance with GAAP (excluding any non-cash charge which
requires an accrual or reserve for cash charges for any future period).
"Consolidation" means, with respect to any Person, the consolidation of the
accounts of such Person and each of its Restricted Subsidiaries if and to the
extent the accounts of such Person and each of its Restricted Subsidiaries
would normally be consolidated with those of such Person, all in accordance
with GAAP. The term "Consolidated" shall have a similar meaning.
"Credit Facility" means the Credit Agreement dated as of August 26, 1997 by
and among the Company and the Guarantors as co-Borrowers, and First Union
National Bank, NationsBank, N.A., Fleet National Bank and the other lenders
named therein, 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, lenders or holders, and, subject to the provisos to
the next sentence, irrespective of any changes in the terms and conditions
thereof. Without limiting the generality of the foregoing, the term "Credit
Facility" shall include any amendment, amendment and restatement, renewal,
extension, restructuring, supplement or modification to the Credit Facility
and all refundings, refinancings and replacements of the Credit Facility,
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 the Company
and its 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 exceed the amount
permitted to be incurred by clause (i) of the definition of Permitted
Indebtedness or (iv) otherwise altering the terms and conditions thereof;
provided, further, that in the case of clauses (i) through (iv), any such
agreement is not prohibited by the terms of the Indenture.
"Currency Hedging Arrangements" means one or more of the following
agreements which shall be entered into by one or more financial institutions:
foreign exchange contracts, currency swap agreements or other similar
agreements or arrangements designed to protect against the fluctuations in
currency values.
"Default" means any event which is, or after notice or passage of any time
or both would be, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series of
related transactions, a member of the board of directors of the Company who
does not have any material direct or indirect financial interest in or with
respect to such transaction or series of related transactions. No non-
management director shall be deemed not to be a Disinterested Director by
reason of his or her receipt of reasonable and customary director's fees or
the participation in reasonable and customary director's stock grant, stock
option or stock benefit plans, or such other form of director remuneration as
is reasonable and customary.
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"Exchange Act" means the Securities Exchange Act of 1934, as amended, or any
successor statute.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied,
which are in effect on the date of the Indenture.
"Guarantee" means the guarantee by any Guarantor of the Company's Indenture
Obligations pursuant to a guarantee given in accordance with the Indenture.
"Guaranteed Debt" of any Person means, without duplication, all Indebtedness
of any other Person referred to in the definition of Indebtedness below
guaranteed directly or indirectly in any manner by such Person, or in effect
guaranteed directly or indirectly by such Person through an agreement (i) to
pay or purchase such Indebtedness or to advance or supply funds for the
payment or purchase of such Indebtedness, (ii) to purchase, sell or lease (as
lessee or lessor) property, or to purchase or sell services, primarily for the
purpose of enabling the debtor to make payment of such Indebtedness or to
assure the holder of such Indebtedness against loss, (iii) to supply funds to,
or in any other manner invest in, the debtor (including any agreement to pay
for property or services without requiring that such property be received or
such services be rendered), (iv) to maintain working capital or equity capital
of the debtor, or otherwise to maintain the net worth, solvency or other
financial condition of the debtor or (v) otherwise to assure a creditor
against loss; provided that the term "guarantee" shall not include
endorsements for collection or deposit, in either case in the ordinary course
of business.
"Guarantor" means the Subsidiaries listed as guarantors in the Indenture and
any other Subsidiary which is a guarantor of the Notes, including any Person
that is required after the date of the Indenture to execute a guarantee of the
Notes pursuant to the "Limitations on Liens" covenant or the "Limitation on
Issuance of Guarantees of Indebtedness" covenant until a successor replaces
such party pursuant to the applicable provisions of the Indenture and,
thereafter, shall mean such successor.
"Indebtedness" means, with respect to any Person, without duplication, (i)
all indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services, excluding any trade payables and other
accrued current liabilities arising in the ordinary course of business, but
including, without limitation, all obligations, contingent or otherwise, of
such Person in connection with any letters of credit issued under letter of
credit facilities, acceptance facilities or other similar facilities
outstanding, (ii) all obligations of such Person evidenced by bonds, notes,
debentures or other similar instruments, (iii) all indebtedness created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even if the rights and remedies
of the seller or lender under such agreement in the event of default are
limited to repossession or sale of such property), but excluding trade
payables arising in the ordinary course of business, (iv) all obligations
under Interest Rate Agreements, Currency Hedging Arrangements or Commodity
Price Protection Agreements of such Person, (v) all Capital Lease Obligations
of such Person, (vi) all Indebtedness referred to in clauses (i) through (v)
above of other Persons and all dividends of other Persons, the payment of
which is secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien, upon or
with respect to property (including, without limitation, accounts and contract
rights) owned by such Person, even though such Person has not assumed or
become liable for the payment of such Indebtedness; provided, however, that
the amount determined to be Indebtedness of such Person due to such Lien under
this clause (vi) shall not exceed the Fair Market Value of the property
(including, without limitation, accounts and contract rights) subject to such
Lien, (vii) all Guaranteed Debt of such Person, (viii) all Redeemable Capital
Stock issued by such Person valued at the greater of its voluntary or
involuntary maximum fixed repurchase price plus accrued and unpaid dividends,
and (ix) any amendment, supplement, modification, deferral, renewal,
extension, refunding or refinancing of any liability of the types referred to
in clauses (i) through (viii) above. For purposes hereof, the "maximum fixed
repurchase price" of any Redeemable Capital Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Redeemable
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Capital Stock as if such Redeemable 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 Redeemable Capital Stock, such Fair Market Value to be
determined in good faith by the board of directors of the issuer of such
Redeemable Capital Stock.
"Indenture Obligations" means the obligations of the Company and any other
obligor under the Indenture or under the Notes including any Guarantor, to pay
principal of, premium, if any, and interest when due and payable, and all
other amounts due or to become due under or in connection with the Indenture,
the Notes and the performance of all other obligations to the Trustee and the
holders under the Indenture and the Notes, according to the respective terms
thereof.
"Interest Rate Agreements" means one or more of the following agreements
which shall be entered into by one or more financial institutions: interest
rate protection agreements (including, without limitation, interest rate
swaps, caps, floors, collars and similar agreements) and/or other types of
interest rate hedging agreements from time to time.
"Investment" means, with respect to any Person, directly or indirectly, any
advance, loan (including guarantees), or other extension of credit or capital
contribution to (by means of any transfer of cash or other property to others
or any payment for property or services for the account or use of others), or
any purchase, acquisition or ownership by such Person of any Capital Stock,
bonds, notes, debentures or other securities issued or owned by any other
Person and all other items that would be classified as investments on a
balance sheet prepared in accordance with GAAP.
"Issue Date" means the original issue date of the Notes under the Indenture.
"Lien" means any mortgage or deed of trust, charge, pledge, lien (statutory
or otherwise), privilege, security interest, assignment, deposit, arrangement,
easement, hypothecation, claim, preference, priority or other encumbrance upon
or with respect to any property of any kind (including any conditional sale,
capital lease or other title retention agreement, any leases in the nature
thereof, and any agreement to give any security interest), real or personal,
movable or immovable, now owned or hereafter acquired.
"Maturity" means, when used with respect to the Notes, the date on which the
principal of the Notes becomes due and payable as therein provided or as
provided in the Indenture, whether at Stated Maturity, the Offer Date or the
redemption date and whether by declaration of acceleration, Offer in respect
of Excess Proceeds, Change of Control Offer in respect of a Change of Control,
call for redemption or otherwise.
"Net Cash Proceeds" means (a) with respect to any Asset Sale by any Person,
the proceeds thereof (without duplication in respect of all Asset Sales) in
the form of cash or Temporary Cash Investments including payments in respect
of deferred payment obligations when received in the form of, or stock or
other assets when disposed of for, cash or Temporary Cash Investments (except
to the extent that such obligations are financed or sold with recourse to the
Company or any Restricted Subsidiary) net of (i) brokerage commissions and
other reasonable fees and expenses (including fees and expenses of counsel and
investment bankers) related to such Asset Sale, (ii) provisions for all taxes
payable as a result of such Asset Sale, (iii) payments made to retire
Indebtedness where payment of such Indebtedness is secured by the assets or
properties the subject of such Asset Sale, (iv) amounts required to be paid to
any Person (other than the Company or any Restricted Subsidiary) owning a
beneficial interest in the assets subject to the Asset Sale and (v)
appropriate amounts to be provided by the Company or any Subsidiary, as the
case may be, as a reserve, in accordance with GAAP, against any liabilities
associated with such Asset Sale and retained by the Company or any Restricted
Subsidiary, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as reflected in an officers'
certificate delivered to the Trustee and (b) with respect to any issuance or
sale of Capital Stock or options, warrants or rights to purchase Capital
Stock, or debt securities or Capital Stock that have been converted into or
exchanged for Capital Stock as referred to under "--Certain
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Covenants--Limitation on Restricted Payments," the proceeds of such issuance
or sale in the form of cash or Temporary Cash Investments including payments
in respect of deferred payment obligations when received in the form of, or
stock or other assets when disposed of for, cash or Temporary Cash Investments
(except to the extent that such obligations are financed or sold with recourse
to the Company or any Restricted Subsidiary), net of attorneys' fees,
accountants' fees and brokerage, consultation, underwriting and other fees and
expenses actually incurred in connection with such issuance or sale and net of
taxes paid or payable as a result thereof.
"Pari Passu Indebtedness" means (a) any Indebtedness of the Company which
ranks pari passu in right of payment to the Notes and (b) with respect to any
Guarantee, Indebtedness which ranks pari passu in right of payment to such
Guarantee.
"Permitted Investment" means (i) Investments in any Wholly Owned Restricted
Subsidiary or any Person which, as a result of such Investment, (a) becomes a
Wholly Owned Restricted Subsidiary or (b) is merged or consolidated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or any Wholly Owned Restricted Subsidiary; (ii)
Indebtedness of the Company or a Restricted Subsidiary described under clauses
(iv), (v), (vi) and (vii) of the definition of "Permitted Indebtedness";
(iii) Temporary Cash Investments; (iv) Investments in any of the Notes; (v)
Investments acquired by the Company or any Restricted Subsidiary in connection
with an Asset Sale permitted under "--Certain Covenants--Limitation on Sale of
Assets" to the extent such Investments are non-cash proceeds as permitted
under such covenant; (vi) Investments in existence on the date of the
Indenture; (vii) guarantees of Indebtedness of a Wholly Owned Restricted
Subsidiary given by the Company or another Wholly Owned Restricted Subsidiary
and guarantees of Indebtedness of the Company given by any Restricted
Subsidiary, in each case, in accordance with the terms of the Indenture;
(viii) Investments in prepaid expenses; (ix) Investments represented by
accounts receivable created or acquired in the ordinary course of business;
(x) loans or advances to the Company's franchisees in the ordinary course of
business in an aggregate amount of $20 million at any one time outstanding;
(xi) loans to executive officers of the Company in the ordinary course of
business, not to exceed, together with loans to executive officers of the
Company then outstanding, $1 million; and (xii) any other Investments in the
aggregate amount of $1 million at any one time outstanding.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock" means, with respect to any Person, any Capital Stock of
any class or classes (however designated) which is preferred as to the payment
of dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over the
Capital Stock of any other class in such Person.
"Public Equity Offering" means an underwritten offering with gross proceeds
to the Company of at least $25 million pursuant to a registration statement
that has been declared effective by the Commission (other than a registration
statement on Form S-8 or otherwise relating to equity securities issuable
under any employee benefit plan of the Company).
"Purchase Money Obligation" means any Indebtedness secured by a Lien on
assets related to the business of the Company and its Restricted Subsidiaries
and any additions and accessions thereto, which are purchased by the Company
and its Restricted Subsidiaries at any time after the Notes are issued;
provided that (i) the security agreement or conditional sales or other title
retention contract pursuant to which the Lien on such assets is created
(collectively a "Purchase Money Security Agreement") shall be entered into
within 90 days after the purchase or substantial completion of the
construction of such assets and shall at all times be confined solely to the
assets so purchased or acquired, any additions and accessions thereto and any
proceeds therefrom, (ii) at no time shall the aggregate principal amount of
the outstanding Indebtedness secured thereby be increased, except in
connection with the purchase of additions and accessions thereto and except in
respect of fees and other obligations in respect of such Indebtedness and
(iii) (A) the aggregate outstanding principal amount of
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Indebtedness secured thereby (determined on a per asset basis in the case of
any additions and accessions) shall not at the time such Purchase Money
Security Agreement is entered into exceed 100% of the purchase price to the
Company and its Restricted Subsidiaries of the assets subject thereto or (B)
the Indebtedness secured thereby shall be with recourse solely to the assets
so purchased or acquired, any additions and accessions thereto and any
proceeds therefrom.
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any Capital Stock that, either by its terms
or by the terms of any security into which it is convertible or exchangeable
or otherwise, is or upon the happening of an event or passage of time would
be, required to be redeemed prior to any Stated Maturity of the principal of
the Notes or is redeemable at the option of the holder thereof at any time
prior to any such Stated Maturity, or is convertible into or exchangeable for
debt securities at any time prior to any such Stated Maturity at the option of
the holder thereof.
"Restricted Subsidiary" means any Person, a majority of the equity ownership
or the Voting Stock of which is at the time owned, directly or indirectly, by
the Company or by one or more other Restricted Subsidiaries, or by the Company
and one or more other Restricted Subsidiaries; provided that any Unrestricted
Subsidiary shall not be deemed a Restricted Subsidiary under the Notes.
"Sale and Leaseback Transaction" means any transaction or series of related
transactions pursuant to which the Company or a Restricted Subsidiary sells or
transfers any property or asset in connection with the leasing, or the resale
against installment payments, of such property or asset to the seller or
transferor.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor statute.
"Significant Restricted Subsidiary" means, at any particular time, any
Restricted Subsidiary that, together with the Subsidiaries of such Restricted
Subsidiary (i) for the most recent fiscal year of the Company accounted for
more than 10% of the Consolidated revenues of the Company and its Subsidiaries
or (ii) at the end of such fiscal year, was the owner (beneficial or
otherwise) of more than 10% of the Consolidated assets of the Company and its
Restricted Subsidiaries, all as calculated in accordance with GAAP and shown
on the Consolidated financial statements of the Company and its Restricted
Subsidiaries.
"Special Purpose Letter of Credit" means the letter of credit of up to $31
million issued by First Union National Bank under the Credit Facility pursuant
to the terms of the Reimbursement Agreement dated as of September 1, 1997,
among the Company, the Guarantors and First Union National Bank.
"Stated Maturity" means, when used with respect to any Indebtedness or any
installment of interest thereon, the dates specified in such Indebtedness as
the fixed date on which the principal of such Indebtedness or such installment
of interest, as the case may be, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company or a Guarantor
subordinated in right of payment to the Notes or the Guarantee of such
Guarantor, as the case may be.
"Subsidiary" means any Restricted Subsidiary or Unrestricted Subsidiary.
"Temporary Cash Investments" means (i) any evidence of Indebtedness,
maturing not more than one year after the date of acquisition, issued by the
United States of America, or an instrumentality or agency thereof, and
guaranteed fully as to principal, premium, if any, and interest by the United
States of America, (ii) any certificate of deposit, maturing not more than one
year after the date of acquisition, issued by, or time deposit of, a
commercial banking institution that is a member of the Federal Reserve System
and that has combined capital and surplus and undivided profits of not less
than $500 million, whose debt has a rating, at the time as of which
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any investment therein is made, of "P-1" (or higher) according to Moody's
Investors Service, Inc. ("Moody's") or any successor rating agency or "A-1"
(or higher) according to Standard & Poor's Ratings Group, a division of McGraw
Hill, Inc. ("S&P"), or any successor rating agency, (iii) commercial paper,
maturing not more than one year after the date of acquisition, issued by a
corporation (other than an Affiliate or Subsidiary of the Company) organized
and existing under the laws of the United States of America with a rating, at
the time as of which any investment therein is made, of "P-1" (or higher)
according to Moody's or "A-1" (or higher) according to S&P and (iv) any money
market deposit accounts issued or offered by a domestic commercial bank having
capital and surplus in excess of $500 million; provided that the short term
debt of such commercial bank has a rating, at the time of Investment, of "P-1"
(or higher) according to Moody's or "A-1" (or higher) according to S&P.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, or
any successor statute.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be an Unrestricted Subsidiary (as designated
by the Board of Directors of the Company, as provided below) and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the
Company may designate any Subsidiary of the Company (including any newly
acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary if all
of the following conditions apply: (a) neither the Company nor any of its
Restricted Subsidiaries provides credit support for Indebtedness of such
Subsidiary (including any undertaking, agreement or instrument evidencing such
Indebtedness), except Restricted Payments permitted to be made pursuant to the
"--Certain Covenants--Limitations on Restricted Payments" covenant, to the
extent the provision of such credit support is deemed to be a Restricted
Payment at the time of the provision of such credit support, (b) such
Subsidiary is not liable, directly or indirectly, with respect to any
Indebtedness other than Unrestricted Subsidiary Indebtedness, except
Restricted Payments permitted to be made pursuant to the "--Certain
Covenants--Limitations on Restricted Payments" covenant, to the extent such
Subsidiary's liability, direct or indirect, is deemed to be a Restricted
Payment, (c) any Investment in such Subsidiary made as a result of designating
such Subsidiary an Unrestricted Subsidiary shall not violate the provisions of
the "--Certain Covenants--Limitation on Unrestricted Subsidiaries" covenant
and such Unrestricted Subsidiary is not party to any agreement, contract,
arrangement or understanding at such time with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company or, in the event such condition
is not satisfied, the value of such agreement, contract, arrangement or
understanding to such Unrestricted Subsidiary shall be deemed a Restricted
Payment; and (d) such Unrestricted Subsidiary does not own any Capital Stock
in any Restricted Subsidiary of the Company which is not simultaneously being
designated an Unrestricted Subsidiary. Any such designation by the Board of
Directors of the Company shall be evidenced to the Trustee by filing with the
Trustee a board resolution giving effect to such designation and an officers'
certificate certifying that such designation complies with the foregoing
conditions and shall be deemed a Restricted Payment on the date of designation
in an amount equal to the greater of (1) the net book value of such Investment
or (2) the fair market value of such Investment as determined in good faith by
the Company's Board of Directors. The Board of Directors of the Company may
designate any Unrestricted Subsidiary as a Restricted Subsidiary; provided
that (i) immediately after giving effect to such designation, the Company
could incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the restrictions under the "--Certain Covenants--
Limitation on Indebtedness" covenant and (ii) all Indebtedness of such
Unrestricted Subsidiary shall be deemed to be incurred on the date such
Unrestricted Subsidiary becomes a Restricted Subsidiary.
"Unrestricted Subsidiary Indebtedness" of any Unrestricted Subsidiary means
Indebtedness of such Unrestricted Subsidiary (i) as to which neither the
Company nor any Restricted Subsidiary is directly or indirectly liable (by
virtue of the Company or any such Restricted Subsidiary being the primary
obligor on, guarantor of, or otherwise liable in any respect to, such
Indebtedness), except Guaranteed Debt of the Company or any Restricted
Subsidiary to any Affiliate, in which case (unless the incurrence of such
Guaranteed Debt resulted in a Restricted Payment at the time of incurrence)
the Company shall be deemed to have made a
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Restricted Payment equal to the principal amount of any such Indebtedness to
the extent guaranteed at the time such Affiliate is designated an Unrestricted
Subsidiary and (ii) which, upon the occurrence of a default with respect
thereto, does not result in, or permit any holder of any Indebtedness of the
Company or any Restricted Subsidiary to declare, a default on such
Indebtedness of the Company or any Subsidiary or cause the payment thereof to
be accelerated or payable prior to its Stated Maturity.
"Voting Stock" means Capital Stock of the class or classes pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or trustees
of a corporation (irrespective of whether or not at the time Capital Stock of
any other class or classes shall have or might have voting power by reason of
the happening of any contingency).
"Wholly Owned Restricted Subsidiary" means a Restricted Subsidiary all the
Capital Stock of which is owned by the Company or another Wholly Owned
Restricted Subsidiary.
BOOK-ENTRY DELIVERY AND FORM
The 144A Notes offered and sold to Qualified Institutional Buyers (as
defined in Rule 144A under the Securities Act)("QIBs") in reliance on Rule
144A under the Securities Act are represented by a single, permanent Global
Note in definitive, fully registered book-entry form (the "Rule 144A Global
Note") and are registered in the name of Cede & Co., as nominee of DTC on
behalf of purchasers of the 144A Notes represented thereby for credit to the
respective accounts of such purchasers (or to such other accounts as they may
direct) at DTC.
The certificates representing the Exchange Notes will be issued in fully
registered form. Except as described in the next paragraph, the Exchange Notes
initially will be represented by a single, permanent global Exchange Note, in
definitive, fully registered form without interest coupons (the "Global
Exchange Note" and together with the Rule 144A Global Note, the "Global
Notes") and will be deposited with the Trustee as custodian for DTC and
registered in the name of Cede & Co. or such other nominee as DTC may
designate. The Global Exchange Note (and any Exchange Notes issued in exchange
therefor) will be subject to certain restrictions on transfer set forth
therein and in the Indenture and will bear the respective legends regarding
such restrictions.
Holders of Exchange Notes who elect to take physical delivery of their
certificates instead of holding their interest through the Global Exchange
Note (collectively referred to herein as the "Non-Global Holders") will be
issued in registered form a certificated Exchange Note ("Certificated Exchange
Note"). Upon the transfer of any Certificated Exchange Note initially issued
to a Non-Global Holder, such Certificated Exchange Note will, unless the
transferee requests otherwise or the Global Exchange Note has previously been
exchanged in whole for Certificated Exchange Notes, be exchanged for an
interest in the Global Exchange Note.
The Global Exchange Note
The Company expects that pursuant to procedures established by DTC (a) upon
deposit of the Exchange Global Note, DTC or its custodian will credit on its
internal system portions of the Global Exchange Note, which shall be comprised
of the corresponding respective amount of the Global Exchange Note to the
respective accounts of persons who have accounts with such depositary and (b)
ownership of the Exchange Notes will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by DTC or
its nominee (with respect to interests of Participants (as defined below) and
the records of Participants (with respect to interests of persons other than
Participants)). Ownership of beneficial interests in the Global Exchange Note
will be limited to persons who have accounts with DTC ("Participants") or
persons who hold interests through Participants. Holders may hold their
interests in the Global Exchange Note directly through DTC if they are
Participants in such system, or indirectly through organizations which are
Participants in such system.
So long as DTC or its nominee is the registered owner or holder of any of
the Exchange Notes, DTC or such nominee will be considered the sole owner or
holder of such Exchange Notes represented by the Global Exchange Note for all
purposes under the Indenture and under the Exchange Notes represented thereby.
No beneficial owner of an interest in the Global Exchange Note will be able to
transfer such interest except in accordance with the applicable procedures of
DTC in addition to those provided for under the Indenture.
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Payments of the principal of, premium, if any, and interest on the Global
Exchange 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 or any Paying Agent
under the Indenture will have any responsibility or liability for any aspect
of the records relating to or payments made on account of beneficial ownership
interests in the Global Exchange Note or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
the principal of, premium, if any, and interest on the Global Exchange Note
will credit Participants' accounts with payments in amounts proportionate to
their respective beneficial interests in the principal amount of the Global
Exchange 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 the
Global Exchange Note held through such Participants will be governed by
standing instructions and customary practice as is now the case with Exchange
Notes held for the accounts of customers registered in the names of nominees
for such customers. Such payment will be the responsibility of such
Participants.
Transfers between Participants in DTC will be effected in accordance with
DTC rules and will be settled in immediately available funds. If a holder
requires physical delivery of a Certificated Exchange Note for any reason,
including to sell Exchange Notes to persons in states which require physical
delivery of such Exchange Notes or to pledge such Exchange Notes, such holder
must transfer its interest in the Global Exchange Note in accordance with the
normal procedures of DTC and in accordance with the procedures set forth in
the Indenture.
Any beneficial interest in one of the Global Notes that is transferred to a
person who takes delivery in the form of an interest in the other Global Note
will, upon transfer, cease to be an interest in such Global Note and become an
interest in the other Global Note and, accordingly, will thereafter be subject
to all transfer restrictions, if any, and other procedures applicable to
beneficial interests in such other Global Note for as long as it remains such
an interest.
DTC has advised the Company that DTC will take any action permitted to be
taken by a holder of Exchange Notes (including the presentation of Exchange
Notes for exchange as described below) only at the direction of one or more
Participants to whose account the DTC interests in the Global Exchange Note
are credited and only in respect of the aggregate principal amount as to which
such Participant or Participants has or have given such direction. However, if
there is an Event of Default under the Indenture, DTC will exchange the Global
Exchange Note for Certificated Exchange Notes, which it will distribute to its
Participants and which, in the case of Certificated Exchange Notes, will be
legended.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York 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. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations 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.
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in the Global Exchange Note among
Participants of DTC, it is under no obligation to perform such procedures, and
such procedures may be discontinued at any time. None of the Company, the
Trustee, Registrar or the Paying Agent will have any responsibility for the
performance by DTC or its direct or indirect Participants of its obligations
under the rules and procedures governing its operations.
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Certificated Notes
Interests in the Global Exchange Note will be exchanged for Certificated
Exchange Notes if (i) DTC notifies the Company that it is unwilling or unable
to continue as depositary for the Global Exchange Note, or DTC ceases to be a
"Clearing Agency" registered under the Exchange Act, and a successor
depositary is not appointed by the Company within 90 days, or (ii) an Event of
Default has occurred and is continuing with respect to the Notes. Upon the
occurrence of any of the events described in the proceeding sentence, the
Company will cause the appropriate Certificated Exchange Notes to be
delivered.
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DESCRIPTION OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF AN INVESTMENT IN THE EXCHANGE NOTES
The following is a summary of the material United States federal income tax
consequences of the acquisition, ownership and disposition of the Exchange
Notes by a United States Holder (as defined below). This summary deals only
with United States Holders that will hold the Exchange Notes as capital
assets. The discussion does not cover all aspects of federal taxation that may
be relevant to, or the actual tax effect that any of the matters described
herein will have on, the acquisition, ownership or disposition of the Exchange
Notes by particular investors, and does not address state, local, foreign or
other tax laws. In particular, this summary does not discuss all of the tax
considerations that may be relevant to certain types of investors subject to
special treatment under the federal income tax laws (such as banks, insurance
companies, investors liable for the alternative minimum tax, individual
retirement accounts and other tax-deferred accounts, tax-exempt organizations,
dealers in securities or currencies, investors that will hold the Exchange
Notes as part of straddles, hedging transactions or conversion transactions
for federal tax purposes or investors whose functional currency is not United
States dollars). Furthermore, the discussion below is based on provisions of
the Code, and regulations, rulings, and judicial decisions thereunder as of
the date hereof, and such authorities may be repealed, revoked or modified so
as to result in U.S. federal income tax consequences different from those
discussed below. PERSONS CONSIDERING THE PURCHASE, OWNERSHIP, OR DISPOSITION
OF EXCHANGE NOTES SHOULD CONSULT HIS, HER OR ITS OWN TAX ADVISORS CONCERNING
THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR
SITUATIONS AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE,
LOCAL OR FOREIGN TAXING JURISDICTION.
As used herein, the term "United States Holder" means a beneficial owner of
the Exchange Notes that is (i) a citizen or resident of the United States for
United States federal income tax purposes, (ii) a corporation created or
organized under the laws of the United States or any State thereof, (iii) a
person or entity that is otherwise subject to United States federal income tax
on a net income basis in respect of income derived from the Exchange Notes, or
(iv) a partnership to the extent the interest therein is owned by a person who
is described in clause (i), (ii) or (iii) of this paragraph.
INTEREST
Interest paid on an Exchange Note will be taxable to a United States Holder
as ordinary income at the time it is received or accrued, depending on the
holder's method of accounting for tax purposes.
ORIGINAL ISSUE DISCOUNT
Under the applicable provisions of the Code (including the de minimis rule
of Code Section 1273(a)(3)), the 144A Notes were issued with no original issue
discount for federal income tax purposes. Because the Exchange Notes are
treated as a continuation of the 144A Notes, there would also be no original
issue discount applicable to the Exchange Notes.
PURCHASE, SALE, EXCHANGE, RETIREMENT AND REDEMPTION OF THE EXCHANGE NOTES
In general (with certain exceptions described below), a United States
Holder's tax basis in an Exchange Note will equal the price paid for the 144A
Notes for which such Exchange Note was exchanged pursuant to the Exchange
Offer. A United States Holder generally will recognize gain or loss on the
sale, exchange, retirement, redemption or other disposition of an Exchange
Note (or portion thereof) equal to the difference between the amount realized
on such disposition and the United States Holder's tax basis in the Exchange
Note (or portion thereof). Except to the extent attributable to accrued but
unpaid interest, gain or loss recognized on such disposition of an Exchange
Note will be capital gain or loss and will be long-term capital gain or loss
if such Exchange Note were held for more than one year and will be subject to
tax at a reduced rate if such Exchange Note were held for more than 18 months.
98
<PAGE>
BOND PREMIUM
If a United States Holder acquires an Exchange Note or acquired a 144A Note,
in each case, for an amount more than the amount payable at maturity (or at an
earlier call date if a smaller premium would result), the Holder may elect to
amortize and deduct such bond premium on a yield to maturity basis. Once made,
such an election applies to all bonds (other than bonds the interest on which
is excludable from gross income) held by the United States Holder at the
beginning of the first taxable year to which the election applies or
thereafter acquired by the United States Holder, unless the IRS consents to a
revocation of the election. The basis of an Exchange Note will be reduced by
any amortizable bond premium taken as a deduction.
MARKET DISCOUNT
The purchase of an Exchange Note or the receipt of an Exchange Note in
exchange for a 144A Note purchased other than at original issue may be
affected by the market discount provisions of the Code. These rules generally
provide that, subject to a statutorily defined de minimis exception, if a
United States Holder purchases an Exchange Note (or purchased a 144A Note) at
a "market discount," as defined below, and thereafter recognizes gain upon a
disposition of the Exchange Note (including dispositions by gift or
redemption), the lesser of such gain (or appreciation, in the case of a gift)
or the portion of the market discount that has accrued ("accrued market
discount") while the Exchange Note (and its predecessor 144A Note, if any) was
held by such United States Holder will be treated as ordinary interest income
at the time of disposition rather than as capital gain. For an Exchange Note
or a 144A Note, "market discount" is the excess of the stated redemption price
at maturity over the tax basis immediately after its acquisition by a United
States Holder. Market discount generally will accrue ratably during the period
from the date of acquisition to the maturity date of the Exchange Note, unless
the United States Holder elects to accrue such discount on the basis of the
constant yield method. Such an election applies only to the Exchange Note with
respect to which it is made and is irrevocable.
In lieu of including the accrued market discount in income at the time of
disposition, a United States Holder of an Exchange Note acquired at a market
discount (or acquired in exchange for a 144A Note acquired at a market
discount) may elect to include the accrued market discount in income currently
either ratably or using the constant yield method. Once made, such an election
applies to all other obligations that the United States Holder purchases at a
market discount during the taxable year for which the election is made and in
all subsequent taxable years of the United States Holder, unless the IRS
consents to a revocation of the election. If an election is made to include
accrued market discount in income currently, the basis of an Exchange Note
(or, where applicable, a predecessor 144A Note) in the hands of the United
States Holder will be increased by the accrued market discount thereon as it
is includible in income. A United States Holder of a market discount Exchange
Note who does not elect to include market discount in income currently
generally will be required to defer deductions for interest on borrowings
allocable to such Exchange Note, if any, in an amount not exceeding the
accrued market discount on such Exchange Note until the maturity or
disposition of such Exchange Note.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Payments of interest on, and the proceeds of sale or other disposition of
the Exchange Notes payable to a United States Holder may be subject to
information reporting requirements and backup withholding at a rate of 31%
will apply to such payments if, among other things, the United States Holder
fails to provide an accurate taxpayer identification number or to report all
interest and dividends required to be shown on its federal income tax returns.
Certain United States Holders (including, among others, corporations) are not
subject to backup withholding on such payments. United States Holders should
consult their tax advisors as to their qualification for exemption from backup
withholding and the procedure for obtaining such an exemption.
99
<PAGE>
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broder-Dealer in connection with resales of Exchange
Notes received in exchange for 144A Notes where such 144A Notes were acquired
as a result of market-making activities or other trading activities. The
Company has agreed that it will make this Prospectus, as amended or
supplemented available to any Participating Broker-Dealer for use in
connection with any such resale and Participating Broker-Dealers shall be
authorized to deliver this Prospectus in connection with the sale or transfer
of the Exchange Notes. In addition, until , 1998 (90 days after the date
of this Prospectus), all dealers effecting transactions in the Exchange Notes
may be required to deliver a prospectus.
The Company will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker-Dealers. Exchange Notes received by
Participating Broker-Dealers for their own account pursuant to the Exchange
Offer may be sold from time to time, in one or more transactions in the over-
the-counter market, in negotiated transactions, through the writing of options
on the Exchange Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or 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 form of commissions or concessions from any such Participating Broker-
Dealer that resells the Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer. Any broker or dealer that participates
in a distribution of such Exchange Notes may be deemed to be an "underwriter"
within the meaning of the Securities Act and any profit on any such resale of
Exchange Notes and any commissions or concessions received by any such persons
may be deemed to be underwriting compensation under the Securities Act. The
Letter of Transmittal states that, by acknowledging that it will deliver and
by delivering a prospectus, a Participating Broker-Dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
The Company will promptly send additional copies of this Prospectus and any
amendment or supplement of this Prospectus to any Participating Broker-Dealer
that requests such documents in the Letter of Transmittal. See "The Exchange
Offer."
The Company and the Guarantors have agreed to pay certain expenses incident
to the Exchange Offer and will indemnify the holders of the 144A Notes against
certain liabilities, including certain liabilities that may arise under the
Securities Act.
LEGAL MATTERS
Certain Legal matters will be passed upon for the Company by Smith, Gambrell
& Russell, LLP, Atlanta, Georgia.
EXPERTS
The Consolidated Financial Statements and schedules included in this
Prospectus and incorporated by reference elsewhere in the Registration
Statement, to the extent and for the periods indicated in their reports, have
been audited by Arthur Andersen LLP, independent public accountants, and are
included herein in reliance upon the authority of said firm as experts in
giving said reports.
The consolidated statements of operations, stockholders' equity and cash
flows of the Company for the year ended March 31, 1995, have been included and
incorporated by reference herein in reliance upon the report of KPMG Peat
Marwick LLP, independent auditors, included and incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
100
<PAGE>
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants................................. F-2
Independent Auditors' Report............................................. F-3
Consolidated Balance Sheets at January 31, 1996 and 1997 and July 31,
1997 (unaudited)........................................................ F-4
Consolidated Statements of Operations for the year ended March 31, 1995,
the ten months ended January 31, 1996, the year ended January 31, 1997,
and the six months ended July 31, 1996 and 1997 (unaudited)............. F-6
Consolidated Statements of Stockholders' Equity for the year ended March
31, 1995, the ten months ended January 31, 1996, the year ended January
31, 1997, and the six months ended July 31, 1997 (unaudited)............ F-7
Consolidated Statements of Cash Flows for the year ended March 31, 1995,
the ten months ended January 31, 1996, the year ended January 31, 1997,
and the six months ended July 31, 1996 and 1997 (unaudited)............. F-8
Notes to Consolidated Financial Statements............................... F-9
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
The Maxim Group, Inc.:
We have audited the accompanying consolidated balance sheets of THE MAXIM
GROUP, INC. (a Delaware corporation) AND SUBSIDIARIES as of January 31, 1996
and 1997 and the related consolidated statements of operations, stockholders'
equity, and cash flows for the ten months ended January 31, 1996 and the year
ended January 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Maxim Group, Inc. and
subsidiaries as of January 31, 1996 and 1997 and the results of their
operations and their cash flows for the ten months ended January 31, 1996 and
the year ended January 31, 1997 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
April 10, 1997
(Except with respect to the matter discussed in Note 20, as to which the date
is October 16, 1997.)
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
The Maxim Group, Inc.:
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of The Maxim Group, Inc. (a Delaware
corporation) and subsidiaries for the year ended March 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of The Maxim Group, Inc. and subsidiaries for the year ended March 31,
1995 in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
December 23, 1996
F-3
<PAGE>
THE MAXIM GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 1996 AND 1997 AND JULY 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 31,
-----------------
JULY 31,
1996 1997 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents, including restricted
cash of $1,028 and $621 at January 31, 1996 and
1997, respectively, and $256 at July 31, 1997.. $ 4,207 $ 6,439 $ 4,925
Current portion of franchise license fees
receivable, net of allowance for doubtful
accounts of $175 and $328 at January 31, 1996
and 1997, respectively, and $352 at July 31,
1997........................................... 1,894 2,070 2,474
Trade accounts receivable, net of allowance for
doubtful accounts of $1,605 and $1,380 at
January 31, 1996 and 1997, respectively, and
$1,582 at July 31, 1997........................ 33,037 43,487 49,974
Accounts receivable from officers and employees
(Note 6)....................................... 615 1,195 899
Current portion of notes receivable from
franchisees and related parties, net of
allowance for doubtful accounts of $383 and
$351 at January 31, 1996 and 1997,
respectively, and $351 at July 31, 1997 (Note
7)............................................. 1,008 1,034 1,233
Inventories (Note 5)............................ 49,170 42,148 47,168
Refundable income taxes......................... 2,176 1,311 976
Deferred income taxes (Note 11)................. 2,080 3,859 2,870
Prepaid expenses................................ 2,091 2,526 3,555
-------- -------- --------
Total current assets............................. 96,278 104,069 114,074
Property, plant, and equipment, net (Notes 4 and
10)............................................. 93,879 101,403 107,332
Franchise license fees receivable, less current
portion, net of allowance for doubtful accounts
of $210 at January 31, 1996 and 1997 and $240 at
July 31, 1997................................... 2,091 1,349 1,345
Notes receivable from franchisees, less current
portion......................................... 0 477 2,503
Deferred license fee, net of accumulated
amortization (Note 8)........................... 341 0 0
Intangible assets, net of accumulated
amortization of $704 and $1,232 at January 31,
1996 and 1997, respectively, and $1,314 at July
31, 1997 (Notes 2 and 3) ....................... 8,960 10,204 13,943
Other assets..................................... 536 2,171 4,997
-------- -------- --------
$202,085 $219,673 $244,194
======== ======== ========
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
JANUARY 31,
----------------- JULY 31,
1996 1997 1997
LIABILITIES AND STOCKHOLDERS' EQUITY -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt (Note 9)...... $ 919 $ 2,532 $ 2,743
Current portion of capital lease obligations
(Note 10)...................................... 556 537 521
Rebates payable to franchisees.................. 3,673 3,471 3,761
Accounts payable................................ 17,167 23,583 20,604
Accrued expenses................................ 9,147 12,232 13,437
Deferred revenue................................ 1,284 967 2,613
Deposits........................................ 2,076 2,460 2,809
-------- -------- --------
Total current liabilities....................... 34,822 45,782 46,488
Long-Term Debt, Less Current Portion (Note 9).... 90,147 91,100 65,247
Capital Lease Obligations, Less Current Portion
(Note 10)........................................ 2,563 2,120 1,884
Deferred Income Taxes (Note 11).................. 2,403 4,517 6,820
-------- -------- --------
Total liabilities............................... 129,935 143,519 120,439
-------- -------- --------
Commitments and Contingencies (Notes 10, 14, and
16)
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value; 1,000 shares
authorized, no shares issued or outstanding.... 0 0 0
Common stock, $.001 par value; 25,000 shares
authorized, 12,397, 12,800 and 16,407 shares
issued and outstanding at January 31, 1996 and
1997 and July 31, 1997, respectively........... 12 13 16
Additional paid-in capital...................... 60,392 62,124 112,824
Treasury stock, at cost; 952,000 shares at July
31, 1997....................................... 0 0 (10,938)
Retained earnings............................... 11,746 14,017 21,853
-------- -------- --------
Total stockholders' equity...................... 72,150 76,154 123,755
-------- -------- --------
$202,085 $219,673 $244,194
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-5
<PAGE>
THE MAXIM GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1995,
THE TEN MONTHS ENDED JANUARY 31, 1996,
THE YEAR ENDED JANUARY 31, 1997,
AND THE SIX MONTHS ENDED JULY 31, 1996 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED TEN MONTHS YEAR ENDED ENDED JULY 31,
MARCH 31, ENDED JANUARY 31, JANUARY 31, ------------------
1995 1996 1997 1996 1997
---------- ----------------- ----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Sales of floorcovering
products (Note 12).... $174,935 $186,568 $250,968 $117,414 $148,371
Fees from franchise
services (Note 12).... 13,876 13,432 26,336 13,062 14,573
Fiber and PET sales.... 12,886 24,072 28,853 17,167 12,513
Other (Note 12)........ 1,644 3,479 3,564 1,680 3,011
-------- -------- -------- -------- --------
Total revenues...... 203,341 227,551 309,721 149,323 178,468
Cost of Sales....... 139,521 161,723 222,290 108,630 122,226
-------- -------- -------- -------- --------
Gross profit........ 63,820 65,828 87,431 40,693 56,242
Selling, general, and
administrative
expenses............... 46,870 59,197 72,366 36,259 41,163
Goodwill impairment
charge (Note 2)........ 0 6,569 0 0 0
Merger-related costs
(Note 3)............... 500 0 4,900 0 0
Other (income) expense:
Interest income........ (397) (415) (613) (311) (225)
Interest expense....... 1,839 4,695 7,006 3,213 2,663
Other.................. (421) (78) (302) (258) (84)
-------- -------- -------- -------- --------
Earnings (loss) be-
fore income taxes.. 15,429 (4,140) 4,074 1,790 12,725
Income tax expense (Note
11).................... 5,787 105 1,929 630 4,889
-------- -------- -------- -------- --------
Net earnings (loss)..... $ 9,642 $ (4,245) $ 2,145 $ 1,160 $ 7,836
======== ======== ======== ======== ========
Earnings (loss) per
common and common
equivalent share....... $ 0.72 $ (0.32) $ 0.15 $ 0.08 $ .47
======== ======== ======== ======== ========
Weighted average number
of common and common
equivalent shares
outstanding............ 13,301 13,301 13,937 13,696 16,623
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
THE MAXIM GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED MARCH 31, 1995,
THE TEN MONTHS ENDED JANUARY 31, 1996,
THE YEAR ENDED JANUARY 31, 1997
AND THE SIX MONTHS ENDED JULY 31, 1997
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------ PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1994....... 10,507,486 $11 $ 43,693 $ 6,349 $ 50,053
Exercise of redeemable common
stock purchase warrants, net
of $46 in redemption costs
(Note 13).................... 880,517 1 6,124 0 6,125
Issuance of stock............. 520,654 0 7,010 0 7,010
Stock options exercised....... 18,500 0 97 0 97
Cancellation of underwriter's
warrants (Note 13)........... 0 0 (1,503) 0 (1,503)
Net earnings.................. 0 0 0 9,642 9,642
---------- --- -------- ------- --------
Balance, March 31, 1995....... 11,927,157 12 55,421 15,991 71,424
Issuance of stock............. 442,857 0 4,825 0 4,825
Stock options exercised....... 27,266 0 146 0 146
Net loss...................... 0 0 0 (4,245) (4,245)
---------- --- -------- ------- --------
Balance, January 31, 1996..... 12,397,280 12 60,392 11,746 72,150
Acquisition and retirement of
treasury shares.............. (28,000) 0 (336) 0 (336)
Issuance of stock............. 93,333 0 1,278 0 1,278
Stock options exercised....... 95,576 0 719 0 719
Pooling of Bailey and Roberts
(Note 3)..................... 242,288 1 71 126 198
Net earnings.................. 0 0 0 2,145 2,145
---------- --- -------- ------- --------
Balance, January 31, 1997..... 12,800,477 13 62,124 14,017 76,154
Acquisition of 952,000
treasury shares.............. 0 0 (10,938) 0 (10,938)
Issuance of stock............. 3,175,773 3 47,237 47,240
Stock options exercised....... 159,447 0 463 463
Net earnings for the six
months ended July 31, 1997... 0 0 0 7,836 7,836
---------- --- -------- ------- --------
Balance, July 31, 1997
(unaudited).................. 16,135,697 $16 $ 98,886 $21,853 $120,755
========== === ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
THE MAXIM GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED MARCH 31, 1995, THE TEN MONTHS ENDED JANUARY 31, 1996,
THE YEAR ENDED JANUARY 31, 1997 AND THE SIX MONTHS ENDED JULY 31, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
TEN MONTHS SIX MONTHS ENDED
YEAR ENDED ENDED YEAR ENDED JULY 31,
MARCH 31, JANUARY 31, JANUARY 31, ------------------
1995 1996 1997 1996 1997
---------- ----------- ----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows From
Operating Activities:
Net earnings (loss).... $ 9,642 $ (4,245) $ 2,145 $ 1,160 $ 7,836
-------- -------- -------- -------- --------
Adjustments to reconcile
net earnings (loss) to
net cash provided by
(used in) operating
activities:
Impairment write-down
of goodwill.......... 0 6,569 0 0 0
Depreciation and
amortization......... 5,225 8,008 10,518 5,535 5,845
Deferred income taxes. 2,329 (2,370) 335 80 3,293
Loss (gain) on sale of
assets............... (7) 124 367 60 0
Changes in assets and
liabilities:
Increase in
receivables.......... (9,962) (2,652) (10,254) (4,564) (8,557)
Decrease (increase) in
inventories.......... (10,801) (10,098) 7,544 5,203 (4,884)
Decrease (increase) in
refundable income
taxes................ (1,059) (1,118) 866 799 334
(Increase) decrease in
prepaid expenses and
other assets......... 24 (365) (1,865) (2,514) (3,847)
Increase in rebates
payable, accounts
payable, accrued
expenses, deferred
revenue, and
deposits............. 6,708 955 8,164 2,574 411
-------- -------- -------- -------- --------
Total adjustments..... (7,543) (947) 15,675 7,173 (7,405)
-------- -------- -------- -------- --------
Net cash provided by
(used in) operating
activities........... 2,099 (5,192) 17,820 8,333 431
-------- -------- -------- -------- --------
Cash Flows From Invest-
ing Activities:
Capital expenditures... (25,941) (15,580) (17,444) (7,111) (11,837)
Proceeds from sale of
assets................ 127 34 47 0 0
Acquisitions, net of
cash acquired......... (12,635) (13,875) (1,284) 0 (977)
-------- -------- -------- -------- --------
Net cash used in
investing activities. (38,449) (29,421) (18,681) (7,111) (12,814)
-------- -------- -------- -------- --------
Cash Flows From Financ-
ing Activities:
Proceeds from issuance
of common stock, net.. 2 0 606 0 47,240
Proceeds from exercise
of warrants and
options, net.......... 6,222 146 719 922 463
Purchase of
underwriter's
warrants.............. (1,503) 0 0 0 0
Purchase of treasury
stock................. 0 0 (336) (336) (10,938)
Net proceeds from
issuance of debt...... 33,278 37,718 89,806 39,450 21,358
Principal payments on
long-term debt........ (3,051) (1,179) (87,241) (41,757) (47,000)
Principal payments on
capital lease
obligations........... (348) (230) (461) (244) (254)
-------- -------- -------- -------- --------
Net cash provided by
financing activities. 34,600 36,455 3,093 (1,965) 10,869
-------- -------- -------- -------- --------
Net increase (decrease)
in cash................ (1,750) 1,842 2,232 (743) (1,514)
Cash, beginning of peri-
od..................... 4,115 2,365 4,207 4,207 6,439
-------- -------- -------- -------- --------
Cash, end of period..... $ 2,365 $ 4,207 $ 6,439 $ 3,464 $ 4,925
======== ======== ======== ======== ========
Supplemental disclosures
of cash flow informa-
tion:
Cash paid during the
period for:
Interest.............. $ 2,386 $ 4,073 $ 7,123 $ 3,184 $ 4,067
======== ======== ======== ======== ========
Income taxes........... $ 5,130 $ 3,189 $ 293 $ 450 $ 1,346
======== ======== ======== ======== ========
Supplemental disclosures
of noncash investing
and financing
activities:
Common stock issued in
connection with
acquisitions.......... $ 7,010 $ 4,825 $ 672 $ 0 $ 3,000
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-8
<PAGE>
THE MAXIM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995, JANUARY 31, 1996 AND 1997, AND JULY 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
1. DESRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Maxim Group, Inc. and subsidiaries (the "Company" or "Maxim") are
engaged in retail and commercial sales of floorcovering products. The Company
is also engaged in the sale of franchises for the retail floorcovering
industry and other related products and services to its franchisees. At
January 31, 1997, the Company had 368 franchisees under contract. Image
Industries, Inc. ("Image"), a wholly owned subsidiary of Maxim, is engaged in
the manufacturing of residential carpet and plastics recycling. The carpet is
made from polyester fiber which Image produces. Plastics recycling products
are the result of converting postconsumer plastics into polyethylene
terephthalate ("PET") flake, pellet, or polyester fiber. The recycled plastics
products are either used internally in the manufacturing of carpet or are sold
externally to various customers. Management does not believe that the Company
is dependent upon any one vendor for product purchases and that the loss of
any single vendor would not have a significant adverse effect.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of The Maxim
Group, Inc. and all wholly owned subsidiaries. Upon consolidation, all
intercompany accounts, transactions, and profits are eliminated. The financial
statements give retroactive effect to the mergers of the Company and GCO, Inc.
("GCO") on September 28, 1994 and the Company and Image on August 30, 1996,
both of which were accounted for as poolings of interests, as described in
Note 3 to the financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates depending
upon certain risks and uncertainties. Potential risks and uncertainties
include such factors as the financial strength of the retail industry, the
level of consumer spending for floorcovering products, the amount of sales of
the Company's floorcovering products, the competitive pricing environment, and
the success of planned advertising, marketing, and promotional campaigns.
FISCAL YEAR
The Company changed its year-end from March 31 to January 31 in fiscal year
1996. As a result, the fiscal year ended January 31, 1996 contains ten months.
The fiscal years ended March 31, 1995 and January 31, 1997 contain 12 months.
CASH AND CASH EQUIVALENTS
Cash balances include short-term interest-bearing deposits with original
maturities of 90 days or less. Short-term investments are stated at cost,
which approximates fair value.
ACCOUNTS RECEIVABLE AND REVENUE RECOGNITION
Revenue from retail and commercial sales is recognized upon completion of
the installation of floorcoverings or at the time of delivery for
floorcoverings not installed by the Company or its authorized installers.
Sales from the manufacturing operations are recognized at the time related
goods are shipped.
F-9
<PAGE>
THE MAXIM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company recognizes franchise license fees as income on the date the
related franchise agreement is signed, at which time the Company has performed
substantially all of its obligations under the franchise agreement. Some
franchise agreements contain provisions which, under defined circumstances,
would require the Company to refund a portion or all of the franchise license
fee. Franchise revenues associated with these contracts, which are not
material at January 31, 1996 or 1997, have been deferred until these
obligations are fulfilled.
The Company finances a portion of the sale of franchises over a term of four
years, generally at 10% interest. An allowance for doubtful accounts is
provided based on the Company's collection experience and periodic reviews of
the accounts.
FEES FROM FRANCHISE SERVICES
The Company negotiates volume rebates with various floorcovering
manufacturers on behalf of its franchisees. In exchange for this service, the
Company earns a portion of the rebates as the shipments are made to its
franchisees. The rebates are paid directly to the Company by the manufacturers
throughout the year. The franchisees typically receive their portions of the
rebates semiannually in February and July. Accordingly, the Company has
recorded revenue, restricted cash owed to franchisees, receivables from
manufacturers, and rebates payable to franchisees related to these rebates.
The Company develops and offers its franchisees marketing and promotional
programs, including television, radio, print, and direct mail campaigns and
sales literature. Advertising production fees, excluding direct mail, are
considered earned once the ad is produced, and the related media commission
fees, if applicable, are considered earned once the commercial is aired.
Direct mail commissions are earned on the date of the franchisee's promotion
or sale.
INVENTORIES
Inventories, consisting of goods held for resale, are recorded at the lower
of cost or market. Cost is determined on a specific identification basis for
retail sales, and Image applies the standard cost method, both of which
approximate the first-in, first-out method. The Company's inventories consist
of the following:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Retail.......................................... $14,862 $15,500
Image........................................... 34,308 26,648
------- -------
$49,170 $42,148
======= =======
</TABLE>
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are recorded at cost, which includes interest
on funds borrowed to finance construction. When retired or otherwise disposed
of, the related cost and accumulated depreciation are removed from the
respective accounts and the net difference, less any amount realized, is
reflected in the statements of operations.
The Company's buildings, furniture, fixtures, and equipment are depreciated
using the straight-line method over the estimated useful lives of the assets.
Improvements to leased premises are amortized on the straight-line method over
the life of the lease or the useful life of the improvement, whichever is
shorter. The Company's property and equipment are depreciated using the
following estimated useful lives:
Buildings 10 to 40 years
Leasehold improvements 3 to 20 years
Machinery and equipment 5 to 7 years
Furniture and fixtures 5 to 7 years
Transportation equipment 5 to 12 years
F-10
<PAGE>
THE MAXIM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DEFERRED LICENSE FEE
A deferred license fee is being amortized over the three-year contract
period using the straight-line method.
INTANGIBLE ASSETS
Intangible assets consist primarily of goodwill. Goodwill arises in
connection with business combinations accounted for as purchases. Goodwill is
amortized on a straight-line basis over 15 to 20 years. Amortization of
approximately $668 and $564 was charged to earnings in 1996 and 1997,
respectively.
Organizational costs have been deferred and are being amortized over 60
months using the straight-line method.
REALIZATION OF LONG-LIVED ASSETS
The Company periodically evaluates the carrying value of its long-lived
assets, including goodwill, in relation to their operating performance and
future undiscounted cash flows of the underlying businesses. The Company
adjusts the carrying amount of the assets or goodwill if the unamortized
balance exceeds the estimate of future cash flows (Note 2).
DEFERRED LOAN COSTS
Deferred loan costs, which are included in other assets, represent fees and
expenses incurred to obtain long-term debt. The costs are amortized to expense
over the life of the related financing agreement.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
EARNINGS PER SHARE
All share and per share data have been adjusted to give retroactive effect
to the merger of the Company with GCO and Image. Earnings per common share are
computed on the basis of the weighted average shares of common stock
outstanding plus common stock equivalents, if dilutive, arising from the
effect of common shares contingently issuable, primarily from stock options
and warrants. Weighted average common and common equivalent shares include the
dilutive effect of the 1,133,856 replacement stock options for all years
presented through January 31, 1996 and 932,615 for the year ended January 31,
1997 (Note 13).
STOCK-BASED COMPENSATION PLANS
The Company accounts for its stock-based compensation plans under Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." Effective in fiscal year 1997, the Company adopted the disclosure
option of Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 123 requires that
companies which do not choose to account for stock-based compensation as
prescribed by the statement shall disclose the pro forma effects on earnings
and earnings per share as if SFAS No. 123 had been adopted. Additionally,
certain other disclosures are required with respect to stock compensation and
the assumptions used to determine the pro forma effects of SFAS No. 123.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash, accounts
receivable, accounts payable, and long-term debt. The carrying amounts of
cash, accounts receivable, and accounts payable approximate their fair values
because of the short-term maturity of such instruments. The carrying amount of
long-term debt approximates its fair value, because interest rates on debt are
periodically adjusted and approximate current market rates.
F-11
<PAGE>
THE MAXIM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECLASSIFICATIONS
Certain prior year financial statement balances have been reclassified to
conform with the current year presentation.
INTERIM UNAUDITED DATA FOR THE SIX MONTHS ENDED JULY 31, 1996 AND 1997
In the opinion of management, the unaudited consolidated financial
statements contain all the normal and recurring adjustments necessary to
present fairly the financial position of the Company as of July 31, 1997 and
the results of the Company's operations and its cash flows for the six months
ended July 31, 1996 and 1997 in conformity with generally accepted accounting
principles. The results of operations for the six months ended July 31, 1997
are not necessarily indicative of the results to be expected for the year.
2. GOODWILL IMPAIRMENT
Certain of the Company's acquisitions did not perform as anticipated at the
time of purchase. Several acquired stores were closed, management was
replaced, and a loss of revenues was experienced from building contracts in
certain locations. The poor financial results of these stores through the end
of fiscal 1996 led management to reevaluate operations. This analysis
indicated significant strategic and operational changes would be necessary at
some stores, including changes in the customer mix, location, store design,
and merchandising. These factors also caused management to assess the
realizability of the goodwill recorded for these units.
The determination of impairment was made by comparing the unamortized
goodwill balance for each acquisition to the estimate of the related entity's
undiscounted future cash flows. There were no significant long-lived assets
acquired with these acquisitions. The assumptions used reflected the earnings,
market, and industry conditions, as well as current operating plans. The
assessment indicated a permanent impairment of goodwill related to certain of
the Company's acquisitions and resulted in a write-off totaling $6,569
recorded during fiscal 1996.
3. ACQUISITIONS
On August 30, 1996, the Company acquired all of the common stock of Image in
exchange for 5,266,285 shares of the Company's common stock. The acquisition
of Image has been accounted for under the pooling-of-interests method of
accounting, and accordingly, the Company's historical financial statements
have been restated to include the accounts and results of operations of Image.
The Company incurred approximately $4,700 in one-time costs related to the
merger (primarily legal, accounting, investment advisory fees, and merger-
related restructuring charges). In addition, the Company incurred an
additional $200 in merger-related costs related to the merger with Bailey &
Roberts Flooring, Inc. ("Bailey & Roberts"). These amounts have been presented
separately in the accompanying statements of operations as merger-related
costs.
The results of operations previously reported by the separate companies
above and the combined amounts for the years ended March 31, 1995 and the ten
months ended January 31, 1996 are presented below:
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS ENDED
MARCH 31, 1995 JANUARY 31, 1996
--------------- ----------------
INCOME
REVENUES INCOME REVENUES (LOSS)
-------- ------ -------- -------
<S> <C> <C> <C> <C>
The Maxim Group, Inc.......................... $ 76,091 $2,385 $ 99,290 $(7,274)
Image Industries, Inc......................... 127,250 7,257 128,261 3,029
-------- ------ -------- -------
Total......................................... $203,341 $9,642 $227,551 $(4,245)
======== ====== ======== =======
</TABLE>
In May 1994, the Company commenced a strategy of acquiring independent
floorcovering retailers, with the goal of building a company-owned chain of
stores in addition to the franchise network. This acquisition
F-12
<PAGE>
THE MAXIM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
program included selected franchisees and other independent dealers. Through
January 31, 1997, the Company has acquired 14 retail floorcovering companies,
currently representing 57 stores. The Company issued $8,100 of common stock
(606,844 shares) and paid cash of approximately $14,200 to consummate those
acquisitions accounted for under the purchase method. As a result of these
acquisitions, the Company has recorded goodwill of $11,300 (net of goodwill
impairment charge of $6,600), which is being amortized over 20 years. The GCO
and Bailey & Roberts acquisitions, in which the Company issued 790,603 and
242,288 shares, respectively, were accounted for as a pooling of interests.
The consolidated financial statements of the Company were not restated for
the Bailey & Roberts merger for the periods prior to the merger, November 1,
1996, as the effect of the restatement would not have been material to such
periods.
Effective April 5, 1995, Image entered into an asset purchase agreement with
Pharr Yarns of Georgia, Inc. and Stowe-Pharr Mills, Inc. to purchase
substantially all of the operating assets of Pharr Yarns of Georgia, Inc.,
including the property, plant, and equipment as well as certain inventory
items and supplies. The transaction was consummated on June 30, 1995. The
purchase price payable by the Company at the transaction's closing was 400,000
shares of stock, valued at $4,400, and cash of approximately $11,298. The
acquisition was accounted for as a purchase, and accordingly, the purchase
price has been allocated to the assets acquired based on the estimated fair
values as of the acquisition date. The net excess of the cost over the
estimated fair value of the acquired assets as a result of this acquisition
has been allocated to goodwill in the approximate amount of $96 and will be
amortized over 15 years.
4. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at January 31, 1996 and 1997 are summarized
as follows:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Land and improvements........................................ $ 3,596 $ 4,331
Buildings and leasehold improvements......................... 34,503 40,882
Machinery and equipment...................................... 77,691 83,886
Furniture and fixtures....................................... 2,024 3,344
Transportation equipment..................................... 2,323 3,207
Construction in progress..................................... 1,930 3,267
-------- --------
122,067 138,917
Less accumulated depreciation and amortization............... 28,188 37,514
-------- --------
$ 93,879 $101,403
======== ========
</TABLE>
5. INVENTORIES
Inventories at January 31, 1996 and 1997 consisted of the following:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Raw materials............................................. $16,381 $ 9,097
Work in process........................................... 2,665 3,271
Finished goods............................................ 30,124 29,780
------- -------
Total................................................. $49,170 $42,148
======= =======
</TABLE>
6. ACCOUNTS RECEIVABLE FROM OFFICER AND EMPLOYEES
The Company has made loans to certain officers and employees with terms of
one to two years and with interest rates tied to the prime rate.
F-13
<PAGE>
THE MAXIM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. NOTES RECEIVABLE FROM FRANCHISEES AND RELATED PARTIES
The Company has made loans to certain franchisees totaling $926 and $1,479
at January 31, 1996 and 1997, respectively, with principal payments due in
monthly installments beginning October 1, 1995 through October 1, 2000 and
interest payable monthly at the prime rate on the outstanding balance, secured
by the franchisees' accounts receivable and/or inventory and equipment and
personal guarantees.
In addition, the Company has made unsecured loans to franchisees and outside
directors at an interest rate of 7%, totaling $82 and $32 at January 31, 1996
and 1997, respectively (Note 12).
8. DEFERRED LICENSE FEE
In March 1994, the Company entered into an agreement with a manufacturer
which provides the Company's franchisees with the opportunity to become
licensed dealers of certain brand name products. The agreement is effective
for a three-year period beginning April 1, 1994. The Company paid an initial
fee of $1,035, which is being amortized over the life of the agreement.
Accumulated amortization totaled $694 and $1,035 as of January 31, 1996 and
1997, respectively.
9. LONG-TERM DEBT
Long-term debt at January 31, 1996 and 1997 is summarized as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Credit facility................................................ $ 0 $93,000
Revolving line-of-credit agreement............................. 22,185 0
Note payable to bank under revolving credit agreement.......... 61,980 0
Other debt with interest ranging from approximately 6% to 13%;
a portion secured by land, building, transportation equipment,
and other property and maturing at various dates through 2004. 6,901 632
------- -------
91,066 93,632
Less current portion........................................... 919 2,532
------- -------
Long-term debt, less current portion........................... $90,147 $91,100
======= =======
</TABLE>
The aggregate annual maturities of long-term debt subsequent to January 31,
1997 are as follows:
<TABLE>
<S> <C>
Year ending January 31:
1998............................................................. $ 2,532
1999............................................................. 8,344
2000............................................................. 41,314
2001............................................................. 8,254
2002............................................................. 9,563
2003 and thereafter.............................................. 23,625
-------
$93,632
=======
</TABLE>
On August 30, 1996, the Company entered into an agreement with a bank that
provided three credit facilities aggregating $125,000 (the "Credit Facility").
The Credit Facility was executed in conjunction with the merger of the Company
and Image. Borrowings under the Credit Facility were used to refinance the
existing debt. The Credit Facility consists of (i) a $65,000 revolving
facility, of which $3,300 was available for borrowings on January 31, 1997 and
which matures August 1999, (ii) a $30,000 term facility that matures in
December 2001, and (iii) a $30,000 term facility that matures in September
2003. As of January 31, 1997, the Company had fully borrowed amounts available
under both term facilities and had $33,000 outstanding under the revolving
facility. Amounts borrowed under the revolving facility are limited to the sum
of 80% of eligible accounts receivable and 40% of eligible inventory. A fee of
.5% per annum is charged on the unused revolving facility. Amounts
F-14
<PAGE>
THE MAXIM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
outstanding under the Credit Facility bear interest at a variable rate based
on LIBOR or the prime rate at the Company's option. As of January 31, 1997,
the weighted average interest rate on amounts outstanding under the Credit
Facility was 8.26%. The Credit Facility requires the Company to meet certain
financial ratios and covenants, including debt to equity, minimum tangible net
worth, interest coverage, and fixed charge coverage, each as defined. The
revolving credit agreement contains other covenants which establish
limitations on dividends, acquisitions, additional indebtedness, and limit
annual capital expenditures to $18 million through the fiscal year ended
January 31, 1998. As of January 31, 1997, the Company was not in compliance
with one of its debt coverage financial covenants under the Credit Facility.
However, the bank granted a waiver for such noncompliance through April 30,
1997.
Maxim's prior revolving line of credit agreement (the "Agreement") was
amended during fiscal 1996 to provide borrowings of up to $23,000. The
interest rate charged varied from LIBOR plus 1.125% to LIBOR plus 2.125% based
on the financial leverage of the Company as measured by the ratio of adjusted
funded debt to total capitalization, as defined by the Agreement. Interest-
only payments were due monthly for the first three years. The weighted average
interest rate for the ten months ended January 31, 1996 was 7.72%. The
agreement was repaid August 30, 1996 from the Credit Facility's proceeds.
Image's prior note payable to bank was under a revolving line of credit
agreement (the "Facility"), expiring June 30, 2001, bearing interest payable
quarterly at the prime interest rate or Eurodollar rate plus 1%. Effective
November 6, 1995, the Company renegotiated its Facility with the lender and
two other financial institutions. The restated Facility allowed the Company to
borrow up to $70,000, with interest payable quarterly at the prime rate (8.5%
on January 31, 1996) or Eurodollar rate (approximately 5.26% at January 31,
1996) plus 1%. The borrowings under the agreement were secured by a first
priority lien on all assets. The Facility was repaid August 30, 1996 from the
Credit Facility's proceeds.
10. LEASES
The Company is a party to noncancelable lease agreements involving property
and equipment, which extend for varying periods up to 20 years. Certain of
these leases have options to renew at varying terms.
Rental expense for operating leases amounted to $2,970, $4,026, and $5,225
for the year ended March 31, 1996, the ten months ended January 31, 1996, and
the year ended January 31, 1997, respectively, including $462 in 1995, $334 in
1996, and $328 in 1997 paid to related parties.
Included in property and equipment are the following assets held under
capital leases:
<TABLE>
<CAPTION>
RELATED-PARTY OTHER TOTAL
------------- ------ ------
<S> <C> <C> <C>
January 31, 1996:
Buildings and improvements........................ $2,760 $1,080 $3,840
Machinery and equipment........................... 0 571 571
------ ------ ------
Assets under capital leases...................... 2,760 1,651 4,411
Less accumulated amortization..................... 629 417 1,046
------ ------ ------
Assets under capital leases, net................... $2,131 $1,234 $3,365
====== ====== ======
January 31, 1997:
Buildings and improvements........................ $2,760 $1,080 $3,840
Machinery and equipment........................... 75 626 701
------ ------ ------
Assets under capital leases...................... 2,835 1,706 4,541
Less accumulated amortization..................... 1,033 567 1,600
------ ------ ------
Assets under capital leases, net................... $1,802 $1,139 $2,941
====== ====== ======
</TABLE>
F-15
<PAGE>
THE MAXIM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Minimum future lease obligations on long-term noncancelable leases in effect
at January 31, 1997 are summarized as follows:
<TABLE>
<CAPTION>
CAPITAL LEASES
-------------------------- OPERATING
RELATED-PARTY OTHER TOTAL LEASES
------------- ----- ------ ---------
<S> <C> <C> <C> <C>
Year ending January 31:
1998....................................... $ 473 $238 $ 711 $ 4,777
1999....................................... 471 214 685 3,842
2000....................................... 467 200 667 3,071
2001....................................... 335 149 484 1,742
2002....................................... 263 111 374 1,355
2003 and thereafter........................ 234 0 234 2,274
------ ---- ------ -------
Total minimum lease payments............. 2,243 912 3,155 $17,061
=======
Less amounts representing interest......... 367 131 498
Less current portion....................... 350 187 537
------ ---- ------
$1,526 $594 $2,120
====== ==== ======
</TABLE>
11. INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- ------
<S> <C> <C> <C>
Year ended March 31, 1995:
U.S. federal...................................... $3,001 $ 2,208 $5,209
State and local................................... 298 280 578
------ ------- ------
$3,299 $ 2,488 $5,787
====== ======= ======
Ten months ended January 31, 1996:
U.S. federal...................................... $1,051 $ (858) $ 193
State and local................................... 119 (207) (88)
------ ------- ------
$1,170 $(1,065) $ 105
====== ======= ======
Year ended January 31, 1997:
U.S. federal...................................... $ 953 $ 824 $1,777
State and local................................... 146 6 152
------ ------- ------
$1,099 $ 830 $1,929
====== ======= ======
</TABLE>
Income tax expense (benefit) differed from the amounts computed by applying
the U.S. federal income tax rate of 34% to pretax earnings (loss) as a result
of the following:
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS ENDED YEAR ENDED
MARCH 31, 1995 JANUARY 31, 1996 JANUARY 31, 1997
-------------- ---------------- ----------------
<S> <C> <C> <C>
Computed "expected" tax
expense (benefit)......... $5,246 $(1,408) $1,385
Increase in income taxes
resulting from:
Goodwill impairment
charge................... 0 1,110 0
Nondeductible merger
costs.................... 0 0 430
Nondeductible expenses.... 178 199 243
State and local income
taxes, net of federal
income tax benefit....... 378 (60) 100
Other, net................ (15) 264 (229)
------ ------- ------
$5,787 $ 105 $1,929
====== ======= ======
</TABLE>
F-16
<PAGE>
THE MAXIM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets (liabilities) at January 31, 1996 and 1997
are presented below:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Deferred tax assets:
Deductible goodwill...................................... $ 1,244 $ 1,114
Accounts receivable, principally due to allowance for
doubtful accounts....................................... 976 869
Inventories, principally due to additional costs
inventoried for tax purposes............................ 1,353 1,161
Accrued expenses......................................... 874 1,941
Special charge--replacement stock options................ 3,249 3,126
Net operating loss and credit carryforwards.............. 1,315 769
Other, net............................................... 23 1,161
------- -------
Total deferred tax assets............................. 9,034 10,141
Deferred tax liabilities:
Plant and equipment, principally due to difference in
depreciation............................................ (7,870) (9,605)
Deferred franchise and other revenue..................... (1,111) (538)
Other, net............................................... (376) (656)
------- -------
Total deferred tax liabilities........................ (9,357) (10,799)
------- -------
Net deferred tax liabilities.............................. $ (323) $ (658)
======= =======
</TABLE>
No valuation allowance was recorded against deferred tax assets at January
31, 1996 or 1997. The Company's management believes the existing net temporary
differences comprising total deferred tax assets will reverse during periods
in which the Company will generate net taxable income. The Company's net
operating loss carryforwards expire in 2009. Utilization of net operating loss
carryforwards may be limited by the alternative minimum tax provisions.
12. RELATED-PARTY TRANSACTIONS
Certain of the directors also own franchises which utilize the services of
the Company. Trade accounts receivable at January 31, 1996 and 1997 include
amounts due from these affiliated companies of $85 and $21, respectively. In
addition, rebates payable to franchisees at January 31, 1996 and 1997 include
amounts due to director-owned franchises of $26 and $81, respectively.
Included in fees from brokering floorcovering products for the year ended
March 31, 1995, the ten months ended January 31, 1996, and the year ended
January 31, 1997 are $76, $105, and $157, respectively, earned from services
provided to affiliated franchises. Included in franchise services for the year
ended March 31, 1995, the ten months ended January 31, 1996, and the year
ended January 31, 1997 are $318, $106, and $95, respectively, from services
purchased by affiliated franchises.
Included in sales of floorcovering products for the year ended March 31,
1995, the ten months ended January 31, 1996, and the year ended January 31,
1997 are $176, $216, and $110, respectively, for carpet purchased by
affiliated franchises.
Included in other revenues for the year ended March 31, 1995, the ten months
ended January 31, 1996, and the year ended January 31, 1997 are $18, $9, and
$39, respectively, for purchases by affiliated franchises.
Included in interest expense for the year ended March 31, 1995, the ten
months ended January 31, 1996, and the year ended January 31, 1997 are
approximately $0, $0, and $10, respectively, of interest on notes payable to
stockholders.
F-17
<PAGE>
THE MAXIM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In August 1995, the Company loaned $821 to Kevodrew Realty, Inc.
("Kevodrew"), a company controlled by A. J. Nassar, the president and chief
executive officer of the Company, which loan bears interest at an annual rate
of prime. These funds were loaned to Kevodrew to provide interim financing for
the purchase by Kevodrew of a retail shopping center in Louisville, Kentucky.
This loan was repaid on May 22, 1996. A primary tenant in the shopping center
will be a company-owned store, which has entered into a five-year lease
agreement with Kevodrew, providing for annual lease payments of $89.
As of January 31, 1997, Mr. Nassar had a demand note payable to the Company
for $809, accruing interest at the prime rate.
13. STOCKHOLDERS' EQUITY
The Company completed an initial public offering ("IPO") for 1,822,600
shares of common stock and 911,300 redeemable common stock purchase warrants
("warrants") under Regulation S-B of the Securities and Exchange Commission in
October 1993. The warrants were subject to redemption by the Company at $.05
per warrant on 30 days' prior written notice with either (1) the prior written
consent of Thomas James Associates, Inc. ("Thomas James") (the IPO
underwriter) or (2) provided that the average of the closing bid price of the
common stock for a period of 20 consecutive trading days, ending within 15
days prior to the notice of redemption, exceeds $13.125 per share. On July 27,
1994, the board of directors of the Company called for the redemption of all
the issued and outstanding warrants. The warrants were exercisable at a price
of $7 per share until September 1, 1994. In total, warrants for 907,415 shares
of stock were exercised and the Company received $6,359.
Effective January 4, 1995, the Company reached an agreement with Thomas
James, the underwriter of the Company's IPO in 1993, to cancel and surrender
the remaining underwriter's warrants issued by the Company to Thomas James in
connection with the IPO. In consideration of the cancellation and surrender of
the underwriter's warrants, which entitled Thomas James to purchase up to
240,000 shares of the Company's common stock, the Company paid $1,503,
consisting of $5 in legal costs and $1,498, or the equivalent of $14 per
common share, to Thomas James.
The Company adopted a stock option plan in fiscal 1994 which provides for
the granting of incentive and nonqualified stock options for up to 2,000,000
shares of common stock to key employees and directors at an exercise price of
at least 100% of fair market value at the date of grant. Information relating
to stock options is summarized as of January 31, 1996 and 1997, as follows:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Options outstanding at beginning of fiscal year... 634,210 821,308
Options granted................................... 395,400 771,000
Options canceled.................................. (181,036) (41,224)
Options exercised................................. (27,266) (95,576)
------------ ------------
Options outstanding at end of fiscal year......... 821,308 1,455,508
============ ============
Option prices per share (excluding replacement
stock options):
Options granted during the fiscal year............ $9.00-$11.75 $9.75-$15.50
Options canceled.................................. $5.25-$15.50 $5.25-$13.50
Options exercised................................. $5.25-$10.50 $5.25-$11.75
Options outstanding at end of fiscal year......... $5.25-$14.50 $5.25-$15.50
</TABLE>
The majority of the employee options become exercisable in increments
ranging from 20% to 33 1/3% per year beginning on September 30, 1994 and
ending on November 27, 2001. In addition, the Company has granted options to
purchase 250,000 shares of common stock to one of its outside directors at an
exercise price of $5.25 to $10.25 per share, of which 250,000 are currently
exercisable.
F-18
<PAGE>
THE MAXIM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Effective August 10, 1993, Image adopted a Plan and Agreement of Conversion
(the "Conversion"), in which all previously outstanding vested and unvested
stock options and unvested stock appreciation units were canceled and a like
number of fully vested replacement stock options were issued. These options
have an exercise price of $.01 per share and expire March 30, 2006. In
connection with the grant of the replacement stock options, Image recognized a
noncash, nonrecurring charge of approximately $10,388 (pretax) in the fiscal
year ending March 31, 1994. In connection with the Conversion, Image has
granted the option holders certain protections against possible tax
consequences associated with the grant of the options. At January 31, 1997,
932,615 replacement stock options were outstanding.
Image also adopted a stock option plan (the "Stock Option Plan") which
provides for the grant of stock options to selected participants, including
officers and key employees of Image. On August 10, 1993, Image granted 41,318
fully vested incentive options to Image's chief executive officer at $10 per
share, exercisable over a three-year period. On May 9, 1995, the Company
granted an additional 3,294 fully vested incentive options to other Image
employees at $12.38 per share.
In connection with the merger between the Company and Image, all outstanding
options under the Image Conversion and the Stock Option Plan were converted
into like options to purchase shares in the combined entity.
During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which defines a fair value-based
method of accounting for employee stock options or similar equity instruments.
However, it also allows an entity to continue to measure compensation cost for
those plans using the method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees." Entities electing to remain with
the accounting in APB No. 25 must make pro forma disclosures of net earnings
and earnings per share as if the fair value-based method of accounting defined
in the statement had been applied.
The Company has elected to account for its stock-based compensation plan
under APB No. 25; however, the Company has computed for pro forma disclosure
purposes the value of all options granted during fiscal 1997 and 1996 using
the Black-Scholes option pricing model as prescribed by SFAS No. 123 using the
following weighted average assumptions used for grants in fiscal 1996 and
1997:
<TABLE>
<S> <C>
Risk-free interest rate......................................... 5.5%-6.8%
Expected dividend yield......................................... 0%
Expected lives.................................................. 7.5 years
Expected volatility............................................. 50%
</TABLE>
The total value of the options granted during the ten months ended January
31, 1996 and the year ended January 31, 1997 was computed as approximately
$2,100 and $4,779, respectively, which would be amortized over the vesting
period of the options. Options vest equally over five years. If the Company
had accounted for these plans in accordance with SFAS No. 123, the Company's
reported pro forma net earnings and pro forma net earnings per share for the
ten months ended January 31, 1996 and the year ended January 31, 1997 would
have decreased to the following pro forma amounts:
<TABLE>
<CAPTION>
1996 1997
------- ------
<S> <C> <C>
Pro forma net earnings (loss):
As reported in the financial statements...................... $(4,245) $2,145
Pro forma in accordance with SFAS No. 123.................... (4,309) 1,560
Pro forma net earnings (loss) per common and common equivalent
share:
As reported in the financial statements...................... $ (.32) $ .15
Pro forma in accordance with SFAS No. 123.................... $ (.32) $ .11
</TABLE>
F-19
<PAGE>
THE MAXIM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. EMPLOYMENT AGREEMENTS
The Company has entered into separate three-year employment agreements with
certain key officers. These contracts provide for aggregate base salaries of
approximately $1,000, certain severance provisions, and additional bonuses at
the discretion of the board of directors.
Effective August 10, 1993, Image entered into three-year employment
agreements with two of its executive officers. The contracts obligate the
Company for compensation, severance, bonus, and other employment-related
matters. These agreements provide for aggregate base compensation levels
totaling $535 per year. In connection with the merger, these two agreements
were extended to August 1998.
15. EMPLOYMENT BENEFIT PLAN
Effective April 1, 1994, the Company instituted a 401(k) retirement savings
plan (the "Plan"), which is open to all Maxim employees who have completed one
year of service. The Company's matching contribution is 25% of the first 6% of
contributions made by the employees. The Company's matching contribution vests
to the employees over six years. Employee and employer contributions to the
Plan were $822 and $128, respectively, for the ten months ended January 31,
1996 and $850 and $169, respectively, for the year ended January 31, 1997.
Effective October 1, 1994, a defined contribution plan (the "Image Plan")
covering all employees of Image was created. The Image Plan is open to all
employees who are 21 or older and who have completed six months of service.
Participants may defer a portion of their pretax earnings up to the annual
limit per the Internal Revenue Service. The Company has not made any
contributions to the Image Plan for the ten months ended January 31, 1996 or
the year ended January 31, 1997.
16. 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 consolidated financial position or results of operations.
17. BUSINESS AND CREDIT CONCENTRATION
In fiscal years 1995, 1996, and 1997, export sales accounted for
approximately 11%, 8%, and 6%, respectively, of the Company's net sales.
Export sales are principally to customers in the Middle East, Europe, and
Canada. Sales to Middle Eastern customers totaled 8%, 5%, and 4% of net sales
in fiscal years 1995, 1996, and 1997, respectively.
In 1995, 1996, and 1997, one customer accounted for approximately 8%, 4%,
and 2%, respectively, of the Company's net sales.
F-20
<PAGE>
THE MAXIM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Ten months ended January 31, 1996:
Maxim net sales...................... $27,989 $31,849 $31,364 $ 8,088
Image net sales...................... 35,565 37,337 42,378 12,981
------- ------- ------- -------
Total Company net sales.............. 63,554 69,186 73,742 21,069
------- ------- ------- -------
Maxim gross profit................... 11,974 13,681 13,181 1,646
Image gross profit................... 8,722 6,965 7,350 2,309
------- ------- ------- -------
Total Company gross profit........... 20,696 20,646 20,531 3,955
------- ------- ------- -------
Maxim net earnings (loss)............ 919 1,212 418 (9,823)
Image net earnings................... 1,676 655 661 37
------- ------- ------- -------
Total Company net earnings (loss).... 2,595 1,867 1,079 (9,786)(a)
------- ------- ------- -------
Maxim net earnings (loss) per share.. 0.07 0.09 0.03 (0.73)
Image net earnings per share......... 0.12 0.05 0.05 0.00
------- ------- ------- -------
Total Company net earnings (loss) per
share............................... 0.19 0.14 0.08 (0.73)
------- ------- ------- -------
Year ended January 31, 1997:
Maxim net sales...................... $33,655 $36,438 $38,110 $38,838
Image net sales...................... 39,587 39,643 44,029 39,421
------- ------- ------- -------
Total Company net sales.............. 73,242 76,081 82,139 78,259
------- ------- ------- -------
Maxim gross profit................... 13,643 13,320 13,991 13,426
Image gross profit................... 6,641 7,088 9,845 9,477
------- ------- ------- -------
Total Company gross profit........... 20,284 20,408 23,836 22,903
------- ------- ------- -------
Maxim net earnings (loss)............ 1,007 (92) (2,171) 521
Image net earnings (loss)............ 145 100 1,059 1,576
------- ------- ------- -------
Total Company net earnings (loss).... 1,152 8 (1,112)(b) 2,097
------- ------- ------- -------
Maxim net earnings (loss) per share.. 0.07 (0.01) (0.16) 0.04
Image net earnings (loss) per share.. 0.01 0.01 0.08 0.11
------- ------- ------- -------
Total Company net earnings (loss) per
share............................... 0.08 0.00 (0.08) 0.15
------- ------- ------- -------
</TABLE>
- --------
(a) Includes a goodwill impairment charge of $6,569 (pre-tax).
(b) Includes merger-related costs of $4,700 (pre-tax).
19. SUBSEQUENT EVENT
On February 18, 1997, the Company sold 3,175,773 shares of its common stock
to the public. The Company received approximately $47,900 of proceeds from the
offering, and such proceeds were utilized to reduce amounts outstanding under
the Company's Credit Facility.
F-21
<PAGE>
THE MAXIM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
20.SUBSEQUENT EVENT
On October 16, 1997, the Company sold $100,000 of 9 1/4% Senior Subordinated
Notes due 2007 (the "Notes") in a private transaction. The proceeds to the
Company, net of an issue discount, fees and related costs, were approximately
$95,900. The Company used approximately $82,700 of the net proceeds to repay
all borrowings outstanding under its credit facility. The Company will use the
remaining proceeds for general corporate purposes. In connection with the
offering, the Company entered into a registration rights agreement which
grants holders of the Notes certain exchange and registration rights. The
Notes are fully and unconditionally guaranteed by all of the Company's
subsidiaries on a joint and several basis.
F-22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE ISSUERS OR ANY OF THE INITIAL PURCHASERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
EXCHANGE NOTES OR GUARANTEES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGES IN THE FACTS SET
FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE ISSUERS SINCE THE DATE
HEREOF.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Cautionary Notice Regarding Forward-Looking Statements.................... 1
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 14
The Exchange Offer........................................................ 22
Certain Federal Income Tax Consequences of the Exchange Offer............. 30
Use of Proceeds........................................................... 31
Capitalization............................................................ 31
Selected Consolidated Financial and
Operating Data........................................................... 32
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 34
Business.................................................................. 42
Management................................................................ 54
Executive Compensation.................................................... 56
Certain Transactions...................................................... 60
Principal Shareholders.................................................... 62
Description of Certain Other Indebtedness................................. 63
Description of the Exchange Notes......................................... 66
Description of Certain Federal Income Tax Consequences of an Investment in
the Exchange Notes....................................................... 98
Plan of Distribution...................................................... 100
Legal Matters............................................................. 100
Experts................................................................... 100
Index to Consolidated Financial Statements................................ F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOGO
THE MAXIM GROUP, INC.
OFFER TO EXCHANGE UP TO $100,000,000 9 1/4% SENIOR SUBORDINATED NOTES DUE 2007,
SERIES B FOR
9 1/4% SENIOR SUBORDINATED
NOTES DUE 2007
----------------------
PRELIMINARY PROSPECTUS
----------------------
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Bylaws effectively provide that the Company shall, to the full
extent permitted by Section 145 of the General Corporation Law of the State of
Delaware, as amended from time to time ("Section 145"), indemnify all persons
whom it may indemnify pursuant thereto. In addition, the Company's Certificate
of Incorporation eliminates personal liability of its directors to the full
extent permitted by Section 102(b)(7) of the General Corporation Law of the
State of Delaware, as amended from time to time ("Section 102(b)(7)").
Section 145 permits a corporation to indemnify its directors and officers
against expenses (including attorney's fees), judgments, fines and amounts
paid in settlements actually and reasonably incurred by them in connection
with any action, suit, or proceeding brought by a third party if such
directors or officers acted in good faith and in a manner they 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 reason to believe
their conduct was unlawful. In a derivative action, indemnification may be
made only for expenses actually and reasonably incurred by directors and
officers in connection with the defense or settlement of an action or suit and
only with respect to a matter as to which they shall have acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interest of the corporation, except that no indemnification shall be made if
such person shall have been adjudged liable to the corporation, unless and
only to the extent that the court in which the action or suit was brought
shall determine upon application that the defendant officers or directors are
reasonably entitled to indemnity for such expenses despite such adjudication
of liability.
Section 102(b)(7) provides that a corporation may eliminate or limit the
personal liability of a director to the corporation or its shareholders for
monetary damages for breach of fiduciary duty as a director, provided that
such provision shall not eliminate or limit the liability of a director (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) for willful or
negligent conduct in paying dividends or repurchasing stock out of other than
lawfully available funds or (iv) for any transaction from which the director
derived an improper benefit. No such provision shall eliminate or limit the
liability of a director for any act or omission occurring prior to the date
when such provision becomes effective.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits are filed with this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ------------------------------------------------------------------
<C> <S>
4.2 Indenture dated as of October 16, 1997 between The Maxim Group,
Inc. and its
subsidiaries as Guarantors and State Street Bank and Trust
Company, as Trustee.
4.3 Registration Rights Agreement dated as of October 16, 1997 between
The Maxim Group, Inc. and its subsidiaries as Guarantors and
Merrill Lynch, Pierce, Fenner & Smith Incorporated, First Union
Capital Markets Corp. and Wheat, First Securities, Inc.
4.4 Form of The Maxim Group, Inc. 9 1/4% Senior Subordinated Notes due
2007 (contained in the Indenture filed as Exhibit 4.2).
4.5 Form of The Maxim Group, Inc. 9 1/4% Senior Subordinated Notes due
2007, Series B (contained in the Indenture filed as Exhibit 4.2).
5.1 Opinion of Smith, Gambrell & Russell, LLP.
10.13.1 Amendment No. 1 dated September 25, 1997 to Employment Agreement
dated June 4, 1997 by and between A.J. Nassar and The Maxim Group,
Inc.
12.1 Statements re computation of ratios of earnings to fixed charges.
21.1 Subsidiaries of the Registrant.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ------------------------------------------------------------------
<C> <S>
23.1 Consent of Arthur Andersen LAP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Smith, Gambrell & Russell, LLP (contained in their
opinion filed
as Exhibit 5.1)
24.1 Powers of Attorney (included on signature pages to this
Registration Statement).
25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939 of State Street Bank and Trust Company.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
</TABLE>
(b) Financial Statement Schedules
The following financial statement schedule of The Maxim Group, Inc. for the
year ended January 31, 1997, the ten month transition period ended January 31,
1996 and for the year ended March 31, 1995 (incorporated by reference from the
Company's Annual Report of Form 10-K for the fiscal year ended January 31,
1997, as amended)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
<TABLE>
<S> <C>
Schedule II Valuation and Qualifying Accounts
</TABLE>
Schedules not listed above have been omitted because they are not applicable
or the information required to be set forth therein is included in the
consolidated financial statements or notes thereto.
ITEM 22. UNDERTAKINGS
(a) Each of the undersigned Registrants hereby undertakes:
(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;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the 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 a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change in such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, 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.
II-2
<PAGE>
(b) Each of the undersigned Registrants hereby undertakes that, for purposes
of determining any liability under the Securities Act, each filing of the
Registrants' annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) 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.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the foregoing provisions, or otherwise, each of the
Registrants has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by a
Registrant of expenses incurred or paid by a director, officer or controlling
person of such Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, such Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(d) Each of the undersigned Registrants hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to items 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.
(e) Each of the undersigned Registrants hereby undertakes 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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kennesaw, State of
Georgia, on the 28th day of October, 1997.
The Maxim Group, Inc.
/s/ A. J. Nassar
By: ----------------------------------
A. J. Nassar
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints A.J. Nassar and Thomas P. Leahey and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933,
as amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ A. J. Nassar President, Chief October 28,
- ------------------------------------- Executive Officer 1997
A. J. Nassar and Director
(principal
executive officer)
/s/ James W. Inglis Senior Executive October 28,
- ------------------------------------- Vice President and 1997
James W. Inglis Director
/s/ H. Stanley Padgett Executive Vice October 28,
- ------------------------------------- President and 1997
H. Stanley Padgett Director
/s/ Thomas P. Leahey Executive Vice October 28,
- ------------------------------------- President, Finance 1997
Thomas P. Leahey and Treasurer
(principal
financial officer)
/s/ H. Gene Harper Chief Financial October 28,
- ------------------------------------- Officer and 1997
H. Gene Harper Secretary
(principal
accounting officer)
Director October ,
- ------------------------------------- 1997
David E. Cicchinelli
/s/ Richard A. Kaplan Director October 28,
- ------------------------------------- 1997
Richard A. Kaplan
/s/ J. Michael Nixon Director October 28,
- ------------------------------------- 1997
J. Michael Nixon
/s/ M.B. Seretean Director October 28,
- ------------------------------------- 1997
M. B. Seretean
/s/ Herb Wolk Director October 28,
- ------------------------------------- 1997
Herb Wolk
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kennesaw, State of
Georgia, on the 31st day of October, 1997.
Image Industries, Inc.
/s/ H. Stanley Padgett
By: ------------------------------------
H. Stanley Padgett
President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints A.J. Nassar and Thomas P. Leahey and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including posteffective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933,
as amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ H. Stanley Padgett President and October 31,
- ------------------------------------ Director 1997
H. Stanley Padgett (principal
executive officer)
/s/ Steven Coburn Treasurer October 31,
- ------------------------------------ (principal 1997
Steven Coburn financial and
accounting
officer)
/s/ Paul Meredith Director October 31,
- ------------------------------------ 1997
Paul Meredith
/s/ M. B. Seretean Director October 31,
- ------------------------------------ 1997
M. B. Seretean
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kennesaw, State of
Georgia, on the 31st day of October, 1997.
Kinnaird & Francke Interiors, Inc.
/s/ Herbert A. Biggers
By: ----------------------------------
Herbert A. Biggers
President (principal executive
officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints A.J. Nassar and Thomas P. Leahey and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933,
as amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ A. J. Nassar Director October 31,
- ------------------------------------- 1997
A. J. Nassar
/s/ Thomas P. Leahey Vice President, October 31,
- ------------------------------------- Treasurer and 1997
Thomas P. Leahey Director (principal
financial officer)
/s/ H. Gene Harper Secretary and October 31,
- ------------------------------------- Director 1997
H. Gene Harper
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kennesaw, State of
Georgia, on the 31st day of October, 1997.
Kinnaird & Francke Drapery Co., Inc.
/s/ Herbert A. Biggers
By: ----------------------------------
Herbert A. Biggers
President (principal executive
officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints A.J. Nassar and Thomas P. Leahey and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933,
as amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ A. J. Nassar Director October 31,
- ------------------------------------- 1997
A. J. Nassar
/s/ Thomas P. Leahey Vice President, October 31,
- ------------------------------------- Treasurer and 1997
Thomas P. Leahey Director (principal
financial officer)
/s/ H. Gene Harper Secretary and October 31,
- ------------------------------------- Director 1997
H. Gene Harper
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kennesaw, State of
Georgia, on the 31st day of October, 1997.
First Quality, Inc.
/s/ Herbert A. Biggers
By: _________________________________
Herbert A. Biggers
President (principal executive
officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints A.J. Nassar and Thomas P. Leahey and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933,
as amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ A. J. Nassar Director October 31,
- ------------------------------------- 1997
A. J. Nassar
/s/ Thomas P. Leahey Vice President, October 31,
- ------------------------------------- Treasurer and 1997
Thomas P. Leahey Director (principal
financial officer)
/s/ H. Gene Harper Secretary and October 31,
- ------------------------------------- Director 1997
H. Gene Harper
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kennesaw, State of
Georgia, on the 31st day of October, 1997.
Steve Peterson Interiors &
Associates, Inc.
/s/ Herbert A. Biggers
By: ----------------------------------
Herbert A. Biggers
President (principal executive
officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints A.J. Nassar and Thomas P. Leahey and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933,
as amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ A. J. Nassar Director October 31,
- ------------------------------------- 1997
A. J. Nassar
/s/ Thomas P. Leahey Vice President, October 31,
- ------------------------------------- Treasurer and 1997
Thomas P. Leahey Director (principal
financial officer)
/s/ H. Gene Harper Secretary and October 31,
- ------------------------------------- Director 1997
H. Gene Harper
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kennesaw, State of
Georgia, on the 31st day of October, 1997.
Carpet World, Inc.
/s/ Herbert A. Biggers
By: ----------------------------------
Herbert A. Biggers
President (principal executive
officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints A.J. Nassar and Thomas P. Leahey and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including posteffective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933,
as amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ A. J. Nassar Director October 31,
- ------------------------------------- 1997
A. J. Nassar
/s/ Thomas P. Leahey Vice President, October 31,
- ------------------------------------- Treasurer and 1997
Thomas P. Leahey Director (principal
financial officer)
/s/ H. Gene Harper Secretary and October 31,
- ------------------------------------- Director 1997
H. Gene Harper
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kennesaw, State of
Georgia, on the 31st day of October, 1997.
Bay Area Carpets, Inc.
/s/ Herbert A. Biggers
By: ----------------------------------
Herbert A. Biggers
President (principal executive
officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints A.J. Nassar and Thomas P. Leahey and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including posteffective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933,
as amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ A. J. Nassar Director October 31,
- ------------------------------------- 1997
A. J. Nassar
/s/ Thomas P. Leahey Vice President, October 31,
- ------------------------------------- Treasurer and 1997
Thomas P. Leahey Director (principal
financial officer)
/s/ H. Gene Harper Secretary and October 31,
- ------------------------------------- Director 1997
H. Gene Harper
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kennesaw, State of
Georgia, on the 31st day of October, 1997.
RNA Enterprises, Inc.
/s/ Herbert A. Biggers
By: ----------------------------------
Herbert A. Biggers
President (principal executive
officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints A.J. Nassar and Thomas P. Leahey and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933,
as amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ A. J. Nassar Director October 31,
- ------------------------------------- 1997
A. J. Nassar
/s/ Thomas P. Leahey Vice President, October 31,
- ------------------------------------- Treasurer and 1997
Thomas P. Leahey Director (principal
financial officer)
/s/ H. Gene Harper Secretary and October 31,
- ------------------------------------- Director 1997
H. Gene Harper
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kennesaw, State of
Georgia, on the 31st day of October, 1997.
Dubose Carpets & Floors, Inc.
/s/ Herbert A. Biggers
By: ----------------------------------
Herbert A. Biggers
President (principal executive
officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints A.J. Nassar and Thomas P. Leahey and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933,
as amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ A. J. Nassar Director October 31,
- ------------------------------------- 1997
A. J. Nassar
/s/ Thomas P. Leahey Treasurer and October 31,
- ------------------------------------- Director (principal 1997
Thomas P. Leahey financial officer)
/s/ H. Gene Harper Secretary and October 31,
- ------------------------------------- Director 1997
H. Gene Harper
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kennesaw, State of
Georgia, on the 31st day of October, 1997.
Rugs N Remnants, Inc.
/s/ Herbert A. Biggers
By: ----------------------------------
Herbert A. Biggers
President (principal executive
officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints A.J. Nassar and Thomas P. Leahey and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933,
as amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ A. J. Nassar Director October 31,
- ------------------------------------- 1997
A. J. Nassar
/s/ Thomas P. Leahey Vice President, October 31,
- ------------------------------------- Treasurer and 1997
Thomas P. Leahey Director (principal
financial officer)
/s/ H. Gene Harper Secretary and October 31,
- ------------------------------------- Director 1997
H. Gene Harper
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kennesaw, State of
Georgia, on the 31st day of October, 1997.
Carpet Gallery, Inc. (Georgia)
/s/ Herbert A. Biggers
By: ----------------------------------
Herbert A. Biggers
President (principal executive
officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints A.J. Nassar and Thomas P. Leahey and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933,
as amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ A. J. Nassar Director October 31,
- ------------------------------------- 1997
A. J. Nassar
/s/ Thomas P. Leahey Vice President, October 31,
- ------------------------------------- Treasurer and 1997
Thomas P. Leahey Director (principal
financial officer)
/s/ H. Gene Harper Secretary and October 31,
- ------------------------------------- Director 1997
H. Gene Harper
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kennesaw, State of
Georgia, on the 31st day of October, 1997.
Losantville Carpet Outlet, Inc.
/s/ Herbert A. Biggers
By: ----------------------------------
Herbert A. Biggers
President (principal executive
officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints A.J. Nassar and Thomas P. Leahey and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933,
as amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ A. J. Nassar Director October 31,
- ------------------------------------- 1997
A. J. Nassar
/s/ Thomas P. Leahey Vice President, October 31,
- ------------------------------------- Treasurer and 1997
Thomas P. Leahey Director (principal
financial officer)
/s/ H. Gene Harper Secretary and October 31,
- ------------------------------------- Director 1997
H. Gene Harper
II-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kennesaw, State of
Georgia, on the 31st day of October, 1997.
American Carpets & Interiors, Inc.
/s/ Herbert A. Biggers
By: ----------------------------------
Herbert A. Biggers
President (principal executive
officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints A.J. Nassar and Thomas P. Leahey and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933,
as amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ A. J. Nassar Director October 31,
- ------------------------------------- 1997
A. J. Nassar
/s/ Thomas P. Leahey Vice President, October 31,
- ------------------------------------- Treasurer and 1997
Thomas P. Leahey Director (principal
financial officer)
/s/ H. Gene Harper Secretary and October 31,
- ------------------------------------- Director 1997
H. Gene Harper
II-17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kennesaw, State of
Georgia, on the 31st day of October, 1997.
Carpet Country, Inc.
/s/ Herbert A. Biggers
By: ----------------------------------
Herbert A. Biggers
President (principal executive
officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints A.J. Nassar and Thomas P. Leahey and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933,
as amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ A. J. Nassar Director October 31,
- ------------------------------------- 1997
A. J. Nassar
/s/ Thomas P. Leahey Vice President, October 31,
- ------------------------------------- Treasurer and 1997
Thomas P. Leahey Director (principal
financial officer)
/s/ H. Gene Harper Secretary and October 31,
- ------------------------------------- Director 1997
H. Gene Harper
II-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kennesaw, State of
Georgia, on the 31st day of October, 1997.
Carpetmax of New Mexico, Inc.
/s/ Herbert A. Biggers
By: ----------------------------------
Herbert A. Biggers
President (principal executive
officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints A.J. Nassar and Thomas P. Leahey and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933,
as amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ A. J. Nassar Director October 31,
- ------------------------------------- 1997
A. J. Nassar
/s/ Thomas P. Leahey Vice President, October 31,
- ------------------------------------- Treasurer and 1997
Thomas P. Leahey Director (principal
financial officer)
/s/ H. Gene Harper Secretary and October 31,
- ------------------------------------- Director 1997
H. Gene Harper
II-19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kennesaw, State of
Georgia, on the 31st day of October, 1997.
Carpetmax Alabama Contract, Inc.
/s/ Herbert A. Biggers
By: ----------------------------------
Herbert A. Biggers
President (principal executive
officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints A.J. Nassar and Thomas P. Leahey and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933,
as amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ A. J. Nassar Director October 31,
- ------------------------------------- 1997
A. J. Nassar
/s/ Thomas P. Leahey Vice President, October 31,
- ------------------------------------- Treasurer and 1997
Thomas P. Leahey Director (principal
financial officer)
/s/ H. Gene Harper Secretary and October 31,
- ------------------------------------- Director 1997
H. Gene Harper
II-20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kennesaw, State of
Georgia, on the 31st day of October, 1997.
Maxim Retail Group, Inc.
/s/ Paul Renn
By: ----------------------------------
Paul Renn
President (principal executive
officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints A.J. Nassar and Thomas P. Leahey and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933,
as amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ A. J. Nassar Director October 31,
- ------------------------------------- 1997
A. J. Nassar
/s/ Thomas P. Leahey Vice President, October 31,
- ------------------------------------- Treasurer and 1997
Thomas P. Leahey Director (principal
financial officer)
/s/ H. Gene Harper Secretary and October 31,
- ------------------------------------- Director 1997
H. Gene Harper
II-21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kennesaw, State of
Georgia, on the 28th day of October, 1997.
Investor Management, Inc.
/s/ A.J. Nassar
By: ----------------------------------
A.J. Nassar
President (principal executive
officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints A.J. Nassar and Thomas P. Leahey and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933,
as amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ A. J. Nassar President and October 28,
- ------------------------------------- Director 1997
A. J. Nassar
/s/ Thomas P. Leahey Vice President, October 28,
- ------------------------------------- Treasurer, 1997
Thomas P. Leahey Secretary and
Director (principal
accounting officer)
/s/ H. Gene Harper Assistant Secretary October 28,
- ------------------------------------- and Director 1997
H. Gene Harper
II-22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kennesaw, State of
Georgia, on the 28th day of October, 1997.
TRI-R of Orlando, Inc.
/s/ A.J. Nassar
By: ----------------------------------
A.J. Nassar
President (principal executive
officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints A.J. Nassar and Thomas P. Leahey and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933,
as amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ A. J. Nassar President and October 28,
- ------------------------------------- Director 1997
A. J. Nassar
/s/ Thomas P. Leahey Vice President, October 28,
- ------------------------------------- Treasurer and 1997
Thomas P. Leahey Director (principal
financial officer)
/s/ H. Gene Harper Secretary and October 28,
- ------------------------------------- Director 1997
H. Gene Harper
II-23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kennesaw, State of
Georgia, on the 28th day of October, 1997.
Carpetmax of Palm Beach, Inc.
/s/ A.J. Nassar
By: ----------------------------------
A.J. Nassar
President (principal executive
officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints A.J. Nassar and Thomas P. Leahey and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933,
as amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ A. J. Nassar President and October 28,
- ------------------------------------- Director 1997
A. J. Nassar
/s/ Thomas P. Leahey Vice President, October 28,
- ------------------------------------- Treasurer and 1997
Thomas P. Leahey Director (principal
financial officer)
/s/ H. Gene Harper Secretary and October 28,
- ------------------------------------- Director 1997
H. Gene Harper
II-24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kennesaw, State of
Georgia, on the 28th day of October, 1997.
Creditmax Corp.
/s/ A.J. Nassar
By: ----------------------------------
A.J. Nassar
President (principal executive
officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints A.J. Nassar and Thomas P. Leahey and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933,
as amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ A. J. Nassar President and October 28,
- ------------------------------------- Director 1997
A. J. Nassar
/s/ Thomas P. Leahey Vice President, October 28,
- ------------------------------------- Treasurer, 1997
Thomas P. Leahey Secretary and
Director (principal
financial officer)
/s/ H. Gene Harper Director October 28,
- ------------------------------------- 1997
H. Gene Harper
II-25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kennesaw, State of
Georgia, on the 28th day of October, 1997.
Carpetmax of Charlotte, Inc.
/s/ A.J. Nassar
By: ----------------------------------
A.J. Nassar
President (principal executive
officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints A.J. Nassar and Thomas P. Leahey and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933,
as amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ A. J. Nassar President and October 28,
- ------------------------------------- Director 1997
A. J. Nassar
/s/ Thomas P. Leahey Vice President, October 28,
- ------------------------------------- Treasurer and 1997
Thomas P. Leahey Director (principal
financial officer)
/s/ H. Gene Harper Secretary and October 28,
- ------------------------------------- Director 1997
H. Gene Harper
II-26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kennesaw, State of
Georgia, on the 28th day of October, 1997.
Cloud Carpets, Inc.
/s/ A.J. Nassar
By: ----------------------------------
A.J. Nassar
President (principal executive
officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints A.J. Nassar and Thomas P. Leahey and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933,
as amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ A. J. Nassar President and October 28,
- ------------------------------------- Director 1997
A. J. Nassar
/s/ Thomas P. Leahey Vice President, October 28,
- ------------------------------------- Treasurer and 1997
Thomas P. Leahey Director (principal
financial officer)
/s/ H. Gene Harper Secretary and October 28,
- ------------------------------------- Director 1997
H. Gene Harper
II-27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kennesaw, State of
Georgia, on the 28th day of October, 1997.
Maxim Equipment Leasing Company,
Inc.
/s/ A.J. Nassar
By: ----------------------------------
A.J. Nassar
President (principal executive
officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints A.J. Nassar and Thomas P. Leahey and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933,
as amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ A. J. Nassar President and October 28,
- ------------------------------------- Director 1997
A. J. Nassar
/s/ Thomas P. Leahey Vice President, October 28,
- ------------------------------------- Treasurer and 1997
Thomas P. Leahey Director (principal
financial officer)
/s/ H. Gene Harper Director October 28,
- ------------------------------------- 1997
H. Gene Harper
II-28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kennesaw, State of
Georgia, on the 28th day of October, 1997.
GCO, Inc.
/s/ A.J. Nassar
By: ----------------------------------
A.J. Nassar
Chief Executive Officer (principal
executive officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints A.J. Nassar and Thomas P. Leahey and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933,
as amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ A. J. Nassar Chief Executive October 28,
- ------------------------------------- Officer and 1997
A. J. Nassar Director
/s/ Thomas P. Leahey Vice President, October 28,
- ------------------------------------- Treasurer and 1997
Thomas P. Leahey Director (principal
financial officer)
/s/ H. Gene Harper Secretary and October 28,
- ------------------------------------- Director 1997
H. Gene Harper
II-29
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kennesaw, State of
Georgia, on the 28th day of October, 1997.
GCO Carpet Outlet, Inc.
/s/ A.J. Nassar
By: ----------------------------------
A.J. Nassar
Chief Executive Officer (principal
executive officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints A.J. Nassar and Thomas P. Leahey and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933,
as amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ A. J. Nassar Chief Executive October 28,
- ------------------------------------- Officer and 1997
A. J. Nassar Director
/s/ Thomas P. Leahey Vice President, October 28,
- ------------------------------------- Treasurer and 1997
Thomas P. Leahey Director (principal
financial officer)
/s/ H. Gene Harper Secretary and October 28,
- ------------------------------------- Director 1997
H. Gene Harper
II-30
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kennesaw, State of
Georgia, on the 28th day of October, 1997.
Bailey & Roberts Carpetmax of
Tennessee, Inc.
/s/ A.J. Nassar
By: ----------------------------------
A.J. Nassar
Chief Executive Officer (principal
executive officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints A.J. Nassar and Thomas P. Leahey and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933,
as amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ A. J. Nassar Chief Executive October 28,
- ------------------------------------- Officer and 1997
A. J. Nassar Director
/s/ Thomas P. Leahey Vice President, October 28,
- ------------------------------------- Treasurer and 1997
Thomas P. Leahey Director (principal
financial officer)
/s/ H. Gene Harper Secretary and October 28,
- ------------------------------------- Director 1997
H. Gene Harper
II-31
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Kennesaw, State of
Georgia, on the 28th day of October, 1997.
Carpetmax, L.P.
By: The Maxim Group, Inc., as General
Partner
/s/ A.J. Nassar
By: ------------------------------------
A.J. Nassar
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints A.J. Nassar and Thomas P. Leahey and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him, in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, including a
Registration Statement filed under Rule 462(b) of the Securities Act of 1933,
as amended, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ A. J. Nassar President, Chief October 28,
- ------------------------------------ Executive Officer 1997
A. J. Nassar and Director of
The Maxim Group,
Inc. (principal
executive officer)
/s/ Thomas P. Leahey Executive Vice October 28,
- ------------------------------------ President, Finance 1997
Thomas P. Leahey and Treasurer of
The Maxim Group,
Inc. (principal
financial officer)
/s/ H. Stanley Padgett Executive Vice October 28,
- ------------------------------------ President and 1997
H. Stanley Padgett Director of The
Maxim Group, Inc.
/s/ H. Gene Harper Chief Financial October 28,
- ------------------------------------ Officer and 1997
H. Gene Harper Secretary of The
Maxim Group, Inc.
(principal
accounting
officer)
/s/ James W. Inglis Senior Executive October 28,
- ------------------------------------ Vice President and 1997
James W. Inglis Director of The
Maxim Group, Inc.
II-32
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
Director of The October , 1997
- ------------------------------------- Maxim
David E. Cicchinelli Group, Inc.
/s/ Richard A. Kaplan Director of The October 28,
- ------------------------------------- Maxim Group, Inc. 1997
Richard A. Kaplan
/s/ J. Michael Nixon Director of The October 28,
- ------------------------------------- Maxim Group, Inc. 1997
J. Michael Nixon
/s/ M. B. Seretean Director of The October 28,
- ------------------------------------- Maxim Group, Inc. 1997
M. B. Seretean
/s/ Herb Wolk Director of The October 28,
- ------------------------------------- Maxim Group, Inc. 1997
Herb Wolk
II-33
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ------------------------------------------------------------------
<C> <S>
4.2 Indenture dated as of October 16, 1997 between The Maxim Group,
Inc. and its
subsidiaries as Guarantors and State Street Bank and Trust
Company, as Trustee.
4.3 Registration Rights Agreement dated as of October 16, 1997 between
The Maxim Group, Inc. and its subsidiaries as Guarantors and
Merrill Lynch, Pierce, Fenner & Smith Incorporated, First Union
Capital Markets Corp. and Wheat, First Securities, Inc.
4.4 Form of The Maxim Group, Inc. 9 1/4% Senior Subordinated Notes due
2007 (contained in the Indenture filed as Exhibit 4.2).
4.5 Form of The Maxim Group, Inc. 9 1/4% Senior Subordinated Notes due
2007, Series B (contained in the Indenture filed as Exhibit 4.2).
5.1 Opinion of Smith, Gambrell & Russell, LLP.
10.13.1 Amendment No. 1 dated September 25, 1997 to Employment Agreement
dated June 4, 1997 by and between A.J. Nassar and The Maxim Group,
Inc.
12.1 Statements re computation of ratios of earnings to fixed charges.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Smith, Gambrell & Russell, LLP (contained in their
opinion filed
as Exhibit 5.1)
24.1 Powers of Attorney (included on signature pages to this
Registration Statement).
25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939 of State Street Bank and Trust Company.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Guidelines for Certification of Taxpayer Indentification Number on
Substitute Form W-9.
</TABLE>
<PAGE>
Exhibit 4.2
-----------
The MAXIM Group, INC., AS ISSUER,
THE MAXIM GROUP, INC.
IMAGE INDUSTRIES, INC.
KINNAIRD & FRANCKE INTERIORS, INC.
KINNAIRD & FRANCKE DRAPERY CO., INC.
FIRST QUALITY, INC.
STEVE PETERSON INTERIORS & ASSOCIATES, INC.
BAY AREA CARPETS, INC.
CARPET WORLD, INC.
RNA ENTERPRISES, INC.
GCO, INC.
DUBOSE CARPETS & FLOORS, INC.
RUGS N REMNANTS, INC.
CARPET GALLERY, INC. (GEORGIA)
LOSANTVILLE CARPET OUTLET, INC.
AMERICAN CARPETS & INTERIORS, INC.
INVESTOR MANAGEMENT, INC.
GCO CARPET OUTLET, INC.
MAXIM RETAIL GROUP, INC.
CARPET COUNTRY, INC.
CARPETMAX, L.P.
TRI-R OF ORLANDO, INC.
CARPETMAX OF PALM BEACH, INC.
CREDITMAX CORP.
CARPETMAX OF NEW MEXICO, INC
CARPETMAX OF CHARLOTTE, INC.
CLOUD CARPETS, INC.
CARPETMAX ALABAMA CONTRACT, INC.
BAILEY & ROBERTS CARPETMAX OF TENNESSEE, INC.
MAXIM EQUIPMENT LEASING COMPANY, INC.
AS GUARANTORS, AND
STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE
________
INDENTURE
DATED AS OF OCTOBER 16, 1997
$100,000,000
9 1/4% SENIOR SUBORDINATED NOTES DUE 2007
<PAGE>
Reconciliation and tie between Trust Indenture Act of 1939,
as amended, and Indenture, dated as of October 16, 1997
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
- --------------- ---------
<S> <C>
(S) 310 (a)(1).................................... 609
(a)(2).................................... 609
(b)....................................... 607, 610
(S) 311 (a)....................................... 613
(S) 312 (a)....................................... 701
(c)....................................... 702
(S) 313 (a)....................................... 703
(c)....................................... 703, 704
(S) 314 (a)....................................... 704
(a)(4).................................... 1020
(c)(1).................................... 103
(c)(2).................................... 103
(e)....................................... 103
(S) 315 (a)....................................... 601(b)
(b)....................................... 602
(c)....................................... 601(a)
(d)....................................... 601(c), 603
(e)....................................... 514
(S) 316 (a)(last sentence)........................ 101 ("Outstanding")
(a)(1)(A)................................. 502, 512
(a)(1)(B)................................. 513
(b)....................................... 508
(c)....................................... 105
(S) 317 (a)(1).................................... 503
(a)(2).................................... 504
(b)....................................... 1003
(S) 318 (a)....................................... 108
</TABLE>
- -----------------------
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of this Indenture.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PARTIES.................................................................. 1
RECITALS................................................................. 1
ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION...... 2
Section 101. Definitions................................................. 2
-----------
"Acquired Indebtedness"................................... 2
"Administrative Agent".................................... 3
"Affiliate"............................................... 3
"Asset Sale".............................................. 3
"Average Life to Stated Maturity"......................... 3
"Bankruptcy Law".......................................... 3
"Board of Directors"...................................... 4
"Board Resolution"........................................ 4
"Book-Entry Security"..................................... 4
"Business Day"............................................ 4
"Capital Lease Obligation"................................ 4
"Capital Stock"........................................... 4
"Change of Control"....................................... 4
"Commission".............................................. 5
"Commodity Price Protection Agreement".................... 5
"Common Stock"............................................ 5
"Company"................................................. 5
"Company Request" or "Company Order"...................... 5
"Consolidated Fixed Charge Coverage Ratio"................ 6
"Consolidated Income Tax Expense"......................... 6
"Consolidated Interest Expense"........................... 6
"Consolidated Net Income (Loss)".......................... 6
"Consolidated Net Worth".................................. 7
"Consolidated Non-cash Charges"........................... 7
"Consolidation"........................................... 7
"Corporate Trust Office".................................. 7
"Credit Facility"......................................... 7
"Currency Hedging Arrangements"........................... 8
"Default"................................................. 8
"Depositary".............................................. 8
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
"Designated Senior Indebtedness".......................... 8
"Disinterested Director".................................. 8
"Event of Default"........................................ 9
"Exchange Act"............................................ 9
"Exchange Offer".......................................... 9
"Exchange Offer Registration Statement"................... 9
"Fair Market Value"....................................... 9
"Generally Accepted Accounting Principles" or
"GAAP"............................................... 9
"Global Securities"....................................... 9
"Guarantee"............................................... 9
"Guaranteed Debt"......................................... 9
"Guarantor"............................................... 10
"Guarantor Senior Indebtedness"........................... 10
"Holder".................................................. 10
"Indebtedness"............................................ 10
"Indenture"............................................... 11
"Indenture Obligations"................................... 11
"Initial Securities"...................................... 12
"Initial Purchasers"...................................... 12
"Interest Payment Date"................................... 12
"Interest Rate Agreements"................................ 12
"Investment".............................................. 12
"Issue Date".............................................. 12
"Lien".................................................... 12
"Maturity"................................................ 12
"Moody's"................................................. 13
"Net Cash Proceeds"....................................... 13
"Non-U.S. Person"......................................... 13
"Non-U.S. Subsidiaries"................................... 13
"Officers' Certificate"................................... 14
"Opinion of Counsel"...................................... 14
"Opinion of Independent Counsel".......................... 14
"Outstanding"............................................. 14
"Pari Passu Indebtedness"................................. 15
"Paying Agent"............................................ 15
"Permitted Investment".................................... 15
"Person".................................................. 16
"Predecessor Security".................................... 16
"Preferred Stock"......................................... 16
"Prospectus".............................................. 16
"Public Equity Offering".................................. 16
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
"Purchase Money Obligation".............................. 16
"QIB".................................................... 17
"Qualified Capital Stock"................................ 17
"Redeemable Capital Stock"............................... 17
"Redemption Date"........................................ 17
"Redemption Price"....................................... 17
"Registration Rights Agreement".......................... 17
"Registration Statement"................................. 17
"Regular Record Date".................................... 18
"Regulation S Global Securities"......................... 18
"Responsible Officer".................................... 18
"Restricted Subsidiary".................................. 18
"Rule 144A Global Securities"............................ 18
"Sale and Leaseback Transaction"......................... 18
"S&P".................................................... 18
"Securities Act"......................................... 18
"Senior Indebtedness".................................... 18
"Senior Representative".................................. 19
"Series B Global Securities"............................. 19
"Shelf Registration Statement"........................... 19
"Significant Restricted Subsidiary"...................... 19
"Special Purpose Letter of Credit"....................... 19
"Special Record Date".................................... 20
"Stated Maturity"........................................ 20
"Subordinated Indebtedness".............................. 20
"Subsidiary"............................................. 20
"Temporary Cash Investments"............................. 20
"Trustee"................................................ 20
"Trust Indenture Act".................................... 20
"Unrestricted Subsidiary"................................ 20
"Unrestricted Subsidiary Indebtedness"................... 21
"Voting Stock"........................................... 22
"Wholly Owned Restricted Subsidiary"..................... 22
Section 102. Other Definitions.......................................... 22
-----------------
Section 103. Compliance Certificates and Opinions....................... 23
------------------------------------
Section 104. Form of Documents Delivered to Trustee..................... 24
--------------------------------------
Section 105. Acts of Holders............................................ 25
---------------
Section 106. Notices, etc., to the Trustee, the Company and any
--------------------------------------------------
Guarantor........................................... 26
---------
Section 107. Notice to Holders; Waiver.................................. 27
-------------------------
Section 108. Conflict with Trust Indenture Act.......................... 28
---------------------------------
Section 109. Effect of Headings and Table of Contents................... 28
----------------------------------------
</TABLE>
(iii)
<PAGE>
<TABLE>
<S> <C>
Section 110. Successors and Assigns..................................... 28
----------------------
Section 111. Separability Clause........................................ 28
-------------------
Section 112. Benefits of Indenture...................................... 28
---------------------
Section 113. GOVERNING LAW.............................................. 29
-------------
Section 114. Legal Holidays............................................. 29
--------------
Section 115. Independence of Covenants.................................. 29
-------------------------
Section 116. Schedules and Exhibits..................................... 29
----------------------
Section 117. Counterparts............................................... 29
------------
ARTICLE TWO SECURITY FORMS............................................. 30
Section 201. Forms Generally............................................ 30
---------------
Section 202. Form of Face of Security................................... 30
------------------------
Section 203. Form of Reverse of Securities.............................. 47
-----------------------------
Section 204. Form of Trustee's Certificate of Authentication............ 55
-----------------------------------------------
Section 205. Form of Guarantee of Each of the Guarantors................ 56
-------------------------------------------
Section 206. Form of Option of Holder to Elect Purchase................. 60
------------------------------------------
ARTICLE THREE THE SECURITIES........................................... 61
Section 301. Title and Terms............................................ 61
---------------
Section 302. Denominations.............................................. 62
-------------
Section 303. Execution, Authentication, Delivery and Dating............. 62
----------------------------------------------
Section 304. Temporary Securities....................................... 64
--------------------
Section 305. Registration, Registration of Transfer and Exchange........ 64
---------------------------------------------------
Section 306. Book-Entry Provisions for Global Securities................ 66
-------------------------------------------
Section 307. Special Transfer Provisions................................ 68
---------------------------
Section 308. Mutilated, Destroyed, Lost and Stolen Securities........... 71
------------------------------------------------
Section 309. Payment of Interest; Interest Rights Preserved............. 72
----------------------------------------------
Section 310. CUSIP Numbers.............................................. 74
-------------
Section 311. Persons Deemed Owners...................................... 74
---------------------
Section 312. Cancellation............................................... 74
------------
Section 313. Computation of Interest.................................... 74
-----------------------
ARTICLE FOUR DEFEASANCE AND COVENANT DEFEASANCE........................ 75
Section 401. Company's Option to Effect Defeasance or Covenant
-------------------------------------------------
Defeasance.......................................... 75
----------
Section 402. Defeasance and Discharge................................... 75
------------------------
Section 403. Covenant Defeasance........................................ 75
-------------------
Section 404. Conditions to Defeasance or Covenant Defeasance............ 76
-----------------------------------------------
</TABLE>
(iv)
<PAGE>
<TABLE>
<S> <C>
Section 405. Deposited Money and U.S. Government Obligations to Be
-----------------------------------------------------
Held in Trust; Other Miscellaneous Provisions....... 78
---------------------------------------------
Section 406. Reinstatement.............................................. 79
-------------
ARTICLE FIVE REMEDIES.................................................. 80
Section 501. Events of Default.......................................... 80
-----------------
Section 502. Acceleration of Maturity; Rescission and Annulment......... 82
--------------------------------------------------
Section 503. Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
Trustee............................................. 83
-------
Section 504. Trustee May File Proofs of Claim........................... 84
--------------------------------
Section 505. Trustee May Enforce Claims without Possession of
------------------------------------------------
Securities.......................................... 85
----------
Section 506. Application of Money Collected............................. 85
------------------------------
Section 507. Limitation on Suits........................................ 86
-------------------
Section 508. Unconditional Right of Holders to Receive Principal,
---------------------------------------------------
Premium and Interest................................ 86
--------------------
Section 509. Restoration of Rights and Remedies......................... 87
----------------------------------
Section 510. Rights and Remedies Cumulative............................. 87
------------------------------
Section 511. Delay or Omission Not Waiver............................... 87
----------------------------
Section 512. Control by Holders......................................... 87
------------------
Section 513. Waiver of Past Defaults.................................... 88
-----------------------
Section 514. Undertaking for Costs...................................... 88
---------------------
Section 515. Waiver of Stay, Extension or Usury Laws.................... 89
---------------------------------------
Section 516. Remedies Subject to Applicable Law......................... 89
----------------------------------
ARTICLE SIX THE TRUSTEE................................................ 89
Section 601. Duties of Trustee.......................................... 89
-----------------
Section 602. Notice of Defaults......................................... 91
------------------
Section 603. Certain Rights of Trustee.................................. 91
-------------------------
Section 604. Trustee Not Responsible for Recitals, Dispositions of
-----------------------------------------------------
Securities or Application of Proceeds Thereof....... 92
---------------------------------------------
Section 605. Trustee and Agents May Hold Securities; Collections; etc... 93
--------------------------------------------------------
Section 606. Money Held in Trust........................................ 93
-------------------
Section 607. Compensation and Indemnification of Trustee and Its Prior
---------------------------------------------------------
Claim............................................... 93
-----
Section 608. Conflicting Interests...................................... 94
---------------------
Section 609. Trustee Eligibility........................................ 94
-------------------
Section 610. Resignation and Removal; Appointment of Successor
-------------------------------------------------
Trustee............................................. 95
-------
</TABLE>
(v)
<PAGE>
<TABLE>
<S> <C>
Section 611. Acceptance of Appointment by Successor.................... 96
--------------------------------------
Section 612. Merger, Conversion, Consolidation or Succession to
--------------------------------------------------
Business........................................... 97
--------
Section 613. Preferential Collection of Claims Against Company......... 98
-------------------------------------------------
Section 614. Appointment of Authenticating Agent....................... 98
-----------------------------------
ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY........ 100
Section 701. Company to Furnish Trustee Names and Addresses of
-------------------------------------------------
Holders............................................ 100
-------
Section 702. Disclosure of Names and Addresses of Holders.............. 101
--------------------------------------------
Section 703. Reports by Trustee........................................ 101
------------------
Section 704. Reports by Company and Guarantors......................... 101
---------------------------------
ARTICLE EIGHT CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE..... 102
Section 801. Company and Guarantors May Consolidate, etc., Only on
-----------------------------------------------------
Certain Terms...................................... 102
-------------
Section 802. Successor Substituted..................................... 105
---------------------
ARTICLE NINE SUPPLEMENTAL INDENTURES.................................. 106
Section 901. Supplemental Indentures and Agreements without Consent
------------------------------------------------------
of Holders......................................... 106
----------
Section 902. Supplemental Indentures and Agreements with Consent of
------------------------------------------------------
Holders............................................ 107
-------
Section 903. Execution of Supplemental Indentures and Agreements....... 108
---------------------------------------------------
Section 904. Effect of Supplemental Indentures......................... 109
---------------------------------
Section 905. Conformity with Trust Indenture Act....................... 109
-----------------------------------
Section 906. Reference in Securities to Supplemental Indentures........ 109
--------------------------------------------------
Section 907. Notice of Supplemental Indentures......................... 109
---------------------------------
Section 908. Revocation and Effects of Consents........................ 109
----------------------------------
Section 909. Effect on Senior Indebtedness............................. 110
-----------------------------
ARTICLE TEN COVENANTS................................................. 110
Section 1001. Payment of Principal, Premium and Interest............... 110
------------------------------------------
Section 1002. Maintenance of Office or Agency.......................... 110
-------------------------------
Section 1003. Money for Security Payments to Be Held in Trust.......... 110
-----------------------------------------------
</TABLE>
(vi)
<PAGE>
<TABLE>
<S> <C>
Section 1004. Corporate Existence...................................... 112
-------------------
Section 1005. Payment of Taxes and Other Claims........................ 112
---------------------------------
Section 1006. Maintenance of Properties................................ 113
-------------------------
Section 1007. Insurance................................................ 113
---------
Section 1008. Limitation on Indebtedness............................... 114
--------------------------
Section 1009. Limitation on Restricted Payments........................ 117
---------------------------------
Section 1010. Limitation on Transactions with Affiliates............... 121
------------------------------------------
Section 1011. Limitation on Liens...................................... 121
-------------------
Section 1012. Limitation on Senior Subordinated Indebtedness........... 122
----------------------------------------------
Section 1013. Limitation on Sale of Assets............................. 123
----------------------------
Section 1014. Limitation on Issuances of Guarantees of Indebtedness.... 128
-----------------------------------------------------
Section 1015. Restriction on Transfer of Assets........................ 129
---------------------------------
Section 1016. Purchase of Securities Upon a Change of Control.......... 129
-----------------------------------------------
Section 1017. Limitation on Restricted Subsidiary Capital Stock........ 133
-------------------------------------------------
Section 1018. Limitation on Dividends and Other Payment Restrictions
------------------------------------------------------
Affecting Restricted Subsidiaries.................. 133
---------------------------------
Section 1019. Limitations on Unrestricted Subsidiaries................. 134
----------------------------------------
Section 1020. Provision of Financial Statements........................ 134
---------------------------------
Section 1021. Statement by Officers as to Default...................... 135
-----------------------------------
Section 1022. Waiver of Certain Covenants.............................. 135
---------------------------
ARTICLE ELEVEN REDEMPTION OF SECURITIES............................... 136
Section 1101. Rights of Redemption..................................... 136
--------------------
Section 1102. Applicability of Article................................. 136
------------------------
Section 1103. Election to Redeem; Notice to Trustee.................... 136
-------------------------------------
Section 1104. Selection by Trustee of Securities to Be Redeemed........ 136
-------------------------------------------------
Section 1105. Notice of Redemption..................................... 137
--------------------
Section 1106. Deposit of Redemption Price.............................. 138
---------------------------
Section 1107. Securities Payable on Redemption Date.................... 138
-------------------------------------
Section 1108. Securities Redeemed or Purchased in Part................. 139
----------------------------------------
ARTICLE TWELVE SATISFACTION AND DISCHARGE............................. 139
Section 1201. Satisfaction and Discharge of Indenture.................. 139
---------------------------------------
Section 1202. Application of Trust Money............................... 140
--------------------------
ARTICLE THIRTEEN SUBORDINATION OF SECURITIES.......................... 141
Section 1301. Securities Subordinate to Senior Indebtedness............ 141
---------------------------------------------
Section 1302. Payment Over of Proceeds Upon Dissolution, etc........... 141
----------------------------------------------
</TABLE>
(Vii)
<PAGE>
<TABLE>
<S> <C>
Section 1303. Suspension of Payment When Designated Senior
--------------------------------------------
Indebtedness in Default............................ 143
-----------------------
1304. Payment Permitted if No Default.................................. 145
-----------------------
Section 1305. Subrogation to Rights of Holders of Senior Indebtedness.. 145
-------------------------------------------------------
Section 1306. Provisions Solely to Define Relative Rights.............. 145
-------------------------------------------
Section 1307. Trustee to Effectuate Subordination...................... 146
-----------------------------------
Section 1308. No Waiver of Subordination Provisions.................... 146
-------------------------------------
Section 1309. Notice to Trustee........................................ 147
-----------------
Section 1310. Reliance on Judicial Orders or Certificates.............. 148
-------------------------------------------
Section 1311. Rights of Trustee as a Holder of Senior Indebtedness;
----------------------------------------------------
Preservation of Trustee's Rights................... 148
--------------------------------
Section 1312. Article Applicable to Paying Agents...................... 148
-----------------------------------
Section 1313. No Suspension of Remedies................................ 148
-------------------------
Section 1314. Trustee's Relation to Senior Indebtedness................ 149
-----------------------------------------
ARTICLE FOURTEEN GUARANTEES............................................ 149
Section 1401. Guarantors' Guarantee.................................... 149
---------------------
Section 1402. Continuing Guarantee; No Right of Set-Off; Independent
------------------------------------------------------
Obligation......................................... 149
----------
Section 1403. Guarantee Absolute....................................... 151
------------------
Section 1404. Right to Demand Full Performance......................... 153
--------------------------------
Section 1405. Waivers.................................................. 154
-------
Section 1406. The Guarantors Remain Obligated in Event the Company is
-------------------------------------------------------
No Longer Obligated to Discharge Indenture
------------------------------------------
Obligations........................................ 155
-----------
Section 1407. Fraudulent Conveyance; Contribution; Subrogation........ 155
-------------------------------------------------
Section 1408. Guarantee is in Addition to Other Security............... 156
------------------------------------------
Section 1409. Release of Security Interests............................ 156
-----------------------------
Section 1410. No Bar to Further Actions................................ 156
-------------------------
Section 1411. Failure to Exercise Rights Shall Not Operate as a
-------------------------------------------------
Waiver; No Suspension of Remedies.................. 156
---------------------------------
Section 1412. Trustee's Duties; Notice to Trustee...................... 157
-----------------------------------
Section 1413. Successors and Assigns................................... 157
----------------------
Section 1414. Release of Guarantee..................................... 157
--------------------
Section 1415. Execution of Guarantee; Additional Guarantors........... 158
----------------------------------------------
Section 1416. Guarantee Subordinate to Guarantor Senior Indebtedness... 158
------------------------------------------------------
Section 1417. Payment Over of Proceeds Upon Dissolution of the
------------------------------------------------
Guarantor, etc..................................... 159
--------------
Section 1418. Default on Guarantor Senior Indebtedness................. 161
----------------------------------------
Section 1419. Payment Permitted by Each of the Guarantors if No
-------------------------------------------------
Default............................................ 161
-------
</TABLE>
(Viii)
<PAGE>
<TABLE>
<S> <C>
Section 1420. Subrogation to Rights of Holders of Guarantor Senior
----------------------------------------------------
Indebtedness...................................... 161
------------
Section 1421. Provisions Solely to Define Relative Rights.............. 162
-------------------------------------------
Section 1422. Trustee to Effectuate Subordination...................... 162
-----------------------------------
Section 1423. No Waiver of Subordination Provisions.................... 163
-------------------------------------
Section 1424. Notice to Trustee by Each of the Guarantors.............. 163
-------------------------------------------
Section 1425. Reliance on Judicial Orders or Certificates.............. 164
-------------------------------------------
Section 1426. Rights of Trustee as a Holder of Guarantor Senior
-------------------------------------------------
Indebtedness; Preservation of Trustee's Rights..... 165
----------------------------------------------
Section 1427. Article Applicable to Paying Agents...................... 165
-----------------------------------
Section 1428. No Suspension of Remedies................................ 165
-------------------------
Section 1429. Trustee's Relation to Guarantor Senior Indebtedness...... 165
---------------------------------------------------
TESTIMONIUM............................................................ 167
SIGNATURES............................................................. 167
</TABLE>
ACKNOWLEDGMENTS
SCHEDULE I Existing Indebtedness
SCHEDULE II Dividend and Other Payments Affecting Subsidiaries
EXHIBIT A Form of Intercompany Note
EXHIBIT B Form of Certificate to be Delivered in Connection with Transfers
Pursuant to Rule 144(k)
EXHIBIT C Form of Certificate to be Delivered in Connection with Transfers
Pursuant to Regulation S
APPENDIX I Form of Transferee Certificate for Series A Securities
APPENDIX II Form of Transferee Certificate for Series B Securities
(ix)
<PAGE>
INDENTURE, dated as of October 16, 1997, among The Maxim Group, Inc.,
a Delaware corporation (the "Company"), and Image Industries, Inc., Kinnaird &
Francke Interiors, Inc., Kinnaird & Francke Drapery Co., Inc., First Quality,
Inc., Steve Peterson Interiors & Associates, Inc., Bay Area Carpets, Inc.,
Carpet World, Inc., RNA Enterprises, Inc., GCO, Inc., Dubose Carpets & Floors,
Inc., Rugs N Remnants, Inc., Carpet Gallery, Inc. (Georgia), Losantville Carpet
Outlet, Inc., American Carpets & Interiors, Inc., Investor Management, Inc., GCO
Carpet Outlet, Inc., Maxim Retail Group, Inc., First Quality of North Carolina,
Inc., Carpet Country, Inc., Carpetmax, L.P., Tri-R of Orlando, Inc., Carpetmax
of Palm Beach, Inc., Creditmax Corp., Carpetmax of New Mexico, Inc., Carpetmax
of Charlotte, Inc., Cloud Carpets, Inc., Carpetmax Alabama Contract, Inc.,
Bailey & Roberts Carpetmax of Tennessee, Inc., Maxim Equipment Leasing Company,
Inc., as guarantors (collectively, the "Guarantors"), and State Street Bank and
Trust Company, a Massachusetts banking and trust company, as trustee (the
"Trustee").
RECITALS OF THE COMPANY AND THE GUARANTORS
The Company has duly authorized the creation of an issue of 9 1/4%
Senior Subordinated Notes due 2007, Series A (together with all such Series A
Securities issued in replacement of or exchange for any other Series A
Securities, the "Series A Securities" or the "Initial Securities"), and an issue
of 9 1/4% Senior Subordinated Notes due 2007, Series B (together with all such
Series B Securities issued in replacement of or exchange for any other Series B
Securities, the "Series B Securities" and, together with the Series A
Securities, the "Securities"), of substantially the tenor and amount hereinafter
set forth, and to provide therefor the Company has duly authorized the execution
and delivery of this Indenture and the Securities;
Each Guarantor has duly authorized the issuance of a Guarantee of the
Securities, of substantially the tenor hereinafter set forth, and to provide
therefor, each Guarantor has duly authorized the execution and delivery of this
Indenture and its Guarantee;
This Indenture is subject to, and shall be governed by, the provisions
of the Trust Indenture Act that are required to be part of and to govern
indentures qualified under the Trust Indenture Act;
All acts and things necessary have been done to make (i) the
Securities, when duly issued and executed by the Company and authenticated and
delivered hereunder, the valid obligations of the Company, (ii) the Guarantees,
when executed by each of the Guarantors and delivered hereunder, the valid
obligation of each of the
<PAGE>
Guarantors and (iii) this Indenture a valid agreement of the Company and each of
the Guarantors in accordance with the terms of this Indenture;
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 101. Definitions.
-----------
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision;
(e) all references to $, US$, dollars or United States dollars shall
refer to the lawful currency of the United States of America; and
(f) all references herein to particular Sections or Articles refer to
this Indenture unless otherwise so indicated.
Certain terms used principally in Article Four are defined in Article
Four.
"Acquired Indebtedness" means Indebtedness of a Person (i) existing at
the time such Person becomes a Restricted Subsidiary or (ii) assumed in
connection with the acquisition of assets from such Person, in each case, other
than Indebtedness incurred in connection with, or in contemplation of, such
Person becoming a Restricted Subsidiary or
2
<PAGE>
such acquisition, as the case may be. Acquired Indebtedness shall be deemed to
be incurred on the date of the related acquisition of assets from any Person or
the date the acquired Person becomes a Restricted Subsidiary, as the case may
be.
"Administrative Agent" means First Union National Bank, as
Administrative Agent under the Credit Facility.
"Affiliate" means, with respect to any specified Person: (i) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person; (ii) any other Person that
owns, directly or indirectly, 5% or more of such specified Person's Capital
Stock or any officer or director of any such specified Person or other Person
or, with respect to any natural Person, any person having a relationship with
such Person by blood, marriage or adoption not more remote than first cousin; or
(iii) any other Person 5% or more of the Voting Stock of which is beneficially
owned or held directly or indirectly by such specified Person. For the purposes
of this definition, "control" when used with respect to any specified Person
means the power to direct the management and policies of such Person, directly
or indirectly, whether through ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or
other disposition (including, without limitation, by way of merger,
consolidation or Sale and Leaseback Transaction) (collectively, a "transfer"),
directly or indirectly, in one or a series of related transactions, of: (i) any
Capital Stock of any Subsidiary; (ii) all or substantially all of the properties
and assets of any division or line of business of the Company or its
Subsidiaries; or (iii) any other properties or assets of the Company or any
Subsidiary other than in the ordinary course of business. For the purposes of
this definition, the term "Asset Sale" shall not include any transfer of
properties and assets (A) that is governed by the provisions described under
Article 8 of this Indenture, (B) that is by the Company to any Guarantor, or by
any Subsidiary to the Company or any Wholly Owned Subsidiary in accordance with
the terms of this Indenture, (C) that is damaged, worn-out or obsolete equipment
in the ordinary course of business or (D) the Fair Market Value of which in the
aggregate does not exceed $1,000,000.
"Average Life to Stated Maturity" means, as of the date of
determination with respect to any Indebtedness, the quotient obtained by
dividing (i) the sum of the products of (a) the number of years from the date of
determination to the date or dates of each successive scheduled principal
payment of such Indebtedness multiplied by (b) the amount of each such principal
payment by (ii) the sum of all such principal payments.
"Bankruptcy Law" means Title 11, United States Bankruptcy Code of
1978, as amended, or any similar United States federal or state law relating to
bankruptcy,
3
<PAGE>
insolvency, receivership, winding up, liquidation, reorganization or relief of
debtors or any amendment to, succession to or change in any such law.
"Board of Directors" means the board of directors of the Company or
any Guarantor, as the case may be, or any duly authorized committee of such
board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company or any Guarantor, as the case
may be, to have been duly adopted by the Board of Directors and to be in full
force and effect on the date of such certification, and delivered to the
Trustee.
"Book-Entry Security" means any Global Securities bearing the legend
specified in Section 202 evidencing all or part of a series of Securities,
authenticated and delivered to the Depositary for such series or its nominee,
and registered in the name of such Depositary or nominee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions or trust companies in
The City of New York or the city in which the Corporate Trust Office of the
Trustee is located are authorized or obligated by law, regulation or executive
order to close.
"Capital Lease Obligation" of any Person means any obligation of such
Person and its Subsidiaries on a Consolidated basis under any capital lease of
real or personal property which, in accordance with GAAP, has been recorded as a
capitalized lease obligation.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of such Person's
capital stock or other equity interests whether now outstanding or issued after
the date hereof.
"Change of Control" means the occurrence of any of the following
events: (i) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be
deemed to have beneficial ownership of all shares that such Person has the right
to acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 50% of the total
outstanding Voting Stock of the Company; (ii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors of the Company (together with any new directors whose
election to such Board of Directors or whose nomination for election by the
stockholders of the Company was approved by a vote of 66-2/3% of the directors
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved), cease
for any reason to constitute a majority of
4
<PAGE>
such Board of Directors then in office; (iii) the Company consolidates with or
merges with or into any Person or conveys, transfers or leases all or
substantially all of its assets to any Person, or any corporation consolidates
with or merges into or with the Company in any such event pursuant to a
transaction in which the outstanding Voting Stock of the Company is changed into
or exchanged for cash, securities or other property, other than any such
transaction where the outstanding Voting Stock of the Company is not changed or
exchanged at all (except to the extent necessary to reflect a change in the
jurisdiction of incorporation of the Company or where (A) the outstanding Voting
Stock of the Company is changed into or exchanged for (x) Voting Stock of the
surviving corporation which is not Redeemable Capital Stock or (y) cash,
securities and other property (other than Capital Stock of the surviving
corporation) in an amount which could be paid by the Company as a Restricted
Payment as described under Section 1009 of this Indenture (and such amount shall
be treated as a Restricted Payment subject to the provisions in the Indenture
described under Section 1009) and (B) no "person" or "group" owns immediately
after such transaction, directly or indirectly, more than 50% of the total
outstanding Voting Stock of the surviving corporation; or (iv) the Company is
liquidated or dissolved or adopts a plan of liquidation or dissolution other
than in a transaction which complies with the provisions described under Article
Eight.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, or if at any time
after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act then the
body performing such duties at such time.
"Commodity Price Protection Agreement" means any forward contract,
commodity swap, commodity option or other similar financial agreement or
arrangement relating to, or the value of which is dependent upon, fluctuations
in commodity prices.
"Common Stock" means the common stock, $.001 par value per share, of
the Company.
"Company" means The Maxim Group, Inc., a corporation incorporated
under the laws of Delaware, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by any one of its Chairman of the Board, its
President, its Chief Executive Officer, its Chief Financial Officer or a Vice
President (regardless of Vice Presidential designation), and by any one of its
Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and
delivered to the Trustee.
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"Consolidated Fixed Charge Coverage Ratio" of any Person means, for
any period, the ratio of (a) the sum of Consolidated Net Income (Loss),
Consolidated Interest Expense, Consolidated Income Tax Expense and Consolidated
Non-cash Charges deducted in computing Consolidated Net Income (Loss) in each
case, for such period, of such Person and its Restricted Subsidiaries on a
Consolidated basis, all determined in accordance with GAAP to (b) the sum of
Consolidated Interest Expense for such period and cash and non-cash dividends
paid on any Preferred Stock of such Person during such period; provided that (i)
in making such computation, the Consolidated Interest Expense attributable to
interest on any Indebtedness computed on a pro forma basis and (A) bearing a
floating interest rate shall be computed as if the rate in effect on the date of
computation had been the applicable rate for the entire period and (B) which was
not outstanding during the period for which the computation is being made but
which bears, at the option of such Person, a fixed or floating rate of interest,
shall be computed by applying at the option of such Person either the fixed or
floating rate and (ii) in making such computation, the Consolidated Interest
Expense of such Person attributable to interest on any Indebtedness under a
revolving credit facility computed on a pro forma basis shall be computed based
upon the average daily balance of such Indebtedness during the applicable
period.
"Consolidated Income Tax Expense" of any Person means, for any period,
the provision for federal, state, local and foreign income taxes of such Person
and its Consolidated Restricted Subsidiaries for such period as determined in
accordance with GAAP.
"Consolidated Interest Expense" of any Person means, without
duplication, for any period, the sum of (a) the interest expense of such Person
and its Restricted Subsidiaries for such period, on a Consolidated basis,
including, without limitation, (i) amortization of debt discount, (ii) the net
costs associated with Interest Rate Agreements, Currency Hedging Arrangements
and Commodity Price Protection Agreements (including amortization of discounts),
(iii) the interest portion of any deferred payment obligation and (iv) accrued
interest, plus (b) (i) the interest component of the Capital Lease Obligations
paid, accrued and/or scheduled to be paid or accrued by such Person and its
Subsidiaries during such period and (ii) all capitalized interest of such Person
and its Subsidiaries plus (c) the interest expense under any Guaranteed Debt of
such Person and any Restricted Subsidiary to the extent not included under
clause (a)(iv) above.
"Consolidated Net Income (Loss)" of any Person means, for any period,
the Consolidated net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a Consolidated basis as determined in accordance
with GAAP, adjusted, to the extent included in calculating such net income (or
loss), by excluding, without duplication, (i) all extraordinary gains or losses,
net of taxes (less all fees and expenses
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relating thereto), (ii) the portion of net income (or loss) of such Person and
its Restricted Subsidiaries on a Consolidated basis allocable to minority
interests in unconsolidated Persons to the extent that cash dividends or
distributions have not actually been received by such Person or one of its
Consolidated Restricted Subsidiaries, (iii) net income (or loss) of any Person
combined with such Person or any of its Restricted Subsidiaries on a "pooling of
interests" basis attributable to any period prior to the date of combination,
(iv) any gain or loss, net of taxes, realized upon the termination of any
employee pension benefit plan, (v) net gains (or losses), net of taxes (less all
fees and expenses relating thereto), in respect of dispositions of assets other
than in the ordinary course of business, (vi) the net income of any Restricted
Subsidiary to the extent that the declaration of dividends or similar
distributions by that Restricted Subsidiary of that income is not at the time
permitted, directly or indirectly, by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders, (vii) any restoration to income of any contingency reserve, net of
taxes, except to the extent provision for such reserve was made out of income
accrued at any time following the date of the Indenture, or (viii) any gain, net
of taxes, arising from the acquisition of any securities, or the extinguishment,
under GAAP, of any Indebtedness of such Person.
"Consolidated Net Worth" of any Person, as of a date, means the
Consolidated stockholders' equity (excluding Redeemable Capital Stock) of such
Person and its Restricted Subsidiaries, as of such date, as determined in
accordance with GAAP.
"Consolidated Non-cash Charges" of any Person means, for any period,
the aggregate depreciation, amortization and other non-cash charges of such
Person and its Restricted Subsidiaries on a Consolidated basis for such period,
as determined in accordance with GAAP (excluding any non-cash charge which
requires an accrual or reserve for cash charges for any future period).
"Consolidation" means, with respect to any Person, the consolidation
of the accounts of such Person and each of its Restricted Subsidiaries if and to
the extent the accounts of such Person and each of its Restricted Subsidiaries
would normally be consolidated with those of such Person, all in accordance with
GAAP. The term "Consolidated" shall have a similar meaning.
"Corporate Trust Office" means the office of the Trustee or an
affiliate or agent thereof at which at any particular time the corporate trust
business for the purposes of this Indenture shall be principally administered,
which office at the date of execution of this Indenture is located at 225 Asylum
Street, Hartford, Connecticut 06103.
"Credit Facility" means the Credit Agreement dated as of August 26,
1997 by and among the Company and the Guarantors, as co-borrowers, and First
Union
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National Bank, Fleet National Bank and the other lenders named therein,
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, lenders or holders, and, subject to the provisos to the next sentence,
irrespective of any changes in the terms and conditions thereof. Without
limiting the generality of the foregoing, the term "Credit Facility" shall
include any amendment, amendment and restatement, renewal, extension,
restructuring, supplement or modification to the Credit Facility and all
refundings, refinancings and replacements of the Credit Facility, 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 the Company and its
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 exceed the amount permitted to be
incurred by clause (i) of paragraph (b) of Section 1008 or (iv) otherwise
altering the terms and conditions thereof; provided, further, that in the case
of clauses (i) through (iv), any such agreement is not prohibited by the terms
of this Indenture
"Currency Hedging Arrangements" means one or more of the following
agreements which shall be entered into by one or more financial institutions:
foreign exchange contracts, currency swap agreements or other similar agreements
or arrangements designed to protect against the fluctuations in currency values.
"Default" means any event which is, or after notice or passage of any
time or both would be, an Event of Default.
"Depositary" means, with respect to the Securities issued in the form
of one or more Book-Entry Securities, The Depository Trust Company ("DTC"), its
nominees and successors, or another Person designated as Depositary by the
Company, which must be a clearing agency registered under the Exchange Act.
"Designated Senior Indebtedness" means (i) all Senior Indebtedness
under, or in respect of, the Credit Facility, and (ii) any other Senior
Indebtedness which at the time of determination has an aggregate principal
amount outstanding of at least $10 million and is specifically designated in the
instrument evidencing such Senior Indebtedness or the agreement under which such
Senior Indebtedness arises as "Designated Senior Indebtedness" by the Company.
"Disinterested Director" means, with respect to any transaction or
series of related transactions, a member of the Board of Directors of the
Company who does not have any material direct or indirect financial interest in
or with respect to such transaction
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or series of related transactions. No non-management director shall be deemed
not to be a Disinterested Director by reason of his or her receipt of reasonable
and customary director's fees or the participation in reasonable and customary
director's stock grant, stock option or stock benefit plans, or such other form
of director remuneration as is reasonable and customary.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor statute.
"Exchange Offer" means the exchange offer by the Company and the
Guarantors of Series B Securities for Series A Securities to be effected
pursuant to Section 2.1 of the Registration Rights Agreement.
"Exchange Offer Registration Statement" means the registration
statement under the Securities Act contemplated by Section 2.1 of the
Registration Rights Agreement.
"Fair Market Value" means, with respect to any asset or property, the
sale value that would be obtained in an arm's-length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied, which
are in effect on the date hereof.
"Global Securities" means the Rule 144A Global Securities, the
Regulation S Global Securities and the Series B Global Securities to be issued
as Book-Entry Securities issued to the Depositary in accordance with Section
306.
"Guarantee" means the guarantee by any Guarantor of the Company's
Indenture Obligations pursuant to a guarantee given in accordance with this
Indenture.
"Guaranteed Debt" of any Person means, without duplication, all
Indebtedness of any other Person referred to in the definition of Indebtedness
below guaranteed directly or indirectly in any manner by such Person, or in
effect guaranteed directly or indirectly by such Person through an agreement (i)
to pay or purchase such Indebtedness or to advance or supply funds for the
payment or purchase of such Indebtedness, (ii) to purchase, sell or lease (as
lessee or lessor) property, or to purchase or sell services, primarily for the
purpose of enabling the debtor to make payment of such Indebtedness or to assure
the holder of such Indebtedness against loss, (iii) to supply
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funds to, or in any other manner invest in, the debtor (including any agreement
to pay for property or services without requiring that such property be received
or such services be rendered), (iv) to maintain working capital or equity
capital of the debtor, or otherwise to maintain the net worth, solvency or other
financial condition of the debtor or (v) otherwise to assure a creditor against
loss; provided that the term "guarantee" shall not include endorsements for
collection or deposit, in either case in the ordinary course of business.
"Guarantor" means the Subsidiaries listed as guarantors in this
Indenture and any other Subsidiary which is a guarantor of the Securities,
including any Person that is required after the date of this Indenture to
execute a guarantee of the Securities pursuant to Section 1011 or Section 1014
of this Indenture until a successor replaces such party pursuant to the
applicable provisions of this Indenture and, thereafter, shall mean such
successor.
"Guarantor Senior Indebtedness" means the principal of, premium, if
any, and interest (including interest accruing after the filing of a petition
initiating any proceeding under any state, federal or foreign bankruptcy laws
whether or not allowable as a claim in such proceeding) and all other monetary
obligations (including fees) on any Indebtedness of any Guarantor (other than as
otherwise provided in this definition), whether outstanding on the date of this
Indenture or thereafter created, incurred or assumed, and whether at any time
owing, actually or contingent, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to any Guarantee. Notwithstanding the
foregoing, "Guarantor Senior Indebtedness" shall not include (i) Indebtedness
evidenced by the Guarantees, (ii) Indebtedness that is subordinate or junior in
right of payment to any Indebtedness of any Guarantor, (iii) Indebtedness which
when incurred and without respect to any election under Section 1111(b) of Title
11 of the United States Code, is without recourse to any Guarantor, (iv)
Indebtedness which is represented by Redeemable Capital Stock, (v) any liability
for foreign, federal, state, local or other taxes owed or owing by any Guarantor
to the extent such liability constitutes Indebtedness, (vi) Indebtedness of any
Guarantor to a Subsidiary or any other Affiliate of the Company or any of such
Affiliate's subsidiaries, (vii) Indebtedness evidenced by any guarantee of any
Subordinated Indebtedness or Pari Passu Indebtedness and (viii) that portion of
any Indebtedness which at the time of issuance is issued in violation of this
Indenture.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Indebtedness" means, with respect to any Person, without duplication,
(i) all indebtedness of such Person for borrowed money or for the deferred
purchase price
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of property or services, excluding any trade payables and other accrued current
liabilities arising in the ordinary course of business, but including, without
limitation, all obligations, contingent or otherwise, of such Person in
connection with any letters of credit issued under letter of credit facilities,
acceptance facilities or other similar facilities outstanding, (ii) all
obligations of such Person evidenced by bonds, notes, debentures or other
similar instruments, (iii) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even if the rights and remedies of the seller or lender
under such agreement in the event of default are limited to repossession or sale
of such property), but excluding trade payables arising in the ordinary course
of business, (iv) all obligations under Interest Rate Agreements, Currency
Hedging Arrangements or Commodity Price Protection Agreements of such Person,
(v) all Capital Lease Obligations of such Person, (vi) all Indebtedness referred
to in clauses (i) through (v) above of other Persons and all dividends of other
Persons, the payment of which is secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien, upon or with respect to property (including, without limitation,
accounts and contract rights) owned by such Person, even though such Person has
not assumed or become liable for the payment of such Indebtedness; provided,
however, that the amount determined to be Indebtedness of such Person due to
such Lien under this clause (vi) shall not exceed the Fair Market Value of the
property (including, without limitation, accounts and contract rights) subject
to such Lien, (vii) all Guaranteed Debt of such Person, (viii) all Redeemable
Capital Stock issued by such Person valued at the greater of its voluntary or
involuntary maximum fixed repurchase price plus accrued and unpaid dividends,
and (ix) any amendment, supplement, modification, deferral, renewal, extension,
refunding or refinancing of any liability of the types referred to in clauses
(i) through (viii) above. For purposes hereof, the "maximum fixed repurchase
price" of any Redeemable Capital Stock which does not have a fixed repurchase
price shall be calculated in accordance with the terms of such Redeemable
Capital Stock as if such Redeemable Capital Stock were purchased on any date on
which Indebtedness shall be required to be determined pursuant to this
Indenture, and if such price is based upon, or measured by, the Fair Market
Value of such Redeemable Capital Stock, such Fair Market Value to be determined
in good faith by the board of directors of the issuer of such Redeemable Capital
Stock.
"Indenture" means this instrument as originally executed (including
all exhibits and schedules thereto) and as it may from time to time be
supplemented or amended by one or more indentures supplemental hereto entered
into pursuant to the applicable provisions hereof.
"Indenture Obligations" means the obligations of the Company and any
other obligor under this Indenture or under the Securities including any
Guarantor, to pay principal of, premium, if any, and interest when due and
payable, and all other amounts
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due or to become due under or in connection with this Indenture, the Securities
and the performance of all other obligations to the Trustee and the Holders
under this Indenture and the Securities, according to the respective terms
hereof and thereof.
"Initial Securities" has the meaning stated in the first recital of
this Indenture.
"Initial Purchasers" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated, First Union Capital Markets Corp. and Wheat, First Securities,
Inc.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"Interest Rate Agreements" means one or more of the following
agreements which shall be entered into by one or more financial institutions:
interest rate protection agreements (including, without limitation, interest
rate swaps, caps, floors, collars and similar agreements) and/or other types of
interest rate hedging agreements from time to time.
"Investment" means, with respect to any Person, directly or
indirectly, any advance, loan (including guarantees), or other extension of
credit or capital contribution to (by means of any transfer of cash or other
property to others or any payment for property or services for the account or
use of others), or any purchase, acquisition or ownership by such Person of any
Capital Stock, bonds, notes, debentures or other securities issued or owned by
any other Person and all other items that would be classified as investments on
a balance sheet prepared in accordance with GAAP.
"Issue Date" means the date on which the Securities are originally
issued under this Indenture.
"Lien" means any mortgage or deed of trust, charge, pledge, lien
(statutory or otherwise), privilege, security interest, assignment, deposit,
arrangement, easement, hypothecation, claim, preference, priority or other
encumbrance upon or with respect to any property of any kind (including any
conditional sale, capital lease or other title retention agreement, any leases
in the nature thereof, and any agreement to give any security interest), real or
personal, movable or immovable, now owned or hereafter acquired.
"Maturity" means, when used with respect to the Securities, the date
on which the principal of the Securities becomes due and payable as therein
provided or as provided in this Indenture, whether at Stated Maturity, the Offer
Date or the Redemption Date and whether by declaration of acceleration, Offer in
respect of Excess Proceeds,
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Change of Control Offer in respect of a Change of Control, call for redemption
or otherwise.
"Moody's" means Moody's Investors Service, Inc. or any successor
rating agency.
Net Cash Proceeds" means (a) with respect to any Asset Sale by any
Person, the proceeds thereof (without duplication in respect of all Asset Sales)
in the form of cash or Temporary Cash Investments including payments in respect
of deferred payment obligations when received in the form of, or stock or other
assets when disposed of for, cash or Temporary Cash Investments (except to the
extent that such obligations are financed or sold with recourse to the Company
or any Restricted Subsidiary) net of (i) brokerage commissions and other
reasonable fees and expenses (including fees and expenses of counsel and
investment bankers) related to such Asset Sale, (ii) provisions for all taxes
payable as a result of such Asset Sale, (iii) payments made to retire
Indebtedness where payment of such Indebtedness is secured by the assets or
properties the subject of such Asset Sale, (iv) amounts required to be paid to
any Person (other than the Company or any Restricted Subsidiary) owning a
beneficial interest in the assets subject to the Asset Sale and (v) appropriate
amounts to be provided by the Company or any Subsidiary, as the case may be, as
a reserve, in accordance with GAAP, against any liabilities associated with such
Asset Sale and retained by the Company or any Restricted Subsidiary, as the case
may be, after such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an Officers' Certificate delivered to the
Trustee and (b) with respect to any issuance or sale of Capital Stock or
options, warrants or rights to purchase Capital Stock, or debt securities or
Capital Stock that have been converted into or exchanged for Capital Stock as
referred to under Section 1009 of this Indenture, the proceeds of such issuance
or sale in the form of cash or Temporary Cash Investments including payments in
respect of deferred payment obligations when received in the form of, or stock
or other assets when disposed of for, cash or Temporary Cash Investments (except
to the extent that such obligations are financed or sold with recourse to the
Company or any Restricted Subsidiary), net of attorneys' fees, accountants' fees
and brokerage, consultation, underwriting and other fees and expenses actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Non-U.S. Person" means a Person that is not a "U.S. person" as
defined in Regulation S under the Securities Act.
"Non-U.S. Subsidiaries" means Subsidiaries organized under the laws of
jurisdictions other than the United States and the states and territories
thereof.
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"Officers' Certificate" means a certificate signed by the Chairman of
the Board, the President, the Chief Executive Officer, the Chief Financial
Officer or a Vice President (regardless of Vice Presidential designation), and
by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary, of the Company or any Guarantor, as the case may be, and delivered to
the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company or any Guarantor unless an Opinion of Independent
Counsel is required pursuant to the terms of this Indenture, and who shall be
acceptable to the Trustee.
"Opinion of Independent Counsel" means a written opinion of counsel
which is issued by a Person who is not an employee, director or consultant
(other than non-employee legal counsel) of the Company or any Guarantor and who
shall be reasonably acceptable to the Trustee.
"Outstanding" when used with respect to Securities means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(a) Securities theretofore canceled by the Trustee or delivered to
the Trustee for cancellation;
(b) Securities, or portions thereof, for whose payment or redemption
money in the necessary amount has been theretofore deposited with the Trustee or
any Paying Agent (other than the Company or any Affiliate thereof) in trust or
set aside and segregated in trust by the Company or any Affiliate thereof (if
the Company or any Affiliate thereof shall act as its own Paying Agent) for the
Holders of such Securities; provided that if such Securities are to be redeemed,
notice of such redemption has been duly given pursuant to this Indenture or
provision therefor reasonably satisfactory to the Trustee has been made;
(c) Securities, except to the extent provided in Sections 402 and
403, with respect to which the Company has effected defeasance or covenant
defeasance as provided in Article Four; and
(d) Securities in exchange for or in lieu of which other Securities
have been authenticated and delivered pursuant to this Indenture, other than any
such Securities in respect of which there shall have been presented to the
Trustee and the Company proof reasonably satisfactory to each of them that such
Securities are held by a bona fide purchaser in whose hands the Securities are
valid obligations of the Company; provided, however, that in determining whether
the Holders of the requisite principal amount of Outstanding Securities have
given any request, demand, authorization,
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direction, notice, consent or waiver hereunder, Securities owned by the Company,
any Guarantor, or any other obligor upon the Securities or any Affiliate of the
Company, any Guarantor or such other obligor shall be disregarded and deemed not
to be Outstanding, except that, in determining whether the Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Securities which the Trustee knows to be so
owned shall be so disregarded. Securities so owned which have been pledged in
good faith may be regarded as Outstanding if the pledgee establishes to the
reasonable satisfaction of the Trustee the pledgee's right so to act with
respect to such Securities and that the pledgee is not the Company, any
Guarantor or any other obligor upon the Securities or any Affiliate of the
Company, any Guarantor or such other obligor.
"Pari Passu Indebtedness" means (a) any Indebtedness of the Company
which ranks pari passu in right of payment to the Securities and (b) with
respect to any Guarantee, Indebtedness which ranks pari passu in right of
payment to such Guarantee.
"Paying Agent" means any Person (including the Company) authorized by
the Company to pay the principal of, premium, if any, or interest on, any
Securities on behalf of the Company.
"Permitted Investment" means (i) Investments in any Wholly Owned
Restricted Subsidiary or any Person which, as a result of such Investment, (a)
becomes a Wholly Owned Restricted Subsidiary or (b) is merged or consolidated
with or into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or any Wholly Owned Restricted Subsidiary; (ii)
Indebtedness of the Company or a Restricted Subsidiary described under clauses
(iv), (v), (vi) and (vii) of paragraph (b) of Section 1008; (iii) Temporary
Cash Investments; (iv) Investments in any of the Securities; (v) Investments
acquired by the Company or any Restricted Subsidiary in connection with an Asset
Sale permitted under Section 1013 of this Indenture to the extent such
Investments are non-cash proceeds as permitted under such covenant; (vi)
Investments in existence on the date of this Indenture; (vii) guarantees of
Indebtedness of a Wholly Owned Restricted Subsidiary given by the Company or
another Wholly Owned Restricted Subsidiary and guarantees of Indebtedness of the
Company given by any Restricted Subsidiary, in each case, in accordance with the
terms of this Indenture; (viii) Investments in prepaid expenses; (ix)
Investments represented by accounts receivable created or required in the
ordinary course of business; (x) loans or advances to the Company's franchisees
in the ordinary course of business in an aggregate amount of $20 million at any
one time outstanding; and (xi) loans to executive officers of the Company in the
ordinary course of business, not to exceed, together with loans to executive
officers of the Company then outstanding, $1 million; and (xii) any other
Investments in the aggregate amount of $1 million at any one time outstanding.
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"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 308 in exchange for a mutilated
Security or in lieu of a lost, destroyed or stolen Security shall be deemed to
evidence the same debt as the mutilated, lost, destroyed or stolen Security.
"Preferred Stock" means, with respect to any Person, any Capital Stock
of any class or classes (however designated) which is preferred as to the
payment of dividends or distributions, or as to the distribution of assets upon
any voluntary or involuntary liquidation or dissolution of such Person, over the
Capital Stock of any other class in such Person.
"Prospectus" means the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including any such
prospectus supplement with respect to the terms of the offering of any portion
of the Series A Securities covered by a Shelf Registration Statement, and by all
other amendments and supplements to a prospectus, including post-effective
amendments, and in each case including all material incorporated by reference
therein.
"Public Equity Offering" means an underwritten offering of equity
securities with gross proceeds to the Company of at least $25 million pursuant
to a registration statement that has been declared effective by the Commission
(other than a registration statement on Form S-8 or otherwise relating to equity
securities issuable under any employee benefit plan of the Company).
"Purchase Money Obligation" means any Indebtedness secured by a Lien
on assets related to the business of the Company and its Restricted Subsidiaries
and any additions and accessions thereto, which are purchased by the Company and
its Restricted Subsidiaries at any time after the Securities are issued;
provided that (i) the security agreement or conditional sales or other title
retention contract pursuant to which the Lien on such assets is created
(collectively a "Purchase Money Security Agreement") shall be entered into
within 90 days after the purchase or substantial completion of the construction
of such assets and shall at all times be confined solely to the assets so
purchased or acquired, any additions and accessions thereto and any proceeds
therefrom, (ii) at no time shall the aggregate principal amount of the
outstanding Indebtedness secured thereby be increased, except in connection with
the purchase of additions and
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accession thereto and except in respect of fees and other obligations in respect
of such Indebtedness and (iii) (A) the aggregate outstanding principal amount of
Indebtedness secured thereby (determined on a per asset basis in the case of any
additions and accessions) shall not at the time such Purchase Money Security
Agreement is entered into exceed 100% of the purchase price to the Company and
its Restricted Subsidiaries of the assets subject thereto or (B) the
Indebtedness secured thereby shall be with recourse solely to the assets so
purchased or acquired, any additions and accessions thereto and any proceeds
therefrom.
"QIB" means a "Qualified Institutional Buyer" under Rule 144A under
the Securities Act.
"Qualified Capital Stock" of any Person means any and all Capital
Stock of such Person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any Capital Stock that, either by its terms or
by the terms of any security into which it is convertible or exchangeable or
otherwise, is or upon the happening of an event or passage of time would be,
required to be redeemed prior to any Stated Maturity of the principal of the
Securities or is redeemable at the option of the holder thereof at any time
prior to any such Stated Maturity, or is convertible into or exchangeable for
debt securities at any time prior to any such Stated Maturity at the option of
the holder thereof.
"Redemption Date" when used with respect to any Security to be
redeemed pursuant to any provision in this Indenture means the date fixed for
such redemption by or pursuant to this Indenture.
"Redemption Price" when used with respect to any Security to be
redeemed pursuant to any provision in this Indenture means the price at which it
is to be redeemed pursuant to this Indenture.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of October 16, 1997, among the Company, the Guarantors and
the Initial Purchasers.
"Registration Statement" means any registration statement of the
Company and the Guarantors which covers any of the Series A Securities (and
related guarantees) or Series B Securities (and related guarantees) pursuant to
the provisions of the Registration Rights Agreement, and all amendments and
supplements to any such Registration Statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
17
<PAGE>
"Regular Record Date" for the interest payable on any Interest Payment
Date means the April 1 or October 1 (whether or not a Business Day) next
preceding such Interest Payment Date.
"Regulation S Global Securities" means one or more permanent global
Securities in registered form representing the aggregate principal amount of
Securities sold in reliance on Regulation S under the Securities Act.
"Responsible Officer" when used with respect to the Trustee means any
officer assigned to the Corporate Trust Office or any other officer of the
Trustee to whom any corporate trust matter is referred because of his or her
knowledge of and familiarity with the particular subject.
"Restricted Subsidiary" means any Person, a majority of the equity
ownership or the Voting Stock of which is at the time owned, directly or
indirectly, by the Company or by one or more other Restricted Subsidiaries, or
by the Company and one or more other Restricted Subsidiaries; provided that any
Unrestricted Subsidiary shall not be deemed a Restricted Subsidiary under the
Securities.
"Rule 144A Global Securities" means one or more permanent global
Securities in registered form representing the aggregate principal amount of
Securities sold in reliance on Rule 144A under the Securities Act.
"Sale and Leaseback Transaction" means any transaction or series of
related transactions pursuant to which the Company or a Restricted Subsidiary
sells or transfers any property or asset in connection with the leasing, or the
resale against installment payments, of such property or asset to the seller or
transferor.
"S&P" means Standard & Poor's Rating Group, a division of McGraw Hill,
Inc., or any successor rating agency.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor statute.
"Senior Indebtedness" means the principal of, premium, if any, and
interest (including interest accruing after the filing of a petition initiating
any proceeding under any state, federal or foreign bankruptcy law whether or not
allowable as a claim in such proceeding) and all other monetary obligations
(including fees) on any Indebtedness of the Company (other than as otherwise
provided in this definition), whether outstanding on the date of this Indenture
or thereafter created, incurred or assumed, and whether at any time owing,
actually or contingently, unless, in the case of any particular Indebtedness,
the instrument creating or evidencing the same or pursuant to which the same is
outstanding expressly provides that such Indebtedness shall not be senior in
right of
18
<PAGE>
payment to the Securities. Notwithstanding the foregoing, "Senior Indebtedness"
shall not include (i) Indebtedness evidenced by the Securities, (ii)
Indebtedness that is by its terms subordinate or junior in right of payment to
any Indebtedness of the Company, (iii) Indebtedness which, when incurred and
without respect to any election under Section 1111(b) of Title 11 of the United
States Code, is without recourse to the Company, (iv) Indebtedness which is
represented by Redeemable Capital Stock, (v) any liability for foreign, federal,
state, local or other tax owed or owing by the Company to the extent such
liability constitutes Indebtedness, (vi) Indebtedness of the Company to a
Subsidiary or any other Affiliate of the Company or any of such Affiliate's
subsidiaries and (vii) that portion of any Indebtedness which at the time of
issuance is issued in violation of this Indenture.
"Senior Representative" means the agent, indenture trustee or other
trustee or representative for any Senior Indebtedness.
"Series B Global Securities" means one or more permanent global
Securities in registered form representing the aggregate principal amount of
Series B Securities exchanged for Series A Securities pursuant to the Exchange
Offer.
"Shelf Registration Statement" means a "shelf" registration statement
of the Company and the Guarantors pursuant to Section 2.2 of the Registration
Rights Agreement, which covers all of the Registrable Securities (as defined in
the Registration Rights Agreement) on an appropriate form under Rule 415 under
the Securities Act, or any similar rule that may be adopted by the Commission,
and all amendments and supplements to such registration statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"Significant Restricted Subsidiary" means, at any particular time, any
Restricted Subsidiary that, together with the Subsidiaries of such Restricted
Subsidiary, (i) for the most recent fiscal year of the Company accounted for
more than 10% of the Consolidated revenues of the Company and its Subsidiaries
or (ii) at the end of such fiscal year, was the owner (beneficial or otherwise)
of more than 10% of the Consolidated assets of the Company and its Restricted
Subsidiaries, all as calculated in accordance with GAAP and shown on the
Consolidated financial statements of the Company and its Restricted
Subsidiaries.
"Special Purpose Letter of Credit" means the letter of credit of up to
$31 million issued by First Union National Bank under the Credit Facility
pursuant to the terms of the Reimbursement Agreement dated as of September 1,
1997, among the Company, the Guarantors and First Union National Bank.
19
<PAGE>
"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 309.
"Stated Maturity" means, when used with respect to any Indebtedness or
any installment of interest thereon, the dates specified in such Indebtedness as
the fixed date on which the principal of such Indebtedness or such installment
of interest, as the case may be, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company or a
Guarantor subordinated in right of payment to the Securities or the Guarantee of
such Guarantor, as the case may be.
"Subsidiary" means any Restricted Subsidiary or Unrestricted
Subsidiary.
"Temporary Cash Investments" means (i) any evidence of Indebtedness,
maturing not more than one year after the date of acquisition, issued by the
United States of America, or an instrumentality or agency thereof, and
guaranteed fully as to principal, premium, if any, and interest by the United
States of America, (ii) any certificate of deposit, maturing not more than one
year after the date of acquisition, issued by, or time deposit of, a commercial
banking institution that is a member of the Federal Reserve System and that has
combined capital and surplus and undivided profits of not less than $500
million, whose debt has a rating, at the time as of which any investment therein
is made, of "P-1" (or higher) according to Moody's or any successor rating
agency or "A-1" (or higher) according to S&P or any successor rating agency,
(iii) commercial paper, maturing not more than one year after the date of
acquisition, issued by a corporation (other than an Affiliate or Subsidiary of
the Company) organized and existing under the laws of the United States of
America with a rating, at the time as of which any investment therein is made,
of "P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P
and (iv) any money market deposit accounts issued or offered by a domestic
commercial bank having capital and surplus in excess of $500 million; provided
that the short term debt of such commercial bank has a rating, at the time of
Investment, of "P-1" (or higher) according to Moody's or "A-1" (or higher)
according to S&P.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture, until a successor trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended, or any successor statute.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that
at the time of determination shall be an Unrestricted Subsidiary (as designated
by the Board of Directors of the Company, as provided below) and (ii) any
Subsidiary of an
20
<PAGE>
Unrestricted Subsidiary. The Board of Directors of the Company may designate
any Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary) to be an Unrestricted Subsidiary if all of the following conditions
apply: (a) neither the Company nor any of its Restricted Subsidiaries provides
credit support for Indebtedness of such Subsidiary (including any undertaking,
agreement or instrument evidencing such Indebtedness), except Restricted
Payments permitted to be made pursuant to the Section 1009 hereof, to the extent
the provision of such credit support is deemed to be a Restricted Payment at the
time of the provision of such credit support (b) such Subsidiary is not liable,
directly or indirectly, with respect to any Indebtedness other than Unrestricted
Subsidiary Indebtedness, except Restricted Payments permitted to be made
pursuant to Section 1009 hereof, to the extent such Subsidiary's liability,
direct or indirect, is deemed to be a Restricted Payment, (c) any Investment in
such Subsidiary made as a result of designating such Subsidiary an Unrestricted
Subsidiary shall not violate the provisions of Section 1019 of this Indenture
and such Unrestricted Subsidiary is not party to any agreement, contract,
arrangement or understanding at such time with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of the Company or, in the event such condition is not
satisfied, the value of such agreement, contract, arrangement or understanding
to such Unrestricted Subsidiary shall be deemed a Restricted Payment, and (d)
such Unrestricted Subsidiary does not own any Capital Stock in any Restricted
Subsidiary of the Company which is not simultaneously being designated an
Unrestricted Subsidiary. Any such designation by the Board of Directors of the
Company shall be evidenced to the Trustee by filing with the Trustee a Board
Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complies with the foregoing conditions and
shall be deemed a Restricted Payment on the date of designation in an amount
equal to the greater of (1) the net book value of such Investment or (2) the
Fair Market Value of such Investment as determined in good faith by the
Company's Board of Directors. The Board of Directors of the Company may
designate any Unrestricted Subsidiary as a Restricted Subsidiary; provided that
(i) immediately after giving effect to such designation, the Company could incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to
the restrictions under Section 1008 of this Indenture and (ii) all Indebtedness
of such Unrestricted Subsidiary shall be deemed to be incurred on the date such
Unrestricted Subsidiary becomes a Restricted Subsidiary.
"Unrestricted Subsidiary Indebtedness" of any Unrestricted Subsidiary
means Indebtedness of such Unrestricted Subsidiary (i) as to which neither the
Company nor any Restricted Subsidiary is directly or indirectly liable (by
virtue of the Company or any such Restricted Subsidiary being the primary
obligor on, guarantor of, or otherwise liable in any respect to, such
Indebtedness), except Guaranteed Debt of the Company or
21
<PAGE>
any Restricted Subsidiary to any Affiliate, in which case (unless the incurrence
of such Guaranteed Debt resulted in a Restricted Payment at the time of
incurrence) the Company shall be deemed to have made a Restricted Payment equal
to the principal amount of any such Indebtedness to the extent guaranteed at the
time such Affiliate is designated an Unrestricted Subsidiary and (ii) which,
upon the occurrence of a default with respect thereto, does not result in, or
permit any holder of any Indebtedness of the Company or any Restricted
Subsidiary to declare, a default on such Indebtedness of the Company or any
Subsidiary or cause the payment thereof to be accelerated or payable prior to
its Stated Maturity.
"Voting Stock" means Capital Stock of the class or classes pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of a corporation (irrespective of whether or not at the time Capital
Stock of any other class or classes shall have or might have voting power by
reason of the happening of any contingency).
"Wholly Owned Restricted Subsidiary" means a Restricted Subsidiary all
the Capital Stock of which is owned by the Company or another Wholly Owned
Restricted Subsidiary.
<TABLE>
<CAPTION>
Section 102. Other Definitions.
------------------
Term Defined in Section
---- ------------------
<S> <C>
"Act" 105
"Agent Members" 306
"Change of Control Offer" 1016
"Change of Control Purchase Date" 1016
"Change of Control Purchase Notice" 1016
"Change of Control Purchase Price" 1016
"covenant defeasance" 403
"Defaulted Interest" 309
"defeasance" 402
"Defeasance Redemption Date" 404
"Defeased Securities" 401
"Excess Proceeds" 1013
"incur" 1008
"Initial Period" 1303
"Initial Securities" Recitals
"Non-payment Default" 1303
"Offer" 1013
"Offer Date" 1013
</TABLE>
22
<PAGE>
<TABLE>
<S> <C>
"Offered Price" 1013
"Pari Passu Debt Amount" 1013
"Pari Passu Offer" 1013
"Payment Blockage Period" 1303
"Payment Default" 1303
"Permitted Guarantor Junior Securities" 1417
"Permitted Indebtedness" 1008
"Permitted Junior Securities" 1302
"Permitted Payment" 1009
"Physical Securities" 306
"Private Placement Legend" 202
"Purchase Money Security Agreement" 101
"refinancing" 1009
"Registration Default" 202
"Required Filing Date" 1020
"Restricted Payments" 1009
"Rule 144A" 201
"Securities" Recitals
"Security Amount" 1013
"Security Register" 305
"Security Registrar" 305
"Series A Securities" Recitals
"Series B Securities" Recitals
"Special Payment Date" 309
"Surviving Entity" 801
"Surviving Guarantor Entity" 801
"U.S. Government Obligations" 404
</TABLE>
Section 103. Compliance Certificates and Opinions.
------------------------------------
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company and any Guarantor
(if applicable) and any other obligor on the Securities (if applicable) shall
furnish to the Trustee an Officers' Certificate in a form and substance
reasonably acceptable to the Trustee stating that all conditions precedent, if
any, provided for in this Indenture (including any covenant compliance with
which constitutes a condition precedent) relating to the proposed action have
been complied with, and an Opinion of Counsel in a form and substance reasonably
acceptable to the Trustee stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that, in the case
of any such application or request as to which the furnishing of such
certificates or opinions is specifically required by any provision of this
Indenture relating
23
<PAGE>
to such particular application or request, no additional certificate or opinion
need be furnished.
Every certificate or Opinion of Counsel with respect to compliance
with a condition or covenant provided for in this Indenture shall include:
(a) a statement that each individual signing such certificate or
individual or firm signing such opinion has read such covenant or condition and
the definitions herein relating thereto;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of each such individual or such
firm, he or it has made such examination or investigation as is necessary to
enable him or it to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such individual
or such firm, such condition or covenant has been complied with.
Section 104. Form of Documents Delivered to Trustee.
--------------------------------------
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company, any Guarantor
or other obligor on the Securities may be based, insofar as it relates to legal
matters, upon a certificate or opinion of, or representations by, counsel,
unless such officer knows, or in the exercise of reasonable care should know,
that the certificate or opinion or representations with respect to the matters
upon which his certificate or opinion is based are erroneous. Any such
certificate or opinion may be based, insofar as it relates to factual matters,
upon a certificate or opinion of, or representations by, an officer or officers
of the Company, any Guarantor or other obligor on the Securities stating that
the information with respect to such factual matters is in the possession of the
Company, any Guarantor or other obligor on the Securities, unless such officer
or counsel knows, or in the exercise of reasonable care should know, that the
certificate or opinion or
24
<PAGE>
representations with respect to such matters are erroneous. Opinions of Counsel
required to be delivered to the Trustee may have qualifications customary for
opinions of the type required and counsel delivering such Opinions of Counsel
may rely on certificates of the Company or government or other officials
customary for opinions of the type required, including certificates certifying
as to matters of fact, including that various financial covenants have been
complied with.
Any certificate or opinion of an officer of the Company, any Guarantor
or other obligor on the Securities may be based, insofar as it relates to
accounting matters, upon a certificate or opinion of, or representations by, an
accountant or firm of accountants in the employ of the Company, unless such
officer knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to the accounting matters
upon which his certificate or opinion may be based are erroneous. Any
certificate or opinion of any independent firm of public accountants filed with
the Trustee shall contain a statement that such firm is independent with respect
to the Company.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 105. Acts of Holders.
---------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section 105.
(b) The ownership of Securities shall be proved by the Security
Register.
(c) Any request, demand, authorization, direction, notice, consent,
waiver or other Act by the Holder of any Security shall bind every future Holder
of the same Security or the Holder of every Security issued upon the transfer
thereof or in exchange therefor or in lieu thereof, in respect of anything done,
suffered or omitted to be
25
<PAGE>
done by the Trustee, any Paying Agent or the Company, any Guarantor or any other
obligor of the Securities in reliance thereon, whether or not notation of such
action is made upon such Security.
(d) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(e) If the Company shall solicit from the Holders any request,
demand, authorization, direction, notice, consent, waiver or other Act, the
Company may, at its option, by or pursuant to a Board Resolution, fix in advance
a record date for the determination of such Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other Act,
but the Company shall have no obligation to do so. Notwithstanding Trust
Indenture Act Section 316(c), any such record date shall be the record date
specified in or pursuant to such Board Resolution, which shall be a date not
more than 30 days prior to the first solicitation of Holders generally in
connection therewith and no later than the date such first solicitation is
completed.
If such a record date is fixed, such request, demand, authorization,
direction, notice, consent, waiver or other Act may be given before or after
such record date, but only the Holders of record at the close of business on
such record date or their designated proxies shall be deemed to be Holders for
purposes of determining whether Holders of the requisite proportion of
Securities then Outstanding have authorized or agreed or consented to such
request, demand, authorization, direction, notice, consent, waiver or other Act
(or their duly designated proxies), and for this purpose the Securities then
Outstanding shall be computed as of such record date; provided that no such
request, demand, authorization, direction, notice, consent, waiver or other Act
by the Holders on such record date shall be deemed effective unless it shall
become effective pursuant to the provisions of this Indenture not later than six
months after such record date.
Section 106. Notices, etc., to the Trustee, the Company and any Guarantor.
------------------------------------------------------------
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with:
26
<PAGE>
(a) the Trustee by any Holder or by the Company or any Guarantor or
any other obligor on the Securities shall be sufficient for every purpose
(except as provided in Section 501(c)) hereunder if in writing and mailed,
first-class postage prepaid, or delivered by a nationally recognized overnight
courier, to or with the Trustee at its Corporate Trust Office, Attention:
Corporate Trust Department (The Maxim Group, Inc. 9 1/4% Senior Subordinated
Notes due 2007), or at any other address previously furnished in writing to the
Holders, the Company, any Guarantor or any other obligor on the Securities by
the Trustee; or
(b) the Company or any Guarantor by the Trustee or any Holder shall
be sufficient for every purpose (except as provided in Section 501(c)) hereunder
if in writing and mailed, first-class postage prepaid, or delivered by a
nationally recognized overnight courier, to the Company or such Guarantor
addressed to it c/o The Maxim Group, Inc., 210 TownPark Drive, Kennesaw, GA
30144, Attention: Chief Financial Officer, or at any other address previously
furnished in writing to the Trustee by the Company or such Guarantor.
Any notice required hereunder to be delivered to the lenders under the
Credit Facility shall be sufficient for every purpose hereunder if in writing
and mailed, first-class postage prepaid or delivered by a nationally recognized
courier, to the Administrative Agent at First Union National Bank, 12th floor,
999 Peachtree Street, N.E., Atlanta, GA 30309, Attention: Michael S. Murphey,
Facsimile No. (404) 225-4255, with a copy to First Union National Bank, 301
South College Street, TW-10, Charlotte, NC 28288-0608, Attention: Syndication
Agency Services, Facsimile No: (704) 383-0288.
Section 107. Notice to Holders; Waiver.
-------------------------
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, or delivered by a
nationally recognized overnight courier, to each Holder affected by such event,
at its address as it appears in the Security Register, not later than the latest
date, and not earlier than the earliest date, prescribed for the giving of such
notice. In any case where notice to Holders is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders. Any notice when mailed to a Holder in the aforesaid manner shall
be conclusively deemed to have been received by such Holder whether or not
actually received by such Holder. Where this Indenture provides for notice in
any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
the equivalent of such notice. Waivers of notice by
27
<PAGE>
Holders shall be filed with the Trustee, but such filing shall not be a
condition precedent to the validity of any action taken in reliance upon such
waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause, it shall be impracticable to mail notice of any event
as required by any provision of this Indenture, then any method of giving such
notice as shall be reasonably satisfactory to the Trustee shall be deemed to be
a sufficient giving of such notice.
Section 108. Conflict with Trust Indenture Act.
---------------------------------
If any provision hereof limits, qualifies or conflicts with any
provision of the Trust Indenture Act or another provision which is required or
deemed to be included in this Indenture by any of the provisions of the Trust
Indenture Act, the provision or requirement of the Trust Indenture Act shall
control. If any provision of this Indenture modifies or excludes any provision
of the Trust Indenture Act that may be so modified or excluded, the latter
provision shall be deemed to apply to this Indenture as so modified or to be
excluded, as the case may be.
Section 109. Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
Section 110. Successors and Assigns.
----------------------
All covenants and agreements in this Indenture by the Company and the
Guarantors shall bind their respective successors and assigns, whether so
expressed or not.
Section 111. Separability Clause.
-------------------
In case any provision in this Indenture or in the Securities or
Guarantees shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
Section 112. Benefits of Indenture.
---------------------
Nothing in this Indenture or in the Securities or Guarantees, express
or implied, shall give to any Person (other than the parties hereto and their
successors hereunder, any Paying Agent, the Holders, the holders of Senior
Indebtedness and the holders of Senior Guarantor Indebtedness) any benefit or
any legal or equitable right, remedy or claim under this Indenture.
28
<PAGE>
Section 113. GOVERNING LAW.
-------------
THIS INDENTURE, THE SECURITIES AND THE GUARANTEES SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF.
Section 114. Legal Holidays.
--------------
In any case where any Interest Payment Date, Redemption Date, Maturity
or Stated Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of interest or principal or premium, if any, need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on such Interest Payment Date or Redemption Date, or at
the Maturity or Stated Maturity and no interest shall accrue with respect to
such payment for the period from and after such Interest Payment Date,
Redemption Date, Maturity or Stated Maturity, as the case may be, to the next
succeeding Business Day.
Section 115. Independence of Covenants.
-------------------------
All covenants and agreements in this Indenture shall be given
independent effect so that if a particular action or condition is not permitted
by any such covenants, the fact that it would be permitted by an exception to,
or be otherwise within the limitations of, another covenant shall not avoid the
occurrence of a Default or an Event of Default if such action is taken or
condition exists.
Section 116. Schedules and Exhibits.
----------------------
All schedules and exhibits attached hereto are by this reference made
a part hereof with the same effect as if herein set forth in full.
Section 117. Counterparts.
------------
This Indenture may be executed in any number of counterparts, each of
which shall be deemed an original; but all such counterparts shall together
constitute but one and the same instrument.
29
<PAGE>
ARTICLE TWO
SECURITY FORMS
Section 201. Forms Generally.
---------------
The Securities, the Guarantees and the Trustee's certificate of
authentication thereon shall be in substantially the forms set forth in this
Article Two, with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted hereby and may have such letters,
numbers or other marks of identification and such legends or endorsements placed
thereon as may be required to comply with the rules of any securities exchange,
any organizational document or governing instrument or applicable law or as may,
consistently herewith, be determined by the officers executing such Securities
and Guarantees, as evidenced by their execution of the Securities and
Guarantees. Any portion of the text of any Security may be set forth on the
reverse thereof, with an appropriate reference thereto on the face of the
Security.
The definitive Securities shall be printed, lithographed or engraved
or produced by any combination of these methods or may be produced in any other
manner permitted by the rules of any securities exchange on which the Securities
may be listed, all as determined by the officers executing such Securities, as
evidenced by their execution of such Securities.
Initial Securities offered and sold in reliance on Rule 144A under the
Securities Act ("Rule 144A") shall be issued initially in the form of one or
more Rule 144A Global Securities, substantially in the form set forth in Section
202, Initial Securities offered and sold in reliance on Regulation S under the
Securities Act ("Regulation S") shall be issued initially in the form of one or
more Regulation S Global Securities, substantially in the form set forth in
Section 202, and Series B Securities exchanged for Series A Securities pursuant
to the Exchange Offer shall be issued initially in the form of one or more
Series B Global Securities, substantially in the form set forth in Section 202,
in each case deposited with the Trustee, as custodian for the Depositary, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount of the Global Securities may from time
to time be increased or decreased by adjustments made on the records of the
Trustee, as custodian for the Depositary or its nominee, as hereinafter
provided.
Section 202. Form of Face of Security.
------------------------
(a) The form of the face of any Series A Securities authenticated and
delivered hereunder shall be substantially as follows:
30
<PAGE>
Unless and until (i) an Initial Security is sold under an effective
Registration Statement or (ii) an Initial Security is exchanged for a Series B
Security in connection with an effective Registration Statement, in each case
pursuant to the Registration Rights Agreement, then such Initial Security shall
bear the legend set forth below (the "Private Placement Legend") on the face
thereof:
THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION
IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION AS SET FORTH
BELOW.
BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT
(A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT ("RULE 144A")) OR (B) IT
IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN
OFFSHORE TRANSACTION, (2) AGREES TO OFFER, SELL OR OTHERWISE
TRANSFER SUCH SECURITY, PRIOR TO THE DATE WHICH IS TWO YEARS
AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE
LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE
COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR
OF THIS SECURITY) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE
UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES
ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A INSIDE THE
UNITED STATES, TO A PERSON IT REASONABLY BELIEVES IS A
"QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT
THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D)
OUTSIDE THE UNITED STATES PURSUANT TO
31
<PAGE>
OFFERS AND SALES TO NON-U.S. PERSONS IN AN OFFSHORE
TRANSACTION WITHIN THE MEANING OF REGULATION S UNDER THE
SECURITIES ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S
RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (I) PURSUANT
TO CLAUSES (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION
OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM, AND (II) IN EACH OF THE
FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER
IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS
COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. AS
USED HEREIN, THE TERMS "UNITED STATES," "OFFSHORE
TRANSACTION," AND "U.S. PERSON" HAVE THE RESPECTIVE MEANINGS
GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
[Legend if Series A Security is a Global Security]
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE
NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY OR A
SUCCESSOR DEPOSITARY. TRANSFERS OF THIS GLOBAL SECURITY
SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO
NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE
WITH THE RESTRICTIONS SET FORTH IN SECTIONS 306 AND 307 OF
THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE, OR
32
<PAGE>
PAYMENT AND ANY SUCH CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE &
CO., HAS AN INTEREST HEREIN.
[Until all Senior Indebtedness is paid in full, each of the Series A
Securities at all times shall contain in a conspicuous manner the following
legend]
THE OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE IN THE
MANNER AND TO THE EXTENT SET FORTH IN ARTICLE THIRTEEN OF
THE INDENTURE TO THE OBLIGATIONS (INCLUDING INTEREST) OWED
BY THE COMPANY AND CERTAIN OF ITS SUBSIDIARIES TO ALL SENIOR
INDEBTEDNESS; AND EACH HOLDER HEREOF BY ITS ACCEPTANCE
HEREOF, SHALL BE BOUND BY THE PROVISIONS OF THE
SUBORDINATION AS SET FORTH IN SAID ARTICLE THIRTEEN OF THE
INDENTURE."
33
<PAGE>
THE MAXIM GROUP, INC.
__________________
9 1/4% SENIOR SUBORDINATED NOTE DUE 2007, SERIES A
CUSIP NO. _____________
No. __________
$_______________________
The Maxim Group, Inc., a Delaware corporation (herein called the
"Company," which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
_____________ or registered assigns, the principal sum of _______________ United
States dollars [IF THE SERIES A SECURITY IS A GLOBAL SECURITY, THEN INSERT THE
FOLLOWING: , OR SUCH OTHER PRINCIPAL AMOUNT (WHICH, WHEN TAKEN TOGETHER WITH
THE PRINCIPAL AMOUNTS OF ALL OTHER OUTSTANDING SECURITIES, SHALL NOT EXCEED $100
MILLION LESS THE PRINCIPAL AMOUNT OF SECURITIES REDEEMED BY THE COMPANY IN
ACCORDANCE WITH THE INDENTURE) AS MAY BE SET FORTH BY THE SECURITY REGISTRAR ON
APPENDIX A HERETO IN ACCORDANCE WITH THE INDENTURE,] on October 15, 2007, at the
office or agency of the Company referred to below, and to pay interest thereon
from October 16, 1997, or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, semiannually on April 15 and
October 15 in each year, commencing April 15, 1998 at the rate of 9 1/4% per
annum, subject to adjustments as described in the second following paragraph, in
United States dollars, until the principal hereof is paid or duly provided for.
Interest shall be computed on the basis of a 360-day year comprised of twelve
30-day months.
The Holder of this Series A Security is entitled to the benefits of
the Registration Rights Agreement among the Company, the Guarantors and the
Initial Purchasers, dated October 16, 1997, pursuant to which, subject to the
terms and conditions thereof, the Company and the Guarantors are obligated to
consummate the Exchange Offer pursuant to which the Holder of this Security (and
the related Guarantees) shall have the right to exchange this Security (and the
related Guarantees) for 9 1/4% Senior Subordinated Notes due 2007, Series B and
related guarantees (herein called the "Series B Securities") in like principal
amount as provided therein. The Series A Securities and the Series B Securities
are together (including related Guarantees) referred to as the "Securities."
The Series A Securities rank pari passu in right of payment with the Series B
Securities.
In the event that either (a) the Exchange Offer Registration Statement
is not filed with the Commission on or prior to the 30th calendar day following
the date of original issue of the Series A Securities, (b) the Exchange Offer
Registration Statement
34
<PAGE>
has not been declared effective on or prior to the 90th calendar day following
the date of original issue of the Series A Securities or (c) the Exchange Offer
is not consummated on or prior to the 120th calendar day following the date of
original issue of the Series A Securities or a Shelf Registration Statement is
not declared effective on or prior to the 120th calendar day following the date
of original issue of the Series A Securities (each such event referred to in
clauses (a) through (c) above, a "Registration Default"), the interest rate
borne by the Series A Securities shall be increased ("Additional Interest") by
one-quarter of one percent per annum upon the occurrence of each Registration
Default, which rate (as increased as aforesaid) will increase by one quarter of
one percent each 90-day period that such Additional Interest continues to accrue
under any such circumstance, provided that the maximum aggregate increase in the
interest rate will in no event exceed one percent (1%) per annum. Following the
cure of all Registration Defaults the accrual of Additional Interest will cease
and the interest rate will revert to the original rate; provided, however, that,
if after any such reduction in interest rate, a different event specified in
clause (a), (b) or (c) above occurs, the interest rate shall again be increased
pursuant to the foregoing provisions.
If the Shelf Registration Statement is unusable by the Holders for any
reason, and the aggregate number of days in any consecutive twelve-month period
for which the Shelf Registration Statement shall not be usable exceeds 30 days
in the aggregate, then the interest rate borne by the Securities will be
increased by 0.25% per annum of the principal amount of the Securities for the
first 90-day period (or portion thereof) beginning on the 31st such date that
such Shelf Registration Statement ceases to be usable, which rate shall be
increased by an additional 0.25% per annum of the principal amount of the
Securities at the beginning of each subsequent 90-day period, provided that the
maximum aggregate increase in the interest rate will in no event exceed one
percent (1%) per annum. Upon the Shelf Registration Statement once again
becoming usable, the interest rate borne by the Securities will be reduced to
the original interest rate if the Company is otherwise in compliance with this
Agreement at such time. Additional Interest shall be computed based on the
actual number of days elapsed in each 90-day period in which the Shelf
Registration Statement is unusable.
The Issuers shall notify the Trustee within three Business Days after
each and every date on which an event occurs in respect of which Additional
Interest is required to be paid (an "Event Date"). Additional Interest shall be
paid by depositing with the Trustee, in trust, for the benefit of the Holders of
Registrable Securities, on or before the applicable semiannual Interest Payment
Date, immediately available funds in sums sufficient to pay the Additional
Interest then due. The Additional Interest due shall be payable on each
Interest Payment Date to the record Holder of Securities entitled to receive the
interest payment to be paid on such date as set forth in the Indenture. Each
obligation to pay Additional Interest shall be deemed to accrue from and
including the day following the applicable Event Date.
35
<PAGE>
The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Security (or any Predecessor Security) is registered
at the close of business on the Regular Record Date for such interest, which
shall be the April 1 or October 1 (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date. Any such interest not so
punctually paid, or duly provided for, and interest on such defaulted interest
at the interest rate borne by the Series A Securities, to the extent lawful,
shall forthwith cease to be payable to the Holder on such Regular Record Date,
and may either be paid to the Person in whose name this Security (or any
Predecessor Security) is registered at the close of business on a Special Record
Date for the payment of such defaulted interest to be fixed by the Trustee,
notice whereof shall be given to Holders of Securities not less than 10 days
prior to such Special Record Date, or be paid at any time 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, all as more fully provided in this Indenture.
Payment of the principal of, premium, if any, and interest on, this
Security, and exchange or transfer of the Security, will be made at the office
or agency of the Company in The City of New York maintained for that purpose, or
at such other office or agency as may be maintained for such purpose, in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts. Payment of interest will
be made (i) in respect of Securities held by the Depositary or its nominee, in
same day funds on or prior to the respective Interest Payment Dates and (ii) in
respect of Securities held of record by Holders other than the Depositary or its
nominee, in same day funds at the office of the Trustee in New York, New York or
at such other office or agency of the Company as it shall maintain for that
purpose pursuant to Section 1002; provided, however, that, at the option of the
Company, interest on any Security held of record by Holders other than the
Depositary or its nominee may be paid by mailing checks to the addresses of the
Holders thereof as such address appear in the Security Register.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
This Security is entitled to the benefits of Guarantees by each of the
Guarantors of the punctual payment when due of the Indenture Obligations made in
favor of the Trustee for the benefit of the Holders. Reference is hereby made
to Article Fourteen of the Indenture for a statement of the respective rights,
limitations of rights, duties and obligations under the Guarantees of each of
the Guarantors.
36
<PAGE>
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof or by the authenticating agent
appointed as provided in the Indenture by manual signature of an authorized
signer, this Security shall not be entitled to any benefit under the Indenture,
or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by the manual or facsimile signature of its authorized officers.
Dated: THE MAXIM GROUP, INC.
By:___________________________
Title:________________________
Attest:
____________________________
Authorized Officer
37
<PAGE>
[IF THE SERIES A SECURITY IS A GLOBAL SECURITY,
THEN INSERT THE FOLLOWING AS APPENDIX A THERETO]
APPENDIX A
----------
EXCHANGES FOR GLOBAL NOTES OR PHYSICAL NOTES
--------------------------------------------
The following increases or decreases in the principal amount of this
Global Note in accordance with the Indenture have been made:
<TABLE>
<CAPTION>
Increase (decrease) in the New principal amount of Notation made by or on
principal amount of this this Global Note following behalf of the Security
Date Made Global Note such increase or decrease Registrar
<S> <C> <C> <C>
- ---------------------- -------------------------- -------------------------- -----------------------
- ---------------------- -------------------------- -------------------------- -----------------------
- ---------------------- -------------------------- -------------------------- -----------------------
- ---------------------- -------------------------- -------------------------- -----------------------
- ---------------------- -------------------------- -------------------------- -----------------------
- ---------------------- -------------------------- -------------------------- -----------------------
- ---------------------- -------------------------- -------------------------- -----------------------
- ---------------------- -------------------------- -------------------------- -----------------------
- ---------------------- -------------------------- -------------------------- -----------------------
- ---------------------- -------------------------- -------------------------- -----------------------
- ---------------------- -------------------------- -------------------------- -----------------------
- ---------------------- -------------------------- -------------------------- -----------------------
- ---------------------- -------------------------- -------------------------- -----------------------
- ---------------------- -------------------------- -------------------------- -----------------------
- ---------------------- -------------------------- -------------------------- -----------------------
- ---------------------- -------------------------- -------------------------- -----------------------
- ---------------------- -------------------------- -------------------------- -----------------------
- ---------------------- -------------------------- -------------------------- -----------------------
- ---------------------- -------------------------- -------------------------- -----------------------
- ---------------------- -------------------------- -------------------------- -----------------------
- ---------------------- -------------------------- -------------------------- -----------------------
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- ---------------------- -------------------------- -------------------------- -----------------------
- ---------------------- -------------------------- -------------------------- -----------------------
- ---------------------- -------------------------- -------------------------- -----------------------
</TABLE>
38
<PAGE>
(b) The form of the face of any Series B Securities authenticated and
delivered hereunder shall be substantially as follows:
To the extent that any Series B Security is a Private Exchange
Security (as defined in the Registration Rights Agreement) and until such Series
B Security is freely tradable without registration under the Securities Act,
then such Series B Security shall bear the legend set forth below (the "Private
Placement Legend") on the face thereof;
THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT
FROM, OR NOT SUBJECT TO, REGISTRATION AS SET FORTH BELOW.
BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT
IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT ("RULE 144A")) OR (B) IT IS NOT A U.S.
PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION,
(2) AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY,
PRIOR TO THE DATE WHICH IS TWO YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY
OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY
(OR ANY PREDECESSOR OF THIS SECURITY) ONLY (A) TO THE COMPANY,
(B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE
SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A INSIDE
THE UNITED STATES, TO A PERSON IT REASONABLY BELIEVES IS A
"QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
39
<PAGE>
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) OUTSIDE THE
UNITED STATES PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS IN
AN OFFSHORE TRANSACTION WITHIN THE MEANING OF REGULATION S UNDER
THE SECURITIES ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO
ANY SUCH OFFER, SALE OR TRANSFER (I) PURSUANT TO CLAUSES (D) OR
(E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF
THEM, AND (II) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A
CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE
OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO
THE TRUSTEE. AS USED HEREIN, THE TERMS "UNITED STATES," "OFFSHORE
TRANSACTION," AND "U.S. PERSON" HAVE THE RESPECTIVE MEANINGS
GIVEN TO THEM BY REGULATIONS UNDER THE SECURITIES ACT.
[Legend if Series B Security is a Global Security]
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME
OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR
DEPOSITORY. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO
TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR
TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS
OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS
MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTIONS
306 AND 307 OF THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION
40
<PAGE>
("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE, OR PAYMENT AND ANY SUCH CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT
IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS
AN INTEREST HEREIN.
[Until all Senior Indebtedness is paid in full, each of the Series B
Securities at all times shall contain in a conspicuous manner the following
legend]
THE OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE IN THE MANNER
AND TO THE EXTENT SET FORTH IN ARTICLE THIRTEEN OF THE INDENTURE
TO THE OBLIGATIONS (INCLUDING INTEREST) OWED BY THE COMPANY AND
CERTAIN OF ITS SUBSIDIARIES TO ALL SENIOR INDEBTEDNESS; AND EACH
HOLDER HEREOF, BY ITS ACCEPTANCE HEREOF, SHALL BE BOUND BY THE
PROVISIONS OF THE SUBORDINATION AS SET FORTH IN SAID ARTICLE
THIRTEEN OF THE INDENTURE.
41
<PAGE>
THE MAXIM GROUP, INC.
__________________
9 1/4% SENIOR SUBORDINATED NOTE DUE 2007, SERIES B
CUSIP NO. ______________
______________
No. __________
$_______________________
The Maxim Group, Inc., a Delaware corporation (herein called the
"Company," which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
_____________ or registered assigns, the principal sum of _______________ United
States dollars [IF THE SERIES B SECURITY IS A GLOBAL SECURITY, THEN INSERT THE
FOLLOWING: , OR SUCH OTHER PRINCIPAL AMOUNT (WHICH, WHEN TAKEN TOGETHER WITH
THE PRINCIPAL AMOUNTS OF ALL OTHER OUTSTANDING SECURITIES, SHALL NOT EXCEED $100
MILLION LESS THE PRINCIPAL AMOUNT OF SECURITIES REDEEMED BY THE COMPANY IN
ACCORDANCE WITH THE INDENTURE) AS MAY BE SET FORTH BY THE SECURITY REGISTRAR ON
APPENDIX A HERETO IN ACCORDANCE WITH THE INDENTURE,] on October 15, 2007, at the
office or agency of the Company referred to below, and to pay interest thereon
from October 16, 1997, or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, semiannually on April 15 and
October 15 in each year, commencing April 15, 1998 at the rate of 9 1/4% per
annum, in United States dollars, until the principal hereof is paid or duly
provided for; provided that to the extent interest has not been paid or duly
provided for with respect to the Series A Security exchanged for this Series B
Security, interest on this Series B Security shall accrue from the most recent
Interest Payment Date to which interest on the Series A Security which was
exchanged for this Series B Security has been paid or duly provided for.
Interest shall be computed on the basis of a 360-day year comprised of twelve
30-day months.
This Series B Security was issued pursuant to the Exchange Offer
pursuant to which the 9 1/4% Senior Subordinated Notes due 2007, Series A, and
related Guarantees (herein called the "Series A Securities") in like principal
amount were exchanged for the Series B Securities and related Guarantees. The
Series B Securities rank pari passu in right of payment with the Series A
Securities.
In addition, for any period in which the Series A Security exchanged
for this Series B Security was outstanding, in the event that either (a) the
Exchange Offer Registration Statement is not filed with the Commission on or
prior to the 30th calendar day following the date of original issue of the
Series A Security, (b) the Exchange Offer
42
<PAGE>
Registration Statement has not been declared effective on or prior to the 90th
calendar day following the date of original issue of the Series A Security or
(c) the Exchange Offer is not consummated on or prior to the 120th calendar day
following the date of original issue of the Series A Security or a Shelf
Registration Statement is not declared effective on or prior to the 120th
calendar day following the date of original issue of the Series A Security (each
such event referred to in clauses (a) through (c) above, a "Registration
Default"), the interest rate borne by the Series A Securities shall be increased
by one-quarter of one percent per annum upon the occurrence of each Registration
Default, which rate (as increased as aforesaid) will increase by one quarter of
one percent each 90-day period that such additional interest continues to accrue
under any such circumstance, provided that the maximum aggregate increase in the
interest rate will in no event exceed one percent (1%) per annum. Following the
cure of all Registration Defaults the accrual of additional interest will cease
and the interest rate will revert to the original rate; provided that, to the
extent interest at such increased interest rate has been paid or duly provided
for with respect to the Series A Security, interest at such increased interest
rate, if any, on this Series B Security shall accrue from the most recent
Interest Payment Date to which such interest on the Series A Security has been
paid or duly provided for; provided, however, that, if after any such reduction
in interest rate, a different event specified in clause (a), (b) or (c) above
occurs, the interest rate shall again be increased pursuant to the foregoing
provisions.
If the Shelf Registration Statement is unusable by the Holders for any
reason, and the aggregate number of days in any consecutive twelve-month period
for which the Shelf Registration Statement shall not be usable exceeds 30 days
in the aggregate, then the interest rate borne by the Securities will be
increased by 0.25% per annum of the principal amount of the Securities for the
first 90-day period (or portion thereof) beginning on the 31st such date that
such Shelf Registration Statement ceases to be usable, which rate shall be
increased by an additional 0.25% per annum of the principal amount of the
Securities at the beginning of each subsequent 90-day period, provided that the
maximum aggregate increase in the interest rate will in no event exceed one
percent (1%) per annum. Upon the Shelf Registration Statement once again
becoming usable, the interest rate borne by the Securities will be reduced to
the original interest rate if the Company is otherwise in compliance with this
Agreement at such time. Additional Interest shall be computed based on the
actual number of days elapsed in each 90-day period in which the Shelf
Registration Statement is unusable.
The Issuers shall notify the Trustee within three Business Days after
each and every date on which an event occurs in respect of which Additional
Interest is required to be paid (an "Event Date"). Additional Interest shall be
paid by depositing with the Trustee, in trust, for the benefit of the Holders of
Registrable Securities, on or before the applicable semiannual Interest Payment
Date, immediately available funds in sums sufficient to pay the Additional
Interest then due. The Additional Interest due shall
43
<PAGE>
be payable on each Interest Payment Date to the record Holder of Securities
entitled to receive the interest payment to be paid on such date as set forth in
the Indenture. Each obligation to pay Additional Interest shall be deemed to
accrue from and including the day following the applicable Event Date.
The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Security (or any Predecessor Security) is registered
at the close of business on the Regular Record Date for such interest, which
shall be the April 1 or October 1 (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date. Any such interest not so
punctually paid, or duly provided for, and interest on such defaulted interest
at the interest rate borne by the Series B Securities, to the extent lawful,
shall forthwith cease to be payable to the Holder on such Regular Record Date,
and may either be paid to the Person in whose name this Security (or any
Predecessor Security) is registered at the close of business on a Special Record
Date for the payment of such defaulted interest to be fixed by the Trustee,
notice whereof shall be given to Holders of Securities not less than 10 days
prior to such Special Record Date, or be paid at any time 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, all as more fully provided in this Indenture.
Payment of the principal of, premium, if any, and interest on, this
Security, and exchange or transfer of the Security, will be made at the office
or agency of the Company in The City of New York maintained for such purpose, or
at such other office or agency as may be maintained for such purpose, in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts. Payment of interest will
be made (i) in respect of Securities held by the Depositary or its nominee, in
same day funds on or prior to the respective Interest Payment Dates and (ii) in
respect of Securities held of record by Holders other than the Depositary or its
nominee, in same day funds at the office of the Trustee in New York, New York or
at such other office or agency of the Company as it shall maintain for that
purpose pursuant to Section 1002, provided, however, that, at the option of the
Company, interest on any Security held of record by Holders other than the
Depositary or its nominee may be paid by mailing checks to the addresses of the
Holders thereof as such addresses appear in the Security Register.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
This Security is entitled to the benefits of Guarantees by each of the
Guarantors of the punctual payment when due of the Indenture Obligations made in
favor
44
<PAGE>
of the Trustee for the benefit of the Holders. Reference is hereby made to
Article Fourteen of the Indenture for a statement of the respective rights,
limitations of rights, duties and obligations under the Guarantees of each of
the Guarantors.
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof or by the authenticating agent
appointed as provided in the Indenture by manual signature of an authorized
signer, this Security shall not be entitled to any benefit under the Indenture,
or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by the manual or facsimile signature of its authorized officers and its
corporate seal to be affixed or reproduced hereon.
Dated: THE MAXIM GROUP, INC.
By:___________________________________
Title:________________________________
Attest:
____________________________
Authorized Officer
45
<PAGE>
[IF THE SERIES B SECURITY IS A GLOBAL SECURITY,
THEN INSERT THE FOLLOWING AS APPENDIX A THERETO]
APPENDIX A
----------
EXCHANGES FOR GLOBAL NOTES OR PHYSICAL NOTES
--------------------------------------------
The following increases or decreases in the principal amount of this
Global Note in accordance with the Indenture have been made:
<TABLE>
<CAPTION>
Increase (decrease) in the New principal amount of Notation made by or on
principal amount of this this Global Note following behalf of the Security
Date Made Global Note such increase or decrease Registrar
<S> <C> <C> <C>
- ------------------------ ---------------------------- --------------------------- --------------------------
- ------------------------ ---------------------------- --------------------------- --------------------------
- ------------------------ ---------------------------- --------------------------- --------------------------
- ------------------------ ---------------------------- --------------------------- --------------------------
- ------------------------ ---------------------------- --------------------------- --------------------------
- ------------------------ ---------------------------- --------------------------- --------------------------
- ------------------------ ---------------------------- --------------------------- --------------------------
- ------------------------ ---------------------------- --------------------------- --------------------------
- ------------------------ ---------------------------- --------------------------- --------------------------
- ------------------------ ---------------------------- --------------------------- --------------------------
- ------------------------ ---------------------------- --------------------------- --------------------------
- ------------------------ ---------------------------- --------------------------- --------------------------
- ------------------------ ---------------------------- --------------------------- --------------------------
- ------------------------ ---------------------------- --------------------------- --------------------------
- ------------------------ ---------------------------- --------------------------- --------------------------
- ------------------------ ---------------------------- --------------------------- --------------------------
- ------------------------ ---------------------------- --------------------------- --------------------------
- ------------------------ ---------------------------- --------------------------- --------------------------
- ------------------------ ---------------------------- --------------------------- --------------------------
- ------------------------ ---------------------------- --------------------------- --------------------------
- ------------------------ ---------------------------- --------------------------- --------------------------
- ------------------------ ---------------------------- --------------------------- --------------------------
- ------------------------ ---------------------------- --------------------------- --------------------------
- ------------------------ ---------------------------- --------------------------- --------------------------
- ------------------------ ---------------------------- --------------------------- --------------------------
- ------------------------ ---------------------------- --------------------------- --------------------------
- ------------------------ ---------------------------- --------------------------- --------------------------
- ------------------------ ---------------------------- --------------------------- --------------------------
- ------------------------ ---------------------------- --------------------------- --------------------------
- ------------------------ ---------------------------- --------------------------- --------------------------
</TABLE>
46
<PAGE>
Section 203. Form of Reverse of Securities.
-----------------------------
(a) The form of the reverse of the Series A Securities shall
be substantially as follows:
THE MAXIM GROUP, INC.
9 1/4% Senior Subordinated Note due 2007, Series A
This Security is one of a duly authorized issue of Securities of the
Company designated as its 9 1/4% Senior Subordinated Notes due 2007, Series A
(herein called the "Securities"), limited (except as otherwise provided in the
Indenture referred to below) in aggregate principal amount to $100,000,000,
issued under and subject to the terms of an indenture (herein called the
"Indenture") dated as of October 16, 1997, among the Company, the Guarantors and
State Street Bank and Trust Company, as trustee (herein called the "Trustee,"
which term includes any successor trustee under the Indenture), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights, limitations of rights, duties, obligations
and immunities thereunder of the Company, the Guarantors, the Trustee and the
Holders of the Securities, and of the terms upon which the Securities are, and
are to be, authenticated and delivered.
The Indenture contains provisions for defeasance at any time of (a)
the entire Indebtedness on the Securities and (b) certain restrictive covenants
and related Defaults and Events of Default, in each case upon compliance with
certain conditions set forth therein.
The Securities are subject to redemption at any time on or after
October 15, 2002, at the option of the Company, in whole or in part, on not less
than 30 nor more than 60 days' prior notice to the Holders by first-class mail,
in amounts of $1,000 or an integral multiple thereof, at the following
redemption prices (expressed as percentages of the principal amount), if
redeemed during the 12-month period beginning October 15 of the years indicated
below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- -----------
<S> <C>
2002.......................... 104.625%
2003.......................... 102.313%
2004.......................... 101.156%
</TABLE>
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to but not including the Redemption Date
(subject to the rights of Holders of record on relevant Regular Record Dates or
Special Record Dates to receive interest due on an Interest Payment Date).
47
<PAGE>
At any time prior to October 15, 2000, the Company may, at its option,
use the net proceeds of one or more Public Equity Offerings to redeem up to an
aggregate of 30% of the aggregate principal amount of Securities originally
issued under the Indenture at a redemption price equal to 109.25% of the
aggregate principal amount thereof, plus accrued and unpaid interest thereon, if
any, to the Redemption Date; provided that at least $70 million of the principal
amount of Securities remains outstanding immediately after the occurrence of
such redemption. In order to effect the foregoing redemption, the Company must
mail a notice of redemption no later than 60 days after the closing of the
related Public Equity Offering and must consummate such redemption within 90
days of the closing of the Public Equity Offering.
If less than all of the Securities are to be redeemed, the Trustee
shall select the Securities or portions thereof to be redeemed pro rata or by
lot.
Upon the occurrence of a Change of Control, each Holder may require
the Company to purchase such Holder's Securities in whole or in part in integral
multiples of $1,000, at a purchase price in cash in an amount equal to 101% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of purchase, pursuant to a Change of Control Offer in accordance with the
procedures set forth in the Indenture.
Under certain circumstances, in the event the Net Cash Proceeds
received by the Company from any Asset Sale, which proceeds are not used to
repay Senior Indebtedness or invested in capital expenditures, properties or
other assets or inventories that replace the properties and assets that were the
subject of the Asset Sale or which will be used in the business of the Company
or its Subsidiaries existing on the date of the Indenture or in businesses
reasonably related thereto, exceeds a specified amount the Company will be
required to apply such proceeds to the repayment of the Securities and certain
Indebtedness ranking pari passu in right of payment to the Securities.
In the case of any redemption or repurchase of Securities in
accordance with the Indenture, interest installments whose Stated Maturity is on
or prior to the Redemption Date will be payable to the Holders of such
Securities of record as of the close of business on the relevant Regular Record
Date or Special Record Date referred to on the face hereof. Securities (or
portions thereof) for whose redemption and payment provision is made in
accordance with the Indenture shall cease to bear interest from and after the
Redemption Date.
In the event of redemption or repurchase of this Security in
accordance with the Indenture in part only, a new Security or Securities for the
unredeemed portion hereof shall be issued in the name of the Holder hereof upon
the cancellation hereof.
48
<PAGE>
If an Event of Default shall occur and be continuing, the principal
amount of all the Securities may be declared due and payable in the manner and
with the effect provided in the Indenture.
The Indenture permits, with certain exceptions (including certain
amendments permitted without the consent of any Holders) as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the Guarantors and the rights of the Holders under the Indenture and
the Securities and the Guarantees at any time by the Company and the Trustee
with the consent of the Holders of a specified percentage in aggregate principal
amount of the Securities at the time Outstanding. The Indenture also contains
provisions permitting the Holders of specified percentages in aggregate
principal amount of the Securities at the time Outstanding, on behalf of the
Holders of all the Securities, to waive compliance by the Company and the
Guarantors with certain provisions of the Indenture and the Securities and the
Guarantees and certain past Defaults under the Indenture and the Securities and
the Guarantees and their consequences. Any such consent or waiver by or on
behalf of the Holder of this Security shall be conclusive and binding upon such
Holder and upon all future Holders of this Security and of any Security issued
upon the registration of transfer hereof or in exchange herefor or in lieu
hereof whether or not notation of such consent or waiver is made upon this
Security.
The Series A Securities are, to the extent and manner provided in
Article Thirteen of the Indenture, subordinated and subject in right of payment
to the prior payment in full of all Senior Indebtedness.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, any
Guarantor or any other obligor on the Securities (in the event such Guarantor or
such other obligor is obligated to make payments in respect of the Securities),
which is absolute and unconditional, to pay the principal of, premium, if any,
and interest on, this Security at the times, place, and rate, and in the coin or
currency, herein prescribed, subject to the subordination provisions of the
Indenture.
If this Series A Security is in certificated form, then as provided in
the Indenture and subject to certain limitations therein set forth, the transfer
of this Security is registrable on the Security Register of the Company, upon
surrender of this Security for registration of transfer at the office or agency
of the Company maintained for such purpose in The City of New York or at such
other office or agency of the Company as may be maintained for such purpose,
duly endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed by, the
Holder hereof or its attorney duly authorized in writing, and thereupon
49
<PAGE>
one or more new Securities, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.
If this Series A Security is in certificated form, then as provided in
the Indenture and subject to certain limitations therein set forth, the Holder,
provided it is a Qualified Institutional Buyer or a Non-U.S. Person, may
exchange this Series A Security for a Book-Entry Security by instructing the
Trustee (by completing the Transferee Certificate in the form in Appendix I) to
arrange for such Series A Security to be represented by a beneficial interest in
a Rule 144A Global Security or a Regulation S Global Security, as the case may
be, in accordance with the customary procedures of the Depository, unless the
Company has elected not to issue a Rule 144A Global Security or a Regulation S
Global Security, as the case may be.
If this Series A Security is a Rule 144A Global Security, it is
exchangeable for a Series A Security in certificated form as provided in the
Indenture and in accordance with the rules and procedures of the Trustee and the
Depositary. In addition, certificated securities shall be transferred to all
beneficial holders in exchange for their beneficial interests in the Rule 144A
Global Securities or the Regulation S Global Securities if (x) the Depositary
notifies the Company that it is unwilling or unable to continue as depository
for such Global Security and a successor depositary is not appointed by the
Company within 90 days or (y) there shall have occurred and be continuing an
Event of Default and the Security Registrar has received a request from the
Depositary. Upon any such issuance, the Trustee is required to register such
certificated Series A Securities in the name of, and cause the same to be
delivered to, such Person or Persons (or the nominee of any thereof). All such
certificated Series A Securities would be required to include the Private
Placement Legend.
Series A Securities in certificated form are issuable only in
registered form without coupons in denominations of $1,000 and any integral
multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, the Series A Securities are exchangeable for a
like aggregate principal amount of Securities of a differing authorized
denomination, as requested by the Holder surrendering the same.
At any time when the Company is not subject to Sections 13 or 15(d) of
the Exchange Act, upon the written request of a Holder of a Series A Security,
the Company will promptly furnish or cause to be furnished such information as
is specified pursuant to Rule 144A(d)(4) under the Securities Act (or any
successor provision thereto) to such Holder or to a prospective purchaser of
such Series A Security who such Holder informs the Company is reasonably
believed to be a "Qualified Institutional Buyer" within the meaning of Rule 144A
under the Securities Act, as the case may be, in order to permit compliance by
such Holder with Rule 144A under the Securities Act.
50
<PAGE>
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax, assessment or other governmental charge payable in connection
therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, any Guarantor, the Trustee and any agent of the Company,
any Guarantor or the Trustee may treat the Person in whose name this Security is
registered as the owner hereof for all purposes, whether or not this Security is
overdue, and neither the Company, any Guarantor, the Trustee nor any such agent
shall be affected by notice to the contrary.
THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES THEREOF.
All terms used in this Security which are defined in the Indenture and
not otherwise defined herein shall have the meanings assigned to them in the
Indenture.
[The Transferee Certificate, in the form of Appendix I hereto, will be
attached to the Series A Security.]
(b) The form of the reverse of the Series B Securities shall be
substantially as follows:
THE MAXIM GROUP, INC.
9 1/4% Senior Subordinated Note due 2007, Series B
This Security is one of a duly authorized issue of Securities of the
Company designated as its 9 1/4% Senior Subordinated Notes due 2007, Series B
(herein called the "Securities"), limited (except as otherwise provided in the
Indenture referred to below) in aggregate principal amount to $100,000,000,
issued under and subject to the terms of an indenture (herein called the
"Indenture") dated as of October 16, 1997, among the Company, the Guarantors and
State Street Bank and Trust Company, as trustee (herein called the "Trustee,"
which term includes any successor trustee under the Indenture), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights, limitations of rights, duties, obligations
and immunities thereunder of the Company, the Guarantors, the Trustee and the
Holders of the Securities, and of the terms upon which the Securities are, and
are to be, authenticated and delivered.
The Indenture contains provisions for defeasance at any time of (a)
the entire Indebtedness on the Securities and (b) certain restrictive covenants
and related
51
<PAGE>
Defaults and Events of Default, in each case upon compliance with certain
conditions set forth therein.
The Securities are subject to redemption at any time on or after
October 15, 2002, at the option of the Company, in whole or in part, on not less
than 30 nor more than 60 days' prior notice to the Holders by first-class mail,
in amounts of $1,000 or an integral multiple thereof, at the following
redemption prices (expressed as percentages of the principal amount), if
redeemed during the 12-month period beginning October 15 of the years indicated
below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- -----------
<S> <C>
2002........................ 104.625%
2003........................ 102.313%
2004........................ 101.156%
</TABLE>
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to but not including the Redemption Date
(subject to the rights of Holders of record on relevant Regular Record Dates or
Special Record Dates to receive interest due on an Interest Payment Date).
At any time prior to October 15, 2000, the Company may, at its option,
use the net proceeds of one or more Public Equity Offerings to redeem up to an
aggregate of 30% of the aggregate principal amount of Securities originally
issued under the Indenture at a redemption price equal to 109.25% of the
aggregate principal amount thereof, plus accrued and unpaid interest thereon, if
any, to the Redemption Date; provided that at least $70 million of the principal
amount of Securities remains outstanding immediately after the occurrence of
such redemption. In order to effect the foregoing redemption, the Company must
mail a notice of redemption no later than 60 days after the closing of the
related Public Equity Offering and must consummate such redemption within 90
days of the closing of the Public Equity Offering.
If less than all of the Securities are to be redeemed, the Trustee
shall select the Securities or portions thereof to be redeemed pro rata or by
lot.
Upon the occurrence of a Change of Control, each Holder may require
the Company to purchase such Holder's Securities in whole or in part in integral
multiples of $1,000, at a purchase price in cash in an amount equal to 101% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of purchase, pursuant to a Change of Control Offer in accordance with the
procedures set forth in the Indenture.
Under certain circumstances, in the event the Net Cash Proceeds
received by the Company from any Asset Sale, which proceeds are not used to
repay Senior
52
<PAGE>
Indebtedness or invested in capital expenditures, properties or other assets or
inventories that replace the properties and assets that were the subject of the
Asset Sale or which will be used in the business of the Company or its
Subsidiaries existing on the date of the Indenture or in businesses reasonably
related thereto, exceeds a specified amount the Company will be required to
apply such proceeds to the repayment of the Securities and certain Indebtedness
ranking pari passu in right of payment to the Securities.
In the case of any redemption or repurchase of Securities in
accordance with the Indenture, interest installments whose Stated Maturity is on
or prior to the Redemption Date will be payable to the Holders of such
Securities of record as of the close of business on the relevant Regular Record
Date or Special Record Date referred to on the face hereof. Securities (or
portions thereof) for whose redemption and payment provision is made in
accordance with the Indenture shall cease to bear interest from and after the
Redemption Date.
In the event of redemption or repurchase of this Security in
accordance with the Indenture in part only, a new Security or Securities for the
unredeemed portion hereof shall be issued in the name of the Holder hereof upon
the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal
amount of all the Securities may be declared due and payable in the manner and
with the effect provided in the Indenture.
The Indenture permits, with certain exceptions (including certain
amendments permitted without the consent of any Holders) as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the Guarantors and the rights of the Holders under the Indenture and
the Securities and the Guarantees at any time by the Company and the Trustee
with the consent of the Holders of a specified percentage in aggregate principal
amount of the Securities at the time Outstanding. The Indenture also contains
provisions permitting the Holders of specified percentages in aggregate
principal amount of the Securities at the time Outstanding, on behalf of the
Holders of all the Securities, to waive compliance by the Company and the
Guarantors with certain provisions of the Indenture and the Securities and the
Guarantees and certain past Defaults under the Indenture and the Securities and
the Guarantees and their consequences. Any such consent or waiver by or on
behalf of the Holder of this Security shall be conclusive and binding upon such
Holder and upon all future Holders of this Security and of any Security issued
upon the registration of transfer hereof or in exchange herefor or in lieu
hereof whether or not notation of such consent or waiver is made upon this
Security.
53
<PAGE>
The Series B Securities are, to the extent and manner provided in
Article Thirteen of the Indenture, subordinated and subject in right of payment
to the prior payment in full of all Senior Indebtedness.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, any
Guarantor or any other obligor on the Securities (in the event such Guarantor or
such other obligor is obligated to make payments in respect of the Securities),
which is absolute and unconditional, to pay the principal of, and premium, if
any, and interest on, this Security at the times, place, and rate, and in the
coin or currency, herein prescribed, subject to the subordination provisions of
the Indenture.
If this Series B Security is in certificated form, then as provided in
the Indenture and subject to certain limitations therein set forth, the transfer
of this Series B Security is registrable on the Security Register of the
Company, upon surrender of this Series B Security for registration of transfer
at the office or agency of the Company maintained for such purpose in The City
of New York or at such other office or agency of the Company as may be
maintained for such purpose, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar duly executed by, the Holder hereof or its attorney duly authorized in
writing, and thereupon one or more new Series B Securities, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
If this Series B Security is in certificated form, then as provided in
the Indenture and subject to certain limitations therein set forth, the Holder
may exchange this Series B Security for a Book-Entry Security by instructing the
Trustee to arrange for such Series B Security to be represented by a beneficial
interest in a Series B Global Security in accordance with the customary
procedures of the Depository, unless the Company has elected not to issue a
Series B Global Security.
If this Series B Security is a Series B Global Security, it is
exchangeable for a Series B Security in certificated form as provided in the
Indenture and in accordance with the rules and procedures of the Trustee and the
Depositary. In addition, certificated securities shall be transferred to all
beneficial holders in exchange for their beneficial interests in the Series B
Global Security if (x) the Depositary notifies the Company that it is unwilling
or unable to continue as depository for the Series B Global Security and a
successor depositary is not appointed by the Company within 90 days or (y) there
shall have occurred and be continuing an Event of Default and the Security
Registrar has received a request from the Depositary. Upon any such issuance,
the Trustee is required to register such certificated Series B Securities in the
name of, and cause the same to be delivered to, such Person or Persons (or the
nominee of any thereof).
54
<PAGE>
Series B Securities in certificated form are issuable only in
registered form without coupons in denominations of $1,000 and any integral
multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, the Series B Securities are exchangeable for a
like aggregate principal amount of Securities of a differing authorized
denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax, assessment or other governmental charge payable in connection
therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, any Guarantor, the Trustee and any agent of the Company,
any Guarantor or the Trustee may treat the Person in whose name this Security is
registered as the owner hereof for all purposes, whether or not this Security is
overdue, and neither the Company, any Guarantor, the Trustee nor any such agent
shall be affected by notice to the contrary.
THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES THEREOF.
All terms used in this Security which are defined in the Indenture and
not otherwise defined herein shall have the meanings assigned to them in the
Indenture.
[The Transferee Certificate, in the form of Appendix II hereto, will
be attached to the Series B Security.]
Section 204. Form of Trustee's Certificate of Authentication.
-----------------------------------------------
The Trustee's certificate of authentication shall be included on the
form of the face of the Securities substantially in the following form:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
[Series A Securities]
This is one of the 9 1/4% Senior Subordinated Notes due 2007, Series A
referred to in the within-mentioned Indenture.
55
<PAGE>
State Street Bank and Trust Company,
as Trustee
By:______________________________________
Authorized Signer
[Series B Securities]
This is one of the 9 1/4% Senior Subordinated Notes due 2007, Series B
referred to in the within-mentioned Indenture.
State Street Bank and Trust Company,
as Trustee
By:______________________________________
Authorized Signer
Section 205. Form of Guarantee of Each of the Guarantors.
-------------------------------------------
The form of Guarantee shall be set forth on the Securities
substantially as follows:
GUARANTEES
For value received, each of the undersigned hereby absolutely,
unconditionally and irrevocably guarantees, jointly and severally, to the
holder of this Security the payment of principal of, premium, if any, and
interest on this Security upon which these Guarantees are endorsed in the
amounts and at the time when due and payable whether by declaration thereof, or
otherwise, and interest on the overdue principal and interest, if any, of this
Security, if lawful, and the payment or performance of all other obligations of
the Company under the Indenture or the Securities, to the holder of this
Security and the Trustee, all in accordance with and subject to the terms and
limitations of this Security, Article Thirteen and Article Fourteen of the
Indenture. These Guarantees will not become effective until the Trustee duly
executes the certificate of authentication on this Security. This Guarantee
shall be governed by and construed in accordance with the laws of the State of
New York, without regard to conflict of law
56
<PAGE>
principles thereof. The Indebtedness evidenced by these Guarantees are, to the
extent and in the manner provided in the Indenture, subordinate and subject in
right of payment to the prior payment in full of all Guarantor Senior
Indebtedness (as defined in the Indenture), whether outstanding on the date of
the Indenture or thereafter, and the Guarantees are issued subject to such
provisions.
Dated:
IMAGE INDUSTRIES, INC.
By:_________________________________
Name:
Title:
Attest:_________________________
Name:
Title:
57
<PAGE>
KINNAIRD & FRANCKE INTERIORS, INC.
KINNAIRD & FRANCKE DRAPERY CO., INC.
FIRST QUALITY, INC.
STEVE PETERSON INTERIORS &
ASSOCIATES, INC.
BAY AREA CARPETS, INC.
CARPET WORLD, INC.
RNA ENTERPRISES, INC.
DUBOSE CARPETS & FLOORS, INC.
RUGS N REMNANTS, INC.
CARPET GALLERY, INC. (GEORGIA)
LOSANTVILLE CARPET OUTLET, INC.
AMERICAN CARPETS & INTERIORS, INC.
CARPET COUNTRY, INC.
CARPETMAX OF NEW MEXICO, INC.
CARPETMAX ALABAMA CONTRACT, INC.
By:_____________________________________
Name: Herbert A. Biggers
Title: President
Attest:____________________
Name:
Title:
MAXIM RETAIL GROUP, INC.
By:_____________________________________
Name: Paul Renn
Title: President
Attest:____________________
Name:
Title:
58
<PAGE>
INVESTOR MANAGEMENT, INC.
TRI-R OF ORLANDO, INC.
CARPETMAX OF PALM BEACH, INC.
CREDITMAX CORP.
CARPETMAX OF CHARLOTTE, INC.
CLOUD CARPETS, INC.
MAXIM EQUIPMENT LEASING
COMPANY, INC.
By:_____________________________________
Name: A.J. Nassar
Title: President
Attest:____________________
Name:
Title:
GCO, INC.
GCO CARPET OUTLET, INC.
BAILEY & ROBERTS CARPETMAX
OF TENNESSEE, INC.
By:_____________________________________
Name: A.J. Nassar
Title: Chief Executive Officer
Attest:____________________
Name:
Title:
CARPETMAX, L.P.
By: The Maxim Group, Inc., as General Partner
By:_____________________________________
Name: A.J. Nassar
Title: President and Chief Executive
Officer
59
<PAGE>
Section 206. Form of Option of Holder to Elect Purchase.
------------------------------------------
The form of Option of Holder to Elect Purchase Form shall be set forth
on the Securities substantially as follows:
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Company pursuant to
Section 1013 or Section 1016, as applicable, of the Indenture, check the Box:
[ ].
If you wish to have a portion of this Security (which has an original
principal amount of $1,000 or an integral multiple thereof) purchased by the
Company pursuant to Section 1013 or Section 1016 as applicable, of the
Indenture, state the amount (in original principal amount):
$ _______________.
Date: ___________________ Your Signature: _____________________
Taxpayer Identification No.: ____________
(Sign exactly as your name appears on the other side of this Security)
Signature Guarantee: __________________________________
[Signature must be guaranteed by an eligible Guarantor Institution (banks,
stockbrokers, savings and loan associations and credit unions) with membership
in an approved guarantee medallion program pursuant to Securities and Exchange
Commission Rule 17Ad-15]
60
<PAGE>
ARTICLE THREE
THE SECURITIES
Section 301. Title and Terms.
---------------
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to $100,000,000 in
principal amount of Series A Securities and $100,000,000 in principal amount of
Series B Securities, except for Securities authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other Securities
pursuant to Section 303, 304, 305, 306, 307, 308, 906, 1013, 1016 or 1108.
The Series A Securities shall be known and designated as the "9 1/4%
Series A Senior Subordinated Notes due 2007, Series A" of the Company. The
Stated Maturity of the Series A Securities shall be October 15, 2007, and the
Series A Securities shall each bear interest at the rate of 9 1/4% per annum, as
such interest rate may be adjusted as set forth in the Series A Security, from
October 16, 1997, or from the most recent Interest Payment Date to which
interest has been paid, as the case may be, payable semiannually on April 15 and
October 15 in each year commencing April 15, 1998, until the principal thereof
is paid or duly provided for. Interest on any overdue principal, interest (to
the extent lawful) or premium, if any, shall be payable on demand.
The Series B Securities shall be known and designated as the "9 1/4%
Series B Senior Subordinated Notes due 2007, Series B" of the Company. The
Stated Maturity of the Series B Securities shall be October 15, 2007, and the
Series B Securities shall each bear interest at the rate of 9 1/4% per annum, as
such interest rate may be adjusted as set forth in the Series B Security, from
their issuance date or from the most recent Interest Payment Date to which
interest has been paid, as the case may be, payable semiannually on April 15 and
October 15, in each year commencing April 15, 1998, until the principal thereof
is paid or duly provided for. Interest on any overdue principal, interest (to
the extent lawful) or premium, if any, shall be payable on demand.
The principal of and premium, if any, and interest on the Securities
shall be payable (i) in respect of Securities held of record by the Depositary
or its nominee in same day funds on or prior to the respective payment dates and
(ii) in respect of Securities held of record by Holders other than the
Depositary or its nominee in same day funds at the office or agency of the
Company maintained for such purpose pursuant to Section 1002; provided, however,
that at the option of the Company payment of interest to Holders of record other
than the Depositary may be made by check mailed to the address of the Person
entitled thereto as such address shall appear in the Security Register. The
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Securities will be exchangeable and transferable at an office or agency of the
Company in The City of New York maintained for such purposes.
For all purposes hereunder, the Series A Securities and the Series B
Securities will be treated as one class and are together referred to as the
"Securities." The Series A Securities rank pari passu in right of payment with
the Series B Securities.
The Securities shall be subject to repurchase by the Company pursuant
to an Offer as provided in Section 1013.
Holders shall have the right to require the Company to purchase their
Securities, in whole or in part, in the event of a Change of Control pursuant to
Section 1016.
The Securities shall be redeemable as provided in Article Eleven and
in the Securities.
The Indebtedness evidenced by the Securities shall be subordinated in
right of payment to Senior Indebtedness as provided in Article Thirteen.
At the election of the Company, the entire Indebtedness on the
Securities or certain of the Company's obligations and covenants and certain
Events of Default thereunder may be defeased as provided in Article Four.
Section 302. Denominations.
-------------
The Securities shall be issuable only in fully registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.
Section 303. Execution, Authentication, Delivery and Dating.
----------------------------------------------
The Securities shall be executed on behalf of the Company by one of
its Chairman of the Board, its President, its Chief Executive Officer, its Chief
Financial Officer or one of its Vice Presidents attested by its Secretary or one
of its Assistant Secretaries. The signatures of any of these officers on the
Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
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At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company to
the Trustee (with Guarantees endorsed thereon) for authentication, together with
a Company Order for the authentication and delivery of such Securities; and the
Trustee in accordance with such Company Order shall authenticate and deliver
such Securities as provided in this Indenture and not otherwise.
Each Security shall be dated the date of its authentication.
No Security or Guarantee endorsed thereon shall be entitled to any
benefit under this Indenture or be valid or obligatory for any purpose unless
there appears on such Security a certificate of authentication substantially in
the form provided for herein duly executed by the Trustee by manual signature of
an authorized officer, and such certificate upon any Security shall be
conclusive evidence, and the only evidence, that such Security has been duly
authenticated and delivered hereunder and is entitled to the benefits of this
Indenture.
In case the Company or any Guarantor, pursuant to Article Eight,
shall, in a single transaction or through a series of related transactions, be
consolidated or merged with or into any other Person or shall sell, assign,
convey, transfer, lease or otherwise dispose of all or substantially all of its
properties and assets to any Person, and the successor Person resulting from
such consolidation or surviving such merger, or into which the Company or such
Guarantor shall have been merged, or the successor Person which shall have
participated in the sale, assignment, conveyance, transfer, lease or other
disposition as aforesaid, shall have executed an indenture supplemental hereto
with the Trustee pursuant to Article Eight, any of the Securities authenticated
or delivered prior to such consolidation, merger, sale, assignment, conveyance,
transfer, lease or other disposition may, from time to time, at the request of
the successor Person, be exchanged for other Securities executed in the name of
the successor Person with such changes in phraseology and form as may be
appropriate, but otherwise in substance of like tenor as the Securities
surrendered for such exchange and of like principal amount; and the Trustee,
upon Company Request of the successor Person, shall authenticate and deliver
Securities as specified in such request for the purpose of such exchange. If
Securities shall at any time be authenticated and delivered in any new name of a
successor Person pursuant to this Section 303 in exchange or substitution for or
upon registration of transfer of any Securities, such successor Person, at the
option of the Holders but without expense to them, shall provide for the
exchange of all Securities at the time Outstanding for Securities authenticated
and delivered in such new name.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Securities on behalf of the Trustee. Unless limited by
the terms of such appointment, an authenticating agent may authenticate
Securities whenever the
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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 any Security Registrar or Paying Agent to deal with the Company
and its Affiliates.
Section 304. Temporary Securities.
--------------------
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten or otherwise
produced, in any authorized denomination, substantially of the tenor of the
definitive Securities in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Securities may determine, as conclusively evidenced by their
execution of such Securities. Every such temporary Security shall be executed by
the Company and shall be authenticated and delivered by the Trustee upon the
same conditions and in substantially the same manner, and with the same effect,
as the definitive Security or Securities in lieu of which it is issued.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at the office
or agency of the Company designated for such purpose pursuant to Section 1002,
without charge to the Holder. Upon surrender for cancellation of any one or
more temporary Securities, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a like principal amount of
definitive Securities of authorized denominations. Until so exchanged the
temporary Securities shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities.
Section 305. Registration, Registration of Transfer and Exchange.
---------------------------------------------------
The Company shall cause the Trustee to keep, so long as it is the
Security Registrar, at the Corporate Trust Office of the Trustee, or such other
office as the Trustee may designate, a register (the register maintained in such
office or in any other office or agency designated pursuant to Section 1002
being herein sometimes referred to as the "Security Register") in which, subject
to such reasonable regulations as the Security Registrar may prescribe, the
Company shall provide for the registration of Securities and of transfers of
Securities. The Trustee shall initially be the "Security Registrar" for the
purpose of registering Securities and transfers of Securities as herein
provided. The Company may appoint one or more co-Security Registrars. At all
reasonable times the Security Register shall be open for inspection by the
Company.
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Upon surrender for registration of transfer of any Security at the
office or agency of the Company designated pursuant to Section 1002, the Company
shall execute, and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Securities of the same
series of any authorized denomination or denominations, of a like aggregate
principal amount.
Furthermore, any Holder of a Global Security shall, by acceptance of
such Global Security, agree that transfers of beneficial interests in such
Global Security may be effected only through a book-entry system maintained by
the Holder of such Global Security (or its agent), and that ownership of a
beneficial interest in a Security shall be required to be reflected in a book
entry.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denomination or denominations, of a like aggregate
principal amount, upon surrender of the Securities to be exchanged at such
office or agency. Whenever any Securities are so surrendered for exchange, the
Company shall execute, and the Trustee shall authenticate and deliver,
Securities of the same series which the Holder making the exchange is entitled
to receive; provided that no exchange of Series A Securities for Series B
Securities shall occur until an Exchange Offer Registration Statement shall have
been declared effective by the Commission and that the Series A Securities
exchanged for the Series B Securities shall be canceled.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
Indebtedness, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer,
or for exchange, repurchase or redemption, shall (if so required by the Company
or the Trustee) be duly endorsed, or be accompanied by a written instrument of
transfer in form satisfactory to the Company and the Security Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made to a Holder for any registration of
transfer, exchange or redemption of Securities, except in certain circumstances
for any tax, assessment or other governmental charge that may be imposed in
connection therewith, other than exchanges pursuant to Sections 303, 304, 305,
308, 906, 1013, 1016 or 1108 not involving any transfer.
Neither the Company nor the Security Registrar shall be required (a)
to issue, register the transfer of or exchange any Security during a period
beginning at the opening of business 15 days before the mailing of a notice of
redemption of the Securities
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selected for redemption under Section 1104 and ending at the close of business
on the day of such mailing or (b) to register the transfer of or exchange any
Security so selected for redemption in whole or in part, except the unredeemed
portion of Securities being redeemed in part.
Every Security shall be subject to the restrictions on transfer
provided in the legend required to be set forth on the face of each Security
pursuant to Section 202, and to the restrictions set forth in this Section 305,
and the Holder of each Security, by such Holder's acceptance thereof (or
interest therein), agrees to be bound by such restrictions on transfer.
The restrictions imposed by this Section 305 upon the transferability
of any particular Security shall cease and terminate on (a) the later of October
16, 1999 or two years after the last date on which the Company or any Affiliate
of the Company was the owner of such Security (or any predecessor of such
Security) or (b) (if earlier) if and when such Security has been sold pursuant
to an effective registration statement under the Securities Act or transferred
pursuant to Rule 144 or Rule 904 under the Securities Act (or any successor
provision), unless the Holder thereof is an affiliate of the Company within the
meaning of Rule 144 (or such successor provisions). Any Security as to which
such restrictions on transfer shall have expired in accordance with their terms
or shall have terminated may, upon surrender of such Security for exchange to
the Security Registrar in accordance with the provision of this Section 305
(accompanied, in the event that such restrictions on transfer have terminated
pursuant to Rule 144 or Rule 904 (or any successor provision), by an Opinion of
Counsel satisfactory to the Company and the Trustee, to the effect that the
transfer of such Security has been made in compliance with Rule 144 or Rule 904
(or any such successor provision)), be exchanged for a new Security, of like
tenor and aggregate principal amount, which shall not bear the Private Placement
Legend. The Company shall inform the Trustee of the effective date of any
Registration Statement registering the Securities under the Securities Act no
later than two Business Days after such effective date.
Except as provided in the preceding paragraph, any Security
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, any U.S. Global Security, whether pursuant to this Section
305, Section 304, 308, 906 or 1108 or otherwise, shall also be a U.S. Global
Security and bear the legend specified in Section 202.
Section 306. Book-Entry Provisions for Global Securities.
-------------------------------------------
(a) Each Global Security initially shall (i) be registered in the
name of the Depositary for such Global Security or the nominee of such
Depositary, (ii) be deposited
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with, or on behalf of, the Depositary or with the Trustee as custodian for such
Depositary and (iii) bear legends as set forth in Section 202.
Members of, or participants in, the Depositary ("Agent Members") shall
have no rights under this Indenture with respect to any Global Security held on
their behalf by the Depositary, or the Trustee as its custodian, or under such
Global Security, and the Depositary may be treated by the Company, the Trustee
and any agent of the Company or the Trustee as the absolute owner of such Global
Security for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or shall impair, as between the
Depositary and its Agent Members, the operation of customary practices governing
the exercise of the rights of a holder of any Security.
(b) Transfers of each Global Security shall be limited to transfers
of such Global Security in whole, but not in part, to the Depositary, its
successors or their respective nominees. Interests of beneficial owners in each
Global Security may be transferred in accordance with the rules and procedures
of the Depositary and the provisions of Section 307. Beneficial owners of
interests in the Rule 144A Global Securities and Series B Global Securities may
obtain Securities in certificated form (the "Physical Securities") in exchange
for their beneficial interests in the Rule 144A Global Securities or Series B
Global Securities, as applicable, upon request in accordance with the
Depositary's and the Security Registrar's procedures. In connection with the
execution, authentication and delivery of such Physical Securities, the Security
Registrar shall reflect on Appendix A to the relevant Global Security a decrease
in the principal amount of such Global Security equal to the principal amount of
such Physical Securities and the Company shall execute and the Trustee shall
authenticate and deliver one or more Physical Securities having an equal
aggregate principal amount. In addition, Physical Securities shall be issued to
all beneficial owners in exchange for their beneficial interests in any Global
Security if (i) the Depositary notifies the Company that it is unwilling or
unable to continue as Depositary for such Global Security and a successor
Depositary is not appointed by the Company within 90 days of such notice or (ii)
an Event of Default has occurred and is continuing and the Security Registrar
has received a request from the Depositary.
(c) In connection with any transfer of a portion of the beneficial
interest in a Global Security pursuant to subsection (b) of this Section to
beneficial owners who are required to hold Physical Securities, the Security
Registrar shall reflect on its books and records the date and a decrease in the
principal amount of such Global Security in an amount equal to the principal
amount of the beneficial interest in such Global Security to be transferred, and
the Company shall execute, and the Trustee shall authenticate and deliver, one
or more Physical Securities of like tenor and amount.
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(d) In connection with the transfer of an entire Global Security to
beneficial owners pursuant to subsection (b) of this Section, such Global
Security shall be deemed to be surrendered to the Trustee for cancellation, and
the Company shall execute, and the Trustee shall authenticate and deliver, to
each beneficial owner identified by the Depositary in exchange for its
beneficial interest in such Global Security an equal aggregate principal amount
of Physical Securities of authorized denominations.
(e) Any Physical Security constituting a "restricted security" within
the meaning of Rule 144(a)(3) under the Securities Act delivered in exchange for
an interest in a Global Security pursuant to subsection (c) or subsection (d) of
this Section shall, except as otherwise provided by Section 307, bear the
Private Placement Legend.
(f) The registered holder of a Global Security may grant proxies and
otherwise authorize any person, including Agent Members and Persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Securities.
Section 307. Special Transfer Provisions.
---------------------------
Unless and until (i) an Initial Security is sold under an effective
Registration Statement, or (ii) an Initial Security is exchanged for a Series B
Security in connection with the Exchange Offer, in each case pursuant to the
Registration Rights Agreement, the following provisions shall apply:
(a) Transfers to QIBs. The following provisions shall apply with
-----------------
respect to the registration of any proposed transfer of an Initial Security to a
QIB (excluding Non-U.S. Persons):
(i) the Security Registrar shall register the transfer of any
Initial Security, whether or not such Security bears the Private
Placement Legend, if (x) the requested transfer is after the second
anniversary of the Issue Date; provided, however, that neither the
Company nor any Affiliate of the Company has held any beneficial
interest in such Security, or portion thereof, at any time on or prior
to the second anniversary of the Issue Date and such transfer can
otherwise lawfully be made under the Securities Act without
registering such Initial Security thereunder or (y) such transfer is
being made by a proposed transferor who has checked the box provided
for on the form of Initial Security stating, or has otherwise advised
the Company and the Security Registrar in writing, that the sale has
been made in compliance with the provisions of Rule 144A to the
transferee who has signed the certification provided for on the form
of Initial Security stating, or has otherwise advised the Company and
the Security Registrar in writing,
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that it is purchasing the Initial Security for its own account or an
account with respect to which it exercises sole investment discretion
and that it, or the person on whose behalf it is acting with respect
to any such account, is a QIB within the meaning of Rule 144A, and is
aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the
Company as it has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the
transferor is relying upon its foregoing representations in order to
claim the exemption from registration provided by Rule 144A.
(ii) If the proposed transferee is an Agent Member, and the
Initial Security to be transferred consists of Physical Securities
which after transfer are to be evidenced by an interest in the Rule
144A Global Security, upon receipt by the Security Registrar of
instructions given in accordance with the Depositary's and the
Security Registrar's procedures therefor, the Security Registrar shall
reflect on Appendix A to the Rule 144A Global Security the date and an
increase in the principal amount of the Rule 144A Global Security in
an amount equal to the principal amount of the Physical Securities to
be transferred, and the Trustee shall cancel the Physical Security so
transferred.
(iii) If the proposed transferor is an Agent Member seeking to
transfer an interest in a Global Security, upon receipt by the
Security Registrar of written instructions given in accordance with
the Depositary's and the Security Registrar's procedures, the Security
Registrar shall register the transfer and reflect (A) on Appendix A to
Global Security from which interests are to be transferred the date
and a decrease in the principal amount of the Global Security from
which interests are to be transferred in an amount equal to the
principal amount of the Securities to be transferred and (B) on
Appendix A to the Rule 144A Global Security the date and an increase
in the principal amount of the Rule 144A Global Security in an amount
equal to the principal amount of the Global Security to be
transferred.
(b) Transfers to Non-U.S. Persons. The following provisions shall
-----------------------------
apply with respect to any transfer of an Initial Security to a Non-U.S. Person:
(i) Prior to November 26, 1997, an owner of a beneficial
interest in the Regulation S Global Security may not transfer such
interest to a transferee that is a U.S. Person or for the account or
benefit of a U.S. Person within the meaning of Rule 902(o) under the
Securities Act. During such time, all beneficial interests in the
Regulation S Global Security shall be
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transferred only through Cedel or Euroclear, either directly if the
transferor and transferee are participants in such system, or
indirectly through organizations that are participants.
(ii) The Security Registrar shall register the transfer of any
Initial Security, whether or not such Security bears the Private
Placement Legend, if (x) the proposed transferee has delivered to the
Security Registrar a certificate substantially in the form of Exhibit
B hereto or (y) the proposed transferor has delivered to the Security
Registrar a certificate substantially in the form of Exhibit C hereto.
(iii) If the proposed transferee is an Agent Member and the
Securities to be transferred consist of Physical Securities which
after transfer are to be evidenced by an interest in the Regulation S
Global Security, upon receipt by the Security Registrar of (x) written
instructions given in accordance with the Depositary's and the
Security Registrar's procedures and (y) the appropriate certificate
required by clause (y) of paragraph (ii) above, together with any
required legal opinions and certifications, the Security Registrar
shall register the transfer and reflect on Appendix A to the
Regulation S Global Security the date and an increase in the principal
amount of the Regulation S Global Security in an amount equal to the
principal amount of Physical Securities to be transferred, and the
Trustee shall cancel the Physical Securities so transferred.
(iv) If the proposed transferor is an Agent Member seeking to
transfer an interest in a Global Security, upon receipt by the
Security Registrar of (x) written instructions given in accordance
with the Depositary's and the Security Registrar's procedures and (y)
the appropriate certificate required by clause (y) of paragraph (ii)
above, together with any required legal opinions and certificates, the
Security Registrar shall register the transfer and reflect (A) on
Appendix A to the Global Security from which interests are to be
transferred the date and a decrease in the principal amount of the
Global Security from which such interests are to be transferred in an
amount equal to the principal amount of the Securities to be
transferred and (B) on Appendix A to the Regulation S Global Security
the date and an increase in the principal amount of the Regulation S
Global Security in an amount equal to the principal amount of the
Global Security to be transferred.
(c) Private Placement Legend. Upon the registration of transfer,
------------------------
exchange or replacement of Securities not bearing the Private Placement Legend,
the Security Registrar shall deliver Securities that do not bear the Private
Placement Legend.
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Upon the registration of transfer, exchange or replacement of Securities bearing
the Private Placement Legend, the Security Registrar shall deliver only
Securities that bear the Private Placement Legend unless there is delivered to
the Security Registrar an Opinion of Counsel reasonably satisfactory to the
Company and the Trustee to the effect that neither such legend nor the related
restrictions on transfer are required in order to maintain compliance with the
provisions of the Securities Act.
(d) General. By its acceptance of any Security bearing the Private
-------
Placement Legend, each Holder of such a Security acknowledges the restrictions
on transfer of such Security set forth in this Indenture and in the Private
Placement Legend and agrees that it will transfer such Security only as provided
in this Indenture.
The Security Registrar shall retain copies of all letters, notices and
other written communications received pursuant to Section 306 or this Section
307. The Company shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time upon the
giving of reasonable written notice to the Security Registrar.
In the event that Regulation S is amended during the term of this
Indenture to alter the applicable holding period, all reference in this
Indenture to a holding period for Non-U.S. Persons will be deemed to include
such amendment.
Section 308. Mutilated, Destroyed, Lost and Stolen Securities.
------------------------------------------------
If (a) any mutilated Security is surrendered to the Trustee, or (b)
the Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and there is delivered to the
Company, any Guarantor and the Trustee, such security or indemnity, in each
case, as may be required by them to save each of them harmless, then, in the
absence of notice to the Company, any Guarantor or the Trustee that such
Security has been acquired by a bona fide purchaser, the Company and the
Guarantors shall execute and upon a Company Request the Trustee shall
authenticate and deliver, in exchange for any such mutilated Security or in lieu
of any such destroyed, lost or stolen Security, a replacement Security of like
tenor and principal amount, bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company or any Guarantor in
its discretion may, instead of issuing a replacement Security, pay such
Security.
Upon the issuance of any replacement Securities under this Section,
the Company may require the payment of a sum sufficient to pay all documentary,
stamp or similar issue or transfer taxes or other governmental charges that may
be imposed in
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relation thereto and any other expenses (including the fees and expenses of the
Trustee) connected therewith.
Every replacement Security issued pursuant to this Section in lieu of
any destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company and any Guarantor, whether or not the
destroyed, lost or stolen Security shall be at any time enforceable by anyone,
and shall be entitled to all benefits of this Indenture equally and
proportionately with any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
Section 309. Payment of Interest; Interest Rights Preserved.
----------------------------------------------
Interest on any Security which is payable, and is punctually paid or
duly provided for, on the Stated Maturity of such interest shall be paid to the
Person in whose name the Security (or any Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest payment.
Payment of interest will be made (i) in respect of Securities held by the
Depositary or its nominee, in same day funds on or prior to the respective
Interest Payment Dates and (ii) in respect of Securities held of record by
Holders other than the Depositary or its nominee, in same day funds at the
office of the Trustee in New York, New York or at such other office or agency of
the Company as it shall maintain for that purpose pursuant to Section 1002;
provided, however, that, at the option of the Company, interest on any Security
held of record by Holders other than the Depositary or its nominee may be paid
by mailing checks to the addresses of the Holders thereof as such addresses
appear in the Security Register.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on the Stated Maturity of such interest, and interest
on such defaulted interest at the then applicable interest rate borne by the
Securities, to the extent lawful (such defaulted interest and interest thereon
herein collectively called "Defaulted Interest"), shall forthwith cease to be
payable to the Holder on the Regular Record Date; and such Defaulted Interest
may be paid by the Company, at its election in each case, as provided in
Subsection (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Securities (or any relevant
Predecessor Securities) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest, which
shall be fixed in the following manner. The Company shall
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notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Security and the date (not less than 30
days after such notice) of the proposed payment (the "Special Payment
Date"), and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to
be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the
Special Payment Date, such money when deposited to be held in trust
for the benefit of the Persons entitled to such Defaulted Interest as
in this Subsection provided. Thereupon the Trustee shall fix a Special
Record Date for the payment of such Defaulted Interest which shall be
not more than 15 days and not less than 10 days prior to the date of
the Special Payment Date and not less than 10 days after the receipt
by the Trustee of the notice of the proposed payment. The Trustee
shall promptly notify the Company in writing of such Special Record
Date. In the name and at the expense of the Company, the Trustee 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 its 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 and Special Payment Date therefor having been so
mailed, such Defaulted Interest shall be paid to the Persons in whose
names the Securities are registered on such Special Record Date and
shall no longer be payable pursuant to the following Subsection (b).
(b) 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 written
notice given by the Company to the Trustee of the proposed payment
pursuant to this Subsection, such payment shall be deemed practicable
by the Trustee.
Subject to the foregoing provisions of this Section 309, each Security
delivered under this Indenture upon 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.
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Section 310. CUSIP Numbers.
-------------
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and the Company, or the Trustee on behalf of the Company,
shall use CUSIP numbers in notices of redemption or exchange as a convenience to
Holders; provided, however, that any such notice shall 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 redemption or exchange and
that reliance may be placed only on the other identification numbers printed on
the Securities; and provided further, however, that failure to use CUSIP numbers
in any notice of redemption or exchange shall not affect the validity or
sufficiency of such notice.
Section 311. Persons Deemed Owners.
---------------------
Prior to due presentment of a Security for registration of transfer,
the Company, any Guarantor, the Trustee and any agent of the Company, any
Guarantor or the Trustee may treat the Person in whose name any Security is
registered as the owner of such Security for the purpose of receiving payment of
principal of, premium, if any, and (subject to Section 309) interest on, such
Security and for all other purposes whatsoever, whether or not such Security is
overdue, and neither the Company, any Guarantor, the Trustee nor any agent of
the Company, any Guarantor or the Trustee shall be affected by notice to the
contrary.
Section 312. Cancellation.
------------
All Securities surrendered for payment, purchase, redemption,
registration of transfer or exchange shall be delivered to the Trustee and, if
not already canceled, shall be promptly canceled by it. The Company and any
Guarantor may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company or such
Guarantor may have acquired in any manner whatsoever, and all Securities so
delivered shall be promptly canceled by the Trustee. No Securities shall be
authenticated in lieu of or in exchange for any Securities canceled as provided
in this Section 312, except as expressly permitted by this Indenture. All
canceled Securities held by the Trustee shall be destroyed and certification of
their destruction delivered to the Company, unless by a Company Order received
by the Trustee prior to such destruction, the Company shall direct that the
canceled Securities be returned to it. The Trustee shall provide the Company a
list of all Securities that have been canceled from time to time as requested by
the Company.
Section 313. Computation of Interest.
-----------------------
Interest on the Securities shall be computed on the basis of a 360-day
year comprised of twelve 30-day months.
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ARTICLE FOUR
DEFEASANCE AND COVENANT DEFEASANCE
Section 401. Company's Option to Effect Defeasance or Covenant Defeasance.
------------------------------------------------------------
The Company may, at its option by Board Resolution, at any time, with
respect to the Securities, elect to have either Section 402 or Section 403 be
applied to all of the Outstanding Securities (the "Defeased Securities"), upon
compliance with the conditions set forth below in this Article Four.
Section 402. Defeasance and Discharge.
------------------------
Upon the Company's exercise under Section 401 of the option applicable
to this Section 402, the Company, each Guarantor and any other obligor upon the
Securities, if any, shall be deemed to have been discharged from its obligations
with respect to the Defeased Securities on the date the conditions set forth in
Section 404 below are satisfied (hereinafter, "defeasance"). For this purpose,
such defeasance means that the Company, each Guarantor and any other obligor
upon the Securities shall be deemed to have paid and discharged the entire
Indebtedness represented by the Defeased Securities, which shall thereafter be
deemed to be "Outstanding" only for the purposes of Section 405 and the other
Sections of this Indenture referred to in (a) and (b) below, and to have
satisfied all its other obligations under such Securities and this Indenture
insofar as such Securities are concerned (and the Trustee, at the expense of the
Company and upon Company Request, shall execute proper instruments acknowledging
the same), except for the following which shall survive until otherwise
terminated or discharged hereunder: (a) the rights of Holders of Defeased
Securities to receive, solely from the trust fund described in Section 404 and
as more fully set forth in such Section, payments in respect of the principal
of, premium, if any, and interest on, such Securities, when such payments are
due, (b) the Company's obligations with respect to such Defeased Securities
under Sections 304, 305, 308, 1002 and 1003, (c) the rights, powers, trusts,
duties and immunities of the Trustee hereunder, including, without limitation,
the Trustee's rights under Section 607, and (d) this Article Four. Subject to
compliance with this Article Four, the Company may exercise its option under
this Section 402 notwithstanding the prior exercise of its option under Section
403 with respect to the Securities.
Section 403. Covenant Defeasance.
-------------------
Upon the Company's exercise under Section 401 of the option applicable
to this Section 403, the Company and each Guarantor shall be released from its
obligations under any covenant or provision contained or referred to in Sections
1005 through 1020, inclusive, and the provisions of clause (iii) of Section
801(a), with respect to the Defeased
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Securities on and after the date the conditions set forth in Section 404 below
are satisfied (hereinafter, "covenant defeasance"), and the Defeased Securities
shall thereafter be deemed to be 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 Defeased
Securities, the Company and each Guarantor may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such Section or Article, whether directly or indirectly, by reason of any
reference elsewhere herein to any such Section or Article or by reason of any
reference in any such Section or Article to any other provision herein or in any
other document and such omission to comply shall not constitute a Default or an
Event of Default under Sections 501(c), (d) or (g), but, except as specified
above, the remainder of this Indenture and such Defeased Securities shall be
unaffected thereby.
Section 404. Conditions to Defeasance or Covenant Defeasance.
-----------------------------------------------
The following shall be the conditions to application of either Section
402 or Section 403 to the Defeased Securities:
(1) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee as trust funds in trust for the purpose of making the
following payments, specifically pledged as security for, and dedicated solely
to, the benefit of the Holders of such Securities, (a) United States dollars in
an amount, (b) U.S. Government Obligations which through the scheduled payment
of principal and interest in respect thereof in accordance with their terms and
with no further reinvestment will provide, not later than one day before the due
date of any payment, money in an amount, or (c) a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants or a nationally recognized investment banking
firm expressed in a written certification thereof delivered to the Trustee, to
pay and discharge, and which shall be applied by the Trustee to pay and
discharge, the principal of, premium, if any, and interest on, the Defeased
Securities, on the Stated Maturity of such principal or interest (or on any date
after October 15, 2002 (such date being referred to as the "Defeasance
Redemption Date") if at or prior to electing to exercise either its option
applicable to Section 402 or its option applicable to Section 403, the Company
has delivered to the Trustee an irrevocable notice to redeem all of the
Outstanding Securities on the Defeasance Redemption Date). For this purpose,
"U.S. Government Obligations" means securities that are (i) direct obligations
of the United States of America for the timely payment of which its full faith
and credit is pledged or (ii) obligations of a Person controlled or supervised
by and acting as an agency or instrumentality of the United States of America
the timely payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of
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America, which, in either case, are not callable or redeemable at the option of
the issuer thereof, and shall also include a depository receipt issued by a bank
(as defined in Section 3(a)(2) of the Securities Act), as custodian with respect
to any such U.S. Government Obligation or a specific payment of principal of or
interest on any such U.S. Government Obligation held by such custodian for the
account of the holder of such depository receipt, provided that (except as
required by law) such custodian is not authorized to make any deduction from the
amount payable to the holder of such depository receipt from any amount received
by the custodian in respect of the U.S. Government Obligation or the specific
payment of principal of or interest on the U.S. Government Obligation evidenced
by such depository receipt;
(2) In the case of an election under Section 402, the Company shall
have delivered to the Trustee an Opinion of Independent Counsel in the United
States stating that (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the date
hereof, 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 Independent
Counsel in the United States shall confirm that, the Holders of the Outstanding
Securities will not recognize income, gain or loss for federal income tax
purposes as a result of such 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 defeasance had not occurred;
(3) In the case of an election under Section 403, the Company shall
have delivered to the Trustee an Opinion of Independent Counsel in the United
States to the effect that the Holders of the 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;
(4) No Default or Event of Default (other than a Default or Event of
Default under this Indenture resulting from the borrowing of funds to be applied
to such deposit) shall have occurred and be continuing on the date of such
deposit or insofar as Section 501(h) or (i) is concerned, at any time during the
period ending on the 91st day after the date of deposit (it being understood
that this condition shall not be satisfied until the expiration of such period);
(5) Such defeasance or covenant defeasance shall not cause the
Trustee for the Securities to have a conflicting interest for purposes of the
Trust Indenture Act with respect to any other securities of the Company or any
Guarantor;
(6) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a Default under, this Indenture or any
other material
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agreement or instrument to which the Company, any Guarantor or any Subsidiary is
a party or by which it is bound;
(7) Such defeasance or covenant defeasance shall not result in the
trust arising from such deposit constituting an investment company within the
meaning of the Investment Company Act of 1940, as amended, unless such trust
shall be registered under such Act or exempt from registration thereunder;
(8) The Company shall have delivered to the Trustee an Opinion of
Independent Counsel to the effect that after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
(9) 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 the Securities or any Guarantee over the other
creditors of the Company or any Guarantor with the intent of defeating,
hindering, delaying or defrauding creditors of the Company, any Guarantor or
others;
(10) No event or condition shall exist that would prevent the Company
from making payments of the principal of, premium, if any, and interest on the
Securities on the date of such deposit or at any time ending on the 91st day
after the date of such deposit; and
(11) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Independent Counsel, each stating that all
conditions precedent provided for relating to either the defeasance under
Section 402 or the covenant defeasance under Section 403 (as the case may be)
have been complied with.
Opinions of Counsel or Opinions of Independent Counsel required to be
delivered under this Section shall be in form and substance reasonably
satisfactory to the Trustee and may have qualifications customary for opinions
of the type required and counsel delivering such opinions may rely on
certificates of the Company or government or other officials customary for
opinions of the type required, which certificates shall be limited as to matters
of fact, including that various financial covenants have been complied with.
Section 405. Deposited Money and U.S. Government Obligations to Be Held in
-------------------------------------------------------------
Trust; Other Miscellaneous Provisions.
- -------------------------------------
Subject to the provisions of the last paragraph of Section 1003, all
United States dollars and U.S. Government Obligations (including the proceeds
thereof) deposited with the Trustee pursuant to Section 404 in respect of the
Defeased Securities
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shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Securities and this Indenture, to the payment, either
directly or through any Paying Agent (excluding the Company or any of its
Affiliates acting as 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, but such money need not be segregated
from other funds except to the extent required by law. Money so held in trust
shall not be subject to the provisions of Article Thirteen.
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 404 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is
imposed, assessed or for the account of the Holders of the Defeased Securities.
Anything in this Article Four to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any United States dollars or U.S. Government Obligations held by it as
provided in Section 404 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect defeasance or covenant defeasance.
Section 406. Reinstatement.
-------------
If the Trustee or Paying Agent is unable to apply any United States
dollars or U.S. Government Obligations in accordance with Section 402 or 403, as
the case may be, by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, then
the Company's obligations under this Indenture and the Securities and any
Guarantor's obligations under any Guarantee shall be revived and reinstated,
with present and prospective effect, as though no deposit had occurred pursuant
to Section 402 or 403, as the case may be, until such time as the Trustee or
Paying Agent is permitted to apply all such United States dollars or U.S.
Government Obligations in accordance with Section 402 or 403, as the case may
be; provided, however, that if the Company makes any payment to the Trustee or
Paying Agent of principal of, premium, if any, or interest on any Security
following the reinstatement of its obligations, the Trustee or Paying Agent
shall promptly pay any such amount to the Holders of the Securities and the
Company shall be subrogated to the rights of the Holders of such Securities to
receive such payment from the United States dollars and U.S. Government
Obligations held by the Trustee or Paying Agent.
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ARTICLE FIVE
REMEDIES
Section 501. Events of Default.
-----------------
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(a) there shall be a default in the payment of any interest on any
Security when it becomes due and payable, and such default shall continue for a
period of 30 days;
(b) there shall be a default in the payment of the principal of (or
premium, if any, on) any Security at its Maturity (upon acceleration, optional
or mandatory redemption, required repurchase or otherwise);
(c) (i) there shall be a default in the performance, or breach, of
any covenant or agreement of the Company or any Guarantor under this Indenture
or any Guarantee (other than a default in the performance, or breach, of a
covenant or agreement which is specifically dealt with in clause (a) or (b) or
in clause (ii), (iii) or (iv) of this clause (c)) and such default or breach
shall continue for a period of 30 days after written notice has been given, by
certified mail, (x) to the Company by the Trustee or (y) to the Company and the
Trustee by the holders of at least 25% in aggregate principal amount of the
Outstanding Securities, which notice shall specify that it is a "notice of
default" and shall demand that such a default be remedied; (ii) there shall be a
default in the performance or breach of the provisions described in Article
Eight herein; (iii) the Company shall have failed to make or consummate an Offer
in accordance with the provisions of Section 1013 herein; or (iv) the Company
shall have failed to make or consummate a Change of Control Offer in accordance
with the provisions of Section 1016 herein;
(d) one or more defaults shall have occurred under any agreements,
indentures or instruments under which the Company, any Guarantor or any
Restricted Subsidiary then has outstanding Indebtedness in excess of $5,000,000,
individually or in the aggregate, and either (i) such default results from the
failure to pay such Indebtedness at its stated final maturity or (ii) such
default or defaults have resulted in the acceleration of the maturity of such
Indebtedness;
(e) any Guarantee shall for any reason cease to be, or shall for any
reason be asserted in writing by any Guarantor or the Company not to be, in full
force and
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effect and enforceable in accordance with its terms except to the extent
contemplated by this Indenture and any such Guarantee;
(f) one or more judgments, orders or decrees for the payment of money
in excess of $5,000,000, either individually or in the aggregate, shall be
rendered against the Company, any Guarantor or any Restricted Subsidiary or any
of their respective properties and shall not be discharged and either (a) any
creditor shall have commenced an enforcement proceeding upon such judgment,
order or decree or (b) there shall have been a period of 60 consecutive days
during which a stay of enforcement of such judgment or order, by reason of an
appeal or otherwise, shall not be in effect;
(g) any holder or holders of at least $10,000,000 in aggregate
principal amount of Indebtedness of the Company, any Guarantor or any Restricted
Subsidiary after a default under such Indebtedness shall notify the Trustee of
the intended sale or disposition of any assets of the Company, any Guarantor or
any Subsidiary that have been pledged to or for the benefit of such holder or
holders to secure such Indebtedness or shall commence proceedings, or take any
action (including by way of set-off), to retain in satisfaction of such
Indebtedness or to collect on, seize, dispose of or apply in satisfaction of
Indebtedness, assets of the Company, any Guarantor or any Restricted Subsidiary
(including funds on deposit or held pursuant to lock-box and other similar
arrangements);
(h) there shall have been the entry by a court of competent
jurisdiction of (i) a decree or order for relief in respect of the Company, any
Guarantor or any Significant Restricted Subsidiary in an involuntary case or
proceeding under any applicable Bankruptcy Law or (ii) a decree or order
adjudging the Company, any Guarantor or any Significant Restricted Subsidiary
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company, any Guarantor or any Significant
Restricted Subsidiary under any applicable federal or state law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of the Company, any Guarantor or any Significant Restricted
Subsidiary or of any substantial part of their respective properties, or
ordering the winding up or liquidation of their respective affairs, and any such
decree or order for relief shall continue to be in effect, or any such other
decree or order shall be unstayed and in effect, for a period of 60 consecutive
days; or
(i) (i) the Company, any Guarantor or any Significant Restricted
Subsidiary commences a voluntary case or proceeding under any applicable
Bankruptcy Law or any other case or proceeding to be adjudicated bankrupt or
insolvent, (ii) the Company, any Guarantor or any Significant Restricted
Subsidiary consents to the entry of a decree or order for relief in respect of
the Company, such Guarantor or such Significant Restricted Subsidiary in an
involuntary case or proceeding under any applicable Bankruptcy Law or to the
commencement of any bankruptcy or insolvency case or
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proceeding against it, (iii) the Company, any Guarantor or any Significant
Restricted Subsidiary files a petition or answer or consent seeking
reorganization or relief under any applicable federal or state law, (iv) the
Company, any Guarantor or any Significant Restricted Subsidiary (1) consents to
the filing of such petition or the appointment of, or taking possession by, a
custodian, receiver, liquidator, assignee, trustee, sequestrator or similar
official of the Company, any Guarantor or such Significant Restricted Subsidiary
or of any substantial part of their respective properties, (2) makes an
assignment for the benefit of creditors or (3) admits in writing its inability
to pay its debts generally as they become due, or (v) the Company, any Guarantor
or any Significant Restricted Subsidiary takes any corporate action in
furtherance of any such actions in this paragraph (i).
Section 502. Acceleration of Maturity; Rescission and Annulment.
--------------------------------------------------
If an Event of Default (other than an Event of Default specified in
Sections 501(h) and (i)) shall occur and be continuing with respect to this
Indenture, the Trustee or the Holders of not less than 25% in aggregate
principal amount of the Securities then Outstanding may, and the Trustee at the
request of such Holders shall, declare all unpaid principal of, premium, if any,
and accrued interest on all Securities to be due and payable, by a notice in
writing to the Company (and to the Trustee if given by the Holders of the
Securities) and upon any such declaration, such principal, premium, if any, and
interest shall become due and payable immediately. If an Event of Default
specified in clause (h) or (i) of Section 501 occurs with respect to the
Company, any Guarantor or any Significant Restricted Subsidiary and is
continuing, then all the Securities shall ipso facto become and be due and
payable immediately in an amount equal to the principal amount of the
Securities, together with accrued and unpaid interest, if any, to the date the
Securities become due and payable, without any declaration or other act on the
part of the Trustee or any Holder. Thereupon, the Trustee may, at his or her
discretion, proceed to protect and enforce the rights of the Holders of the
Securities by appropriate judicial proceedings.
At any time after such declaration of acceleration with respect to the
Securities, but before a judgment or decree for payment of the money due has
been obtained by the Trustee as hereinafter in this Article provided, the
Holders of a majority in aggregate principal amount of the Securities
Outstanding, by written notice to the Company and the Trustee, may rescind and
annul such declaration and its consequences if:
(a) the Company has paid or deposited with the Trustee a sum
sufficient to pay
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(i) all sums paid or advanced by the Trustee under this
Indenture and the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel,
(ii) all overdue interest on all Outstanding Securities,
(iii) the principal of and premium, if any, on any Outstanding
Securities which have become due otherwise than by such declaration of
acceleration and interest thereon at a rate borne by the Securities,
and
(iv) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate borne by the Securities;
and
(b) all Events of Default, other than the non-payment of principal of
the Securities which have become due solely by such declaration of acceleration,
have been cured or waived as provided in Section 513. No such rescission and
annulment shall affect any subsequent Default or impair any right consequent
thereon.
Section 503. Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
Trustee.
- -------
The Company and each Guarantor covenant that if
(a) default is made in the payment of any interest on any Security
when such interest becomes due and payable and such default continues for a
period of 30 days, or
(b) default is made in the payment of the principal of, premium, if
any, on any Security at the Stated Maturity thereof,
the Company and such Guarantor will, 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 and premium, if any, and interest, with
interest upon the overdue principal and premium, if any, and, to the extent that
payment of such interest shall be legally enforceable, upon overdue installments
of interest, at the rate borne by the Securities; and, in addition thereto, such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
If the Company or any Guarantor, as the case may be, fails to pay such
amounts forthwith upon such demand, the Trustee, in its own name and as trustee
of an express trust, may institute a judicial proceeding for the collection of
the sums so due and unpaid and may prosecute such proceeding to judgment or
final decree, and may enforce the same against the Company or any Guarantor or
any other obligor upon the Securities
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and collect the moneys adjudged or decreed to be payable in the manner provided
by law out of the property of the Company, any Guarantor 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 under this Indenture or any Guarantee by such appropriate private or
judicial proceedings as the Trustee shall deem most effectual to protect and
enforce such rights, including seeking recourse against any Guarantor pursuant
to the terms of any Guarantee, 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 therein, or to enforce any other proper remedy, including,
without limitation, seeking recourse against any Guarantor pursuant to the terms
of a Guarantee, or to enforce any other proper remedy, subject however to
Section 512. No recovery of any such judgment upon any property of the Company
or any Guarantor shall affect or impair any rights, powers or remedies of the
Trustee or the Holders.
Section 504. Trustee May File Proofs of Claim.
--------------------------------
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor, including any
Guarantor, 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 or interest)
shall be entitled and empowered, by intervention in such proceeding or
otherwise,
(a) to file and prove a claim for the whole amount of principal, and
premium, if any, and interest owing and unpaid in respect of the 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, its agents
and counsel) and of the Holders allowed in such judicial proceeding, and
(b) 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
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
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payments directly to the Holders, to pay the Trustee any amount due it for the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, and any other amounts due the Trustee under Section 607.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the 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 505. Trustee May Enforce Claims without Possession of Securities.
-----------------------------------------------------------
All rights of action and claims under this Indenture, the Securities
or the Guarantees 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 and as trustee of an express trust, and any recovery of
judgment shall, after provision for the payment of the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, be
for the ratable benefit of the Holders of the Securities in respect of which
such judgment has been recovered.
Section 506. Application of Money Collected.
------------------------------
Subject to Articles Thirteen and Fourteen of this Indenture, any money
collected by the Trustee pursuant to this Article or otherwise on behalf of the
Holders or the Trustee pursuant to this Article or through any proceeding or any
arrangement or restructuring in anticipation or in lieu of any proceeding
contemplated by this Article shall be applied, subject to applicable law, 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, upon presentation of the Securities and the notation thereon of the
payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
607;
SECOND: To the payment of the amounts then due and unpaid upon the
Securities for principal, premium, if any, and interest, 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
THIRD: The balance, if any, to the Person or Persons entitled
thereto, including the Company, provided that all sums due and owing to the
Holders and the Trustee have been paid in full as required by this Indenture.
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Section 507. Limitation on Suits.
-------------------
No Holder of any Securities shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture or the
Securities, 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 principal amount of the
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 an indemnity
satisfactory to the Trustee against the costs, expenses and liabilities to be
incurred in compliance with such request;
(d) the Trustee for 15 days after its receipt of such notice, request
and offer (and if requested, provision) 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 15-day period by the Holders of a majority in
principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture, any Security or any Guarantee to affect, disturb or prejudice
the rights of any other Holders, or to obtain or to seek to obtain priority or
preference over any other Holders or to enforce any right under this Indenture,
any Security or any Guarantee, except in the manner provided in this Indenture
and for the equal and ratable benefit of all the Holders.
Section 508. Unconditional Right of Holders to Receive Principal, Premium
------------------------------------------------------------
and Interest.
- ------------
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right based on the terms stated herein, which is
absolute and unconditional, to receive payment of the principal of, premium, if
any, and (subject to Section 309) interest on such Security on the respective
Stated Maturities expressed in such Security (or, in the case of redemption or
repurchase, on the Redemption Date or the repurchase date) and to institute suit
for the enforcement of any such payment, and such rights shall not be impaired
without the consent of such Holder; provided, however, that
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such rights shall be subject to the subordination provisions contained in
Articles Thirteen and Fourteen of this Indenture.
Section 509. Restoration of Rights and Remedies.
----------------------------------
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture or any Guarantee and such proceeding
has been discontinued or abandoned for any reason, or has been determined
adversely to the Trustee or to such Holder, then and in every such case the
Company, any Guarantor, any other obligor on the Securities, the Trustee and the
Holders shall, subject to any determination in such proceeding, be restored
severally and respectively to their former positions hereunder, and thereafter
all rights and remedies of the Trustee and the Holders shall continue as though
no such proceeding had been instituted.
Section 510. Rights and Remedies Cumulative.
------------------------------
Except as otherwise provided in Section 308 with respect to the
replacement or payment of multilated, destroyed, lost or stolen Securities, no
right or remedy herein conferred upon or reserved to the Trustee or to the
Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Section 511. Delay or Omission Not Waiver.
----------------------------
No delay or omission of the Trustee or of any Holder of any Security
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article or by law
to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
Section 512. Control by Holders.
------------------
The Holders of not less than a majority in aggregate principal amount
of the Outstanding Securities shall have the right to direct the time, method
and place of conducting any proceeding for exercising any remedy available to
the Trustee, or exercising any trust or power conferred on the Trustee, provided
that
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(a) such direction shall not be in conflict with any rule of law or
with this Indenture (including, without limitation, Section 507) or any
Guarantee, expose the Trustee to personal liability, or be unduly prejudicial to
Holders not joining therein; and
(b) subject to the provisions of Section 315 of the Trust Indenture
Act, the Trustee may take any other action deemed proper by the Trustee which is
not inconsistent with such direction.
Section 513. Waiver of Past Defaults.
-----------------------
The Holders of not less than a majority in aggregate principal amount
of the Outstanding Securities may on behalf of the Holders of all Outstanding
Securities waive any past Default hereunder and its consequences, except a
Default
(a) in the payment of the principal of, premium, if any, or interest
on any Security; or
(b) in respect of a covenant or a provision hereof which under this
Indenture cannot be modified or amended without the consent of the Holder of
each Security Outstanding affected by such modification or amendment.
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 any right consequent thereon.
Section 514. 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 any court may in
its discretion require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant, but the
provisions of this Section shall not apply to any suit instituted by the
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 principal
amount of the Outstanding Securities, or to any suit instituted by any Holder
for the enforcement of the payment of the principal of, premium, if any, or
interest on, any Security on or after the respective Stated Maturities expressed
in such Security (or, in the case of redemption, on or after the Redemption
Date).
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Section 515. Waiver of Stay, Extension or Usury Laws.
---------------------------------------
Each of the Company and the Guarantors covenants (to the extent that
it may lawfully do so) that it will not at any time insist upon, or plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury or other law wherever enacted, now or at any time
hereafter in force, which would prohibit or forgive the Company or any Guarantor
from paying all or any portion of the principal of, premium, if any, or interest
on the Securities contemplated herein or in the Securities or which may affect
the covenants or the performance of this Indenture; and each of the Company and
the Guarantors (to the extent that it may lawfully do so) hereby expressly
waives all benefit or advantage of any such law, and covenants that it will not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as though
no such law had been enacted.
Section 516. Remedies Subject to Applicable Law.
----------------------------------
All rights, remedies and powers provided by this Article Five may be
exercised only to the extent that the exercise thereof does not violate any
applicable provision of law in the premises, and all the provisions of this
Indenture are intended to be subject to all applicable mandatory provisions of
law which may be controlling in the premises and to be limited to the extent
necessary so that they will not render this Indenture invalid, unenforceable or
not entitled to be recorded, registered or filed under the provisions of any
applicable law.
ARTICLE SIX
THE TRUSTEE
Section 601. Duties of Trustee.
-----------------
Subject to the provisions of Trust Indenture Act Sections 315(a)
through 315(d):
(a) if a Default or an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture and use the same degree of care and skill in its exercise
thereof as a prudent person would exercise or use under the circumstances in the
conduct of his own affairs;
(b) except during the continuance of a Default or an Event of
Default:
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(1) the Trustee need perform only those duties as are
specifically set forth in this Indenture and no covenants or
obligations shall be implied in this Indenture that are adverse to the
Trustee; and
(2) in the absence of bad faith or willful misconduct on its
part, the Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and conforming to
the requirements of this Indenture. However, the Trustee shall
examine the certificates and opinions to determine whether or not they
conform to the requirements of this Indenture;
(c) the Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) this Subsection (c) does not limit the effect of Subsection
(b) of this Section 601;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible 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 of the Holders of a majority in principal amount of
Outstanding Securities relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power confirmed upon the Trustee under this
Indenture;
(d) no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it;
(e) whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to Subsections
(a), (b), (c) and (d) of this Section 601; and
(f) the Trustee shall not be liable for interest on any money or
assets received by it except as the Trustee may agree with the Company. Assets
held in trust by the Trustee need not be segregated from other assets except to
the extent required by law.
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Section 602. Notice of Defaults.
------------------
Within 30 days after a Responsible Officer of the Trustee receives
notice of the occurrence of any Default, the Trustee shall transmit by mail to
all Holders and any other Persons entitled to receive reports pursuant to
Section 313(c) of the Trust Indenture Act, as their names and addresses appear
in the Security Register, notice of such Default hereunder known to the Trustee,
unless such Default shall have been cured or waived; provided, however, that,
except in the case of a Default in the payment of the principal of, premium, if
any, or interest on any Security, the Trustee shall be protected in withholding
such notice if and so long as a trust committee of Responsible Officers of the
Trustee in good faith determines that the withholding of such notice is in the
interest of the Holders.
Section 603. Certain Rights of Trustee.
-------------------------
Subject to the provisions of Section 601 hereof and Trust Indenture
Act Sections 315(a) through 315(d):
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of Indebtedness or other paper or document believed by it
to be genuine and to have been signed or presented by the proper party or
parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) the Trustee may consult with counsel and any written advice of
such counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon in accordance with such advice
or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee security or indemnity satisfactory to the Trustee against
the costs, expenses and liabilities which might be incurred therein or thereby
in compliance with such request or direction;
(e) the Trustee shall not be liable for any action taken or omitted
by it in good faith and believed by it to be authorized or within the
discretion, rights or powers conferred upon it by this Indenture other than any
liabilities arising out of the negligence, bad faith or willful misconduct of
the Trustee;
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(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, approval,
appraisal, bond, debenture, note, coupon, security or other paper or document
unless requested in writing to do so by the Holders of not less than a majority
in aggregate principal amount of the Securities then Outstanding; provided that,
if the payment within a reasonable time to the Trustee of the costs, expenses or
liabilities likely to be incurred by it in the making of such investigation is,
in the opinion of the Trustee, not reasonably assured to the Trustee by the
security afforded to it by the terms of this Indenture, the Trustee may require
reasonable indemnity against such expenses or liabilities as a condition to
proceeding; the reasonable expenses of every such investigation so requested by
the Holders of not less than 25% in aggregate principal amount of the Securities
Outstanding shall be paid by the Company or, if paid by the Trustee or any
predecessor Trustee, shall be repaid by the Company upon demand; provided,
further, the Trustee in its discretion may make such further inquiry or
investigation into such facts or matters as it may deem fit, and, if the Trustee
shall determine to make such further inquiry or investigation, it shall be
entitled to examine the books, records and premises of the Company, personally
or by agent or attorney;
(g) 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; and
(h) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.
Section 604. Trustee Not Responsible for Recitals, Dispositions of Securities
----------------------------------------------------------------
or Application of Proceeds Thereof.
- ----------------------------------
The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
Neither the Trustee nor any Authenticating Agent makes any representations as to
the validity or sufficiency of this Indenture or of the Securities, except that
the Trustee represents that it is duly authorized to execute and deliver this
Indenture, authenticate the Securities and perform its obligations hereunder and
that the statements made by it in any Statement of Eligibility and Qualification
on Form T-1 supplied to the Company are or will be true and accurate subject to
the qualifications set forth therein. The Trustee shall not be accountable for
the
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use or application by the Company of Securities or the proceeds thereof nor
shall the Trustee be responsible for any statement in any registration statement
for the Securities under the Securities Act or responsible for the determination
as to which beneficial owners are entitled to receive notices hereunder.
Section 605. Trustee and Agents May Hold Securities; Collections; etc.
---------------------------------------------------------
The Trustee, any Authenticating Agent, any Paying Agent, Security
Registrar or any other agent of the Company, or any Guarantor in its individual
or any other capacity, may become the owner or pledgee of Securities, with the
same rights it would have if it were not the Trustee, Authenticating Agent,
Paying Agent, Security Registrar or such other agent and, subject to Sections
608 and 613 hereof and Trust Indenture Act Sections 310 and 311, may otherwise
deal with the Company or any Guarantor and receive, collect, hold and retain
collections from the Company or any Guarantor with the same rights it would have
if it were not the Trustee, Paying Agent, Security Registrar or such other
agent.
Section 606. Money Held in Trust.
-------------------
All moneys received by the Trustee shall, until used or applied as
herein provided, be held in trust for the purposes for which they were received,
but need not be segregated from other funds except to the extent required by
mandatory provisions of law. Except for funds or securities deposited with the
Trustee pursuant to Articles Four, Eleven and Twelve and Sections 1013 and 1016,
the Trustee shall be required to invest all moneys received by the Trustee,
until used or applied as herein provided, in Temporary Cash Investments in
accordance with the written directions of the Company.
Section 607. Compensation and Indemnification of Trustee and Its Prior Claim.
---------------------------------------------------------------
The Company covenants and agrees to pay to the Trustee from time to
time, and the Trustee shall be entitled to, reasonable compensation for all
services rendered by it hereunder (which compensation shall not be limited by
any provision of law in regard to the compensation of a trustee of an express
trust) and, except as otherwise expressly provided herein, the Company covenants
and agrees to pay or reimburse the Trustee and each predecessor Trustee upon its
request for all reasonable expenses, disbursements and advances incurred or made
by or on behalf of the Trustee in accordance with any of the provisions of this
Indenture (including the reasonable compensation and the expenses and
disbursements of its counsel and of all agents and other persons not regularly
in its employ) except any such expense, disbursement or advance as may arise
from its negligence, bad faith or willful misconduct. The Company also
covenants and agrees to indemnify the Trustee and each predecessor Trustee for,
and to hold it harmless against, any claim, loss, liability, tax, assessment or
other governmental charge (other than taxes
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applicable to the Trustee's compensation hereunder) or expense incurred without
negligence, bad faith or willful misconduct on its part, arising out of or in
connection with the acceptance or administration of this Indenture or the trusts
hereunder and its duties hereunder, including enforcement of this Section 607
and also including any liability which the Trustee may incur as a result of
failure to withhold, pay or report any tax, assessment or other governmental
charge, and the costs and expenses of defending itself against or investigating
any claim or liability in connection with the exercise or performance of any of
its powers or duties hereunder. The obligations of the Company under this
Section 607 to compensate and indemnify the Trustee and each predecessor Trustee
and to pay or reimburse the Trustee and each predecessor Trustee for reasonable
expenses, disbursements and advances shall constitute an additional obligation
hereunder and shall survive the satisfaction and discharge of this Indenture and
the resignation or removal of the Trustee and each predecessor Trustee. The
Company shall have the right to defend any claim or threatened claim asserted
against an indemnitee for which it may seek indemnity, and the indemnitee shall
cooperate in the defense unless, in the reasonable opinion of the indemnitee's
counsel, the indemnitee has an interest materially adverse to the Company or any
Guarantor or a potential conflict of interest exists between the indemnitee and
the Company or any Guarantor, in which case the indemnitee may have separate
counsel and the Company shall pay the reasonable fees and expenses of such
counsel; provided that the Company shall only be responsible for the reasonable
fees and expenses of one law firm (in addition to local counsel, to the extent
such local counsel is reasonably required) arising out of the same general
allegations or circumstances, such law firm to be designated by the indemnitee
and reasonably acceptable to the Company.
Section 608. Conflicting Interests.
---------------------
The Trustee shall comply with the provisions of Section 310(b) of the
Trust Indenture Act.
Section 609. Trustee Eligibility.
-------------------
There shall at all times be a Trustee hereunder which shall be
eligible to act as trustee under Trust Indenture Act Section 310(a)(5) and which
shall have a combined capital and surplus of at least $100,000,000, to the
extent there is an institution eligible and willing to serve. If the Trustee
does not have an office in The City of New York, the Trustee may appoint an
agent in The City of New York reasonably acceptable to the Company to conduct
any activities which the Trustee may be required under this Indenture to conduct
in The City of New York. If such Trustee publishes reports of condition at
least annually, pursuant to law or to the requirements of federal, state,
territorial or District of Columbia supervising or examining authority, then for
the purposes of this Section 609, the combined capital and surplus of such
corporation shall
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be deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section 609, the Trustee
shall resign immediately in the manner and with the effect hereinafter specified
in this Article.
Section 610. Resignation and Removal; Appointment of Successor Trustee.
---------------------------------------------------------
(a) No resignation or removal of the Trustee and no appointment of a
successor trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor trustee under Section 611.
(b) The Trustee, or any trustee or trustees hereafter appointed, may
at any time resign by giving written notice thereof to the Company. Upon
receiving such notice or resignation, the Company shall promptly appoint a
successor trustee, a copy of such appointment which shall be delivered to the
resigning Trustee and a copy to the successor trustee. If an instrument of
acceptance by a successor trustee shall not have been delivered to the Trustee
within 30 days after the giving of such notice of resignation, the resigning
Trustee may, or any Holder who has been a bona fide Holder of a Security for at
least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the appointment of a successor
trustee. Such court may thereupon, after such notice, if any, as it may deem
proper, appoint and prescribe a successor trustee.
(c) The Trustee may be removed at any time for any cause or for no
cause by an Act of the Holders of not less than a majority in aggregate
principal amount of the Outstanding Securities, delivered to the Trustee and to
the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of Trust
Indenture Act Section 310(b) after written request therefor by the
Company or by any Holder who has been a bona fide Holder of a Security
for at least six months,
(2) the Trustee shall cease to be eligible under Section 609 and
shall fail to resign after written request therefor by the Company or
by any Holder who has been a bona fide Holder of a Security for at
least six months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent, or a receiver of the Trustee or of
its property shall be appointed or any public officer shall take
charge or control
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of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company may remove the Trustee, or (ii) subject
to Section 514, the Holder of any Security who has been a bona fide Holder of a
Security for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor trustee. Such court may
thereupon, after such notice, if any, as it may deem proper and prescribe,
remove the Trustee and appoint a successor trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company shall promptly appoint a successor trustee and shall comply with the
applicable requirements of Section 611. If, within one year after such
resignation, removal or incapability, or the occurrence of such vacancy, the
Company has not appointed a successor Trustee, a successor trustee shall be
appointed by the Act of the Holders of a majority in principal amount of the
Outstanding Securities delivered to the Company and the retiring Trustee. Such
successor trustee so appointed shall forthwith upon its acceptance of such
appointment become the successor trustee and supersede the successor trustee
appointed by the Company. If no successor trustee shall have been so appointed
by the Company or the Holders of the Securities and accepted appointment in the
manner hereinafter provided, the Holder of any Security who has been a bona fide
Holder for at least six months may, subject to Section 514, on behalf of himself
and all others similarly situated, petition any court of competent jurisdiction
for the appointment of a successor trustee.
(f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor trustee by mailing written
notice of such event by first-class mail, postage prepaid, to the Holders of
Securities as their names and addresses appear in the Security Register. Each
notice shall include the name of the successor trustee and the address of its
Corporate Trust Office or agent hereunder.
Section 611. Acceptance of Appointment by Successor.
--------------------------------------
Every successor trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee as if originally named as Trustee hereunder;
but, nevertheless, on the written request of the Company or the successor
trustee, upon payment of its charges pursuant to Section 607 then unpaid, such
retiring Trustee shall pay over to the successor trustee all moneys at the
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time held by it hereunder and shall execute and deliver an instrument
transferring to such successor trustee all such rights, powers, duties and
obligations. Upon request of any such successor trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor trustee all such rights and powers.
No successor trustee with respect to the Securities shall accept
appointment as provided in this Section 611 unless at the time of such
acceptance such successor trustee shall be eligible to act as trustee under the
provisions of Trust Indenture Act Section 310(a) and this Article Six and shall
have a combined capital and surplus of at least $100,000,000 and have a
Corporate Trust Office or an agent selected in accordance with Section 609.
Upon acceptance of appointment by any successor trustee as provided in
this Section 611, the Company shall give notice thereof to the Holders of the
Securities, by mailing such notice to such Holders at their addresses as they
shall appear on the Security Register. If the acceptance of appointment is
substantially contemporaneous with the appointment, then the notice called for
by the preceding sentence may be combined with the notice called for by Section
610. If the Company fails to give such notice within 10 days after acceptance
of appointment by the successor trustee, the successor trustee shall cause such
notice to be given at the expense of the Company.
Section 612. Merger, Conversion, Consolidation or Succession to Business.
-----------------------------------------------------------
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee (including the trust created by this Indenture) shall be
the successor of the Trustee hereunder, provided that such corporation shall be
eligible under Trust Indenture Act Section 310(a) and this Article Six and shall
have a combined capital and surplus of at least $100,000,000 and have a
Corporate Trust Office or an agent selected in accordance with Section 609,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto.
In case at the time such successor to the Trustee shall succeed to the
trusts created by this Indenture any of the Securities shall have been
authenticated but not delivered, any such successor to the Trustee may adopt the
certificate of authentication of any predecessor Trustee and deliver such
Securities so authenticated; and, in case at that time any of the Securities
shall not have been authenticated, any successor to the Trustee may authenticate
such Securities either in the name of any predecessor hereunder or in the name
of the successor trustee; and in all such cases such certificate shall have the
full
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force which it is anywhere in the Securities or in this Indenture provided that
the certificate of the Trustee shall have; provided that the right to adopt the
certificate of authentication of any predecessor Trustee or to authenticate
Securities in the name of any predecessor Trustee shall apply only to its
successor or successors by merger, conversion or consolidation.
Section 613. Preferential Collection of Claims Against Company.
-------------------------------------------------
If and when the Trustee shall be or become a creditor of the Company
(or other obligor under the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor). A Trustee who has resigned or been
removed shall be subject to Trust Indenture Act Section 311(a) to the extent
indicated therein.
Section 614. Appointment of Authenticating Agent.
-----------------------------------
The Trustee may appoint an Authenticating Agent or Agents acceptable to and
at the expense of the Company which shall be authorized to act on behalf of the
Trustee to authenticate Securities issued upon original issue and upon exchange,
registration of transfer, partial conversion or partial redemption or pursuant
to Section 308, and Securities so authenticated shall be entitled to the
benefits of this Indenture and shall be valid and obligatory for all purposes as
if authenticated by the Trustee hereunder. Wherever reference is made in this
Indenture to the authentication and delivery of Securities by the Trustee or the
Trustee's certificate of authentication, such reference shall be deemed to
include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and shall at all times be a Person organized and doing
business under the laws of the United States of America, any State thereof or
the District of Columbia, authorized under such laws to act as Authenticating
Agent, having a combined capital and surplus of not less than $100,000,000 and
subject to supervision or examination by Federal or State authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any Person into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any Person resulting from any
merger, conversion or consolidation to which such Authenticating Agent shall be
a party, or any Person
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succeeding to the corporate agency or corporate trust business of an
Authenticating Agent, shall continue to be an Authenticating Agent, provided
such Person shall be otherwise eligible under this Section, without the
execution or filing of any paper or any further act on the part of the Trustee
or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written
notice thereof to the Trustee and to the Company. The Company or the Trustee
may at any time terminate the agency of an Authenticating Agent by giving
written notice thereof to such Authenticating Agent and to the Company or the
Trustee, as the case may be. Upon receiving such a notice of resignation or
upon such a termination, or in case at any time such Authenticating Agent shall
cease to be eligible in accordance with the provisions of this Section, the
Trustee may appoint a successor Authenticating Agent which shall be acceptable
to the Company and shall mail notice of such appointment by first-class mail,
postage prepaid, to all Holders as their names and addresses appear in the
Security Register. Any successor Authenticating Agent upon acceptance of its
appointment under this Section shall become vested with all the rights, powers
and duties of its predecessor hereunder, with like effect as if originally named
as an Authenticating Agent. No successor Authenticating Agent shall be
appointed unless eligible to act as such under the provisions of this Section.
Any Authenticating Agent by the acceptance of its appointment shall be
deemed to have represented to the Trustee that it is eligible for appointment as
Authenticating Agent under this Section and to have agreed with the Trustee
that: it will perform and carry out the duties of an Authenticating Agent as
herein set forth, including among other things the duties to authenticate
Securities when presented to it in connection with the original issuance and
with exchanges, registrations of transfer or redemptions or conversions thereof
or pursuant to Section 306; it will keep and maintain, and furnish to the
Trustee from time to time as requested by the Trustee, appropriate records of
all transactions carried out by it as Authenticating Agent and will furnish the
Trustee such other information and reports as the Trustee may reasonably
require; and it will notify the Trustee promptly if it shall cease to be
eligible to act as Authenticating Agent in accordance with the provisions of
this Section. Any Authenticating Agent by the acceptance of its appointment
shall be deemed to have agreed with the Trustee to indemnify the Trustee against
any loss, liability or expense incurred by the Trustee and to defend any claim
asserted against the Trustee by reason of any acts or failures to act of such
Authenticating Agent, but such Authenticating Agent shall have no liability for
any action taken by it in accordance with the specific written direction of the
Trustee.
The Company agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section.
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If an appointment is made pursuant to this Section, the Securities may
have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternative certificate of authentication in the following
form:
This is one of the Securities described in the within-mentioned
Indenture.
STATE STREET BANK AND
TRUST COMPANY, As Trustee
By: _________________________________
[Name of Authenticating Agent]
______________________________________
As Authenticating Agent
By: _________________________________
Authorized Officer
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 701. Company to Furnish Trustee Names and Addresses of Holders.
---------------------------------------------------------
The Company will furnish or cause to be furnished to the Trustee
(a) semiannually, not more than 10 days after each Regular Record
Date, a list, in such form as the Trustee may reasonably require, of the names
and addresses of the Holders as of such Regular Record Date; and
(b) at such other times as the Trustee may request in writing, within
30 days after receipt by the Company of any such request, a list of similar form
and content to that in subsection (a) hereof as of a date not more than 15 days
prior to the time such list is furnished;
provided, however, that if and so long as the Trustee shall be the Security
Registrar, no such list need be furnished.
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Section 702. Disclosure of Names and Addresses of Holders.
--------------------------------------------
Holders may communicate pursuant to Trust Indenture Act Section 312(b)
with other Holders with respect to their rights under this Indenture or the
Securities, and the Trustee shall comply with Trust Indenture Act Section
312(b). The Company, the Trustee, the Security Registrar and any other Person
shall have the protection of Trust Indenture Act Section 312(c). Further, every
Holder of Securities, by receiving and holding the same, agrees with the Company
and the Trustee that neither the Company nor the Trustee or any agent of either
of them shall be held accountable by reason of the disclosure of any information
as to the names and addresses of the Holders in accordance with Trust Indenture
Act Section 312, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing
any material pursuant to a request made under Trust Indenture Act Section 312.
Section 703. Reports by Trustee.
------------------
(a) Within 60 days after May 15 of each year commencing with the first
May 15 after the issuance of Securities, the Trustee, if so required under the
Trust Indenture Act, shall transmit by mail to all Holders, in the manner and to
the extent provided in Trust Indenture Act Section 313(c), a brief report dated
as of such May 15 in accordance with and with respect to the matters required by
Trust Indenture Act Section 313(a). The Trustee shall also transmit by mail to
all Holders, in the manner and to the extent provided in Trust Indenture Act
Section 313(c), a brief report in accordance with and with respect to the
matters required by Trust Indenture Act Section 313(b)(2).
(b) A copy of each report transmitted to Holders pursuant to this
Section 703 shall, at the time of such transmission, be mailed to the Company
and filed with each stock exchange, if any, upon which the Securities are listed
and also with the Commission. The Company will notify the Trustee promptly if
the Securities are listed on any stock exchange.
Section 704. Reports by Company and Guarantors.
---------------------------------
The Company, and each Guarantor, as the case may be, shall:
(a) file with the Trustee, within 15 days after the Company or any
Guarantor, as the case may be, is required (subject to all applicable extensions
and provisions for incorporation by reference) to file the same with the
Commission, copies of the annual reports and of the information, documents and
other reports (or copies of such portions of any of the foregoing as the
Commission may from time to time by rules and regulations prescribe) which the
Company or any Guarantor may be required to file with the Commission pursuant to
Section 13 or Section 15(d) of the Exchange Act; or, if the Company or any
Guarantor, as the case may be, is not required to file information,
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documents or reports pursuant to either of said Sections, then it shall (i)
deliver to the Trustee annual audited financial statements of the Company and
its Subsidiaries, prepared on a Consolidated basis in conformity with generally
accepted accounting principles then in effect, within 120 days after the end of
each fiscal year of the Company, and (ii) file with the Trustee and, to the
extent permitted by law, the Commission, in accordance with the rules and
regulations prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports which may be
required pursuant to Section 13 of the Exchange Act in respect of a security
listed and registered on a national securities exchange as may be prescribed
from time to time in such rules and regulations;
(b) file with the Trustee and the Commission, in accordance with the
rules and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance by the
Company or any Guarantor, as the case may be, with the conditions and covenants
of this Indenture as are required from time to time by such rules and
regulations (including such information, documents and reports referred to in
Trust Indenture Act Section 314(a)); and
(c) within 15 days after the filing thereof with the Trustee, transmit
by mail to all Holders in the manner and to the extent provided in Trust
Indenture Act Section 313(c), such summaries of any information, documents and
reports required to be filed by the Company or any Guarantor, as the case may
be, pursuant to Section 1019 hereunder and subsections (a) and (b) of this
Section as are required by rules and regulations prescribed from time to time by
the Commission.
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 801. Company and Guarantors May Consolidate, etc., Only on Certain
-------------------------------------------------------------
Terms.
- -----
(a) The Company will not, in a single transaction or through a series
of related transactions, consolidate with or merge with or into any other Person
or sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its properties and assets to any Person or group of
affiliated Persons, or permit any of its Subsidiaries to enter into any such
transaction or series of related transactions if such transaction or series of
related transactions, in the aggregate, would result in a sale, assignment,
conveyance, transfer, lease or disposition of all or substantially all of the
properties and assets of the Company and its Restricted Subsidiaries on a
Consolidated
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basis to any other Person or group of affiliated Persons, unless at the time and
after giving effect thereto:
(i) either (a) the Company will be the continuing corporation
or (b) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person which
acquires by sale, assignment, conveyance, transfer, lease or
disposition all or substantially all of the properties and assets of
the Company and its Subsidiaries on a Consolidated basis (the
"Surviving Entity") will be a corporation duly organized and validly
existing under the laws of the United States of America, any state
thereof or the District of Columbia and such Person expressly assumes,
by a supplemental indenture, in a form satisfactory to the Trustee,
all the obligations of the Company under the Securities and hereunder,
and the Securities and this Indenture will remain in full force and
effect as so supplemented;
(ii) immediately before and immediately after giving effect to
such transaction on a pro forma basis (and treating any Indebtedness
not previously an obligation of the Company or any of its Restricted
Subsidiaries which becomes the obligation of the Company or any of its
Restricted Subsidiaries as a result of such transaction as having been
incurred at the time of such transaction), no Default or Event of
Default will have occurred and be continuing;
(iii) immediately after giving effect to such transaction on a
pro forma basis (and treating any Indebtedness not previously an
obligation of the Company or any of its Restricted Subsidiaries which
becomes the obligation of the Company or any of its Subsidiaries as a
result of such transaction as having been incurred at the time of such
transaction), the Consolidated Net Worth of the Company (or the
Surviving Entity if the Company is not the continuing obligor under
this Indenture) is equal to or greater than the Consolidated Net Worth
of the Company immediately prior to such transaction;
(iv) immediately before and immediately after giving effect to
such transaction on a pro forma basis (on the assumption that the
transaction occurred on the first day of the four-quarter period for
which financial statements are available ending immediately prior to
the consummation of such transaction with the appropriate adjustments
with respect to the transaction being included in such pro forma
calculation), the Company (or the Surviving Entity if the Company is
not the continuing
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obligor hereunder) could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under Section 1008;
(v) at the time of the transaction, each Guarantor, if any,
unless it is the other party to the transactions described above, will
have by supplemental indenture confirmed that its Guarantees shall
apply to such Person's obligations hereunder and under the Securities;
(vi) at the time of the transaction if any of the property or
assets of the Company or any of its Restricted Subsidiaries would
thereupon become subject to any Lien, the provisions of Section 1011
are complied with; and
(vii) at the time of the transaction the Company or the
Surviving Entity will have delivered, or caused to be delivered, to
the Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officers' Certificate and an Opinion of Counsel, each to
the effect that such consolidation, merger, transfer, sale,
assignment, conveyance, transfer, lease or other transaction and the
supplemental indenture in respect thereof comply with this Indenture
and that all conditions precedent herein provided for relating to such
transaction have been complied with.
(b) Each Guarantor shall not, and the Company will not permit a
Guarantor to, in a single transaction or through a series of related
transactions, consolidate with or merge with or into any other Person (other
than the Company or any Restricted Subsidiary) or sell, assign, convey,
transfer, lease or otherwise dispose of all or substantially all of its
properties and assets on a Consolidated basis to any Person or group of
affiliated Persons (other than the Company or any Restricted Subsidiary), or
permit any of its Restricted Subsidiaries to enter into any such transaction or
series of related transactions if such transaction or series of related
transactions, in the aggregate, would result in a sale, assignment, conveyance,
transfer, lease or disposition of all or substantially all of the properties and
assets of the Guarantor and its Restricted Subsidiaries on a Consolidated basis
to any other Person or group of affiliated Persons (other than the Company or
any Guarantor), unless at the time and after giving effect thereto:
(i) either (1) the Guarantor will be the continuing corporation
or (2) the Person (if other than the Guarantor) formed by such
consolidation or into which such Guarantor is merged or the Person
which acquires by sale, assignment, conveyance, transfer, lease or
disposition all or substantially all of the properties and assets of
the Guarantor and its Subsidiaries on a Consolidated basis (the
"Surviving Guarantor Entity") will be a corporation
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duly organized and validly existing under the laws of the United
States of America, any state thereof or the District of Columbia and
such Person expressly assumes, by a supplemental indenture, in a form
satisfactory to the Trustee, all the obligations of such Guarantor
under its Guarantee of the Securities and this Indenture, and such
Guarantee will remain in full force and effect;
(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 and be continuing; and
(iii) at the time of the transaction such Guarantor or the
Surviving Guarantor Entity will have delivered, or caused to be
delivered, to the Trustee, in form and substance reasonably
satisfactory to the Trustee, an Officers' Certificate and an Opinion
of Counsel, each to the effect that such consolidation, merger,
transfer, sale, assignment, conveyance, lease or other transaction and
the supplemental indenture in respect thereof comply with this
Indenture and that all conditions precedent therein provided for
relating to such transaction have been complied with.
Notwithstanding the foregoing, Section 801(b) shall not apply upon any
sale, exchange or transfer, to any Person not an Affiliate of the Company, of
all of the Company's Capital Stock in, or all or substantially all the assets
of, a Guarantor in accordance with Section 1014(c) herein.
Section 802. Successor Substituted.
---------------------
Upon any consolidation or merger, or any sale, assignment, conveyance,
transfer, lease or disposition of all or substantially all of the properties and
assets of the Company or any Guarantor, if any, in accordance with Section 801,
the successor Person formed by such consolidation or into which the Company or
such Guarantor, as the case may be, is merged or the successor Person to which
such sale, assignment, conveyance, transfer, lease or disposition is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company or such Guarantor, as the case may be, under this Indenture, in the
Securities and/or the Guarantee, as the case may be, with the same effect as if
such successor had been named as the Company or such Guarantor, as the case may
be, herein, in the Securities and/or in the Guarantee, as the case may be. When
a successor (other than a successor that is an Affiliate of the Company) assumes
all the obligations of its predecessor under this Indenture, the Securities or a
Guarantee, as the case may be, the predecessor shall be released from those
obligations and covenants hereof and the Securities; provided that in the case
of a transfer by lease, the predecessor
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shall not be released from the payment of principal and interest on the
Securities or a Guarantee, as the case may be.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
Section 901. Supplemental Indentures and Agreements without Consent of
---------------------------------------------------------
Holders.
- -------
Without the consent of any Holders, the Company, the Guarantors, if
any, and any other obligor upon the Securities when authorized by appropriate
corporate action, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto or agreements or other
instruments with respect to any Guarantee, in form and substance satisfactory to
the Trustee, for any of the following purposes:
(a) to evidence the succession of another Person to the Company, any
Guarantor or any other obligor upon the Securities, and the assumption by any
such successor of the covenants of the Company or such Guarantor or obligor
herein and in the Securities and in any Guarantee in accordance with Article
Eight;
(b) to add to the covenants of the Company, any Guarantor or any other
obligor upon the Securities for the benefit of the Holders, or to surrender any
right or power conferred upon the Company or any Guarantor or any other obligor
upon the Securities, as applicable, herein, in the Securities or in any
Guarantee;
(c) to cure any ambiguity, or to correct or supplement any provision
herein or in any supplemental indenture, the Securities or any Guarantee which
may be defective or inconsistent with any other provision herein or in the
Securities or any Guarantee or to make any other provisions with respect to
matters or questions arising under this Indenture, the Securities or the
Guarantees; provided that, in each case, such provisions shall not adversely
affect the interest of the Holders;
(d) to comply with the requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the Trust Indenture
Act, as contemplated by Section 905 or otherwise;
(e) to add a Guarantor pursuant to the requirements of Section 1014;
(f) to evidence and provide the acceptance of the appointment of a
successor trustee hereunder; or
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(g) to mortgage, pledge, hypothecate or grant a security interest in
favor of the Trustee for the benefit of the Holders as additional security for
the payment and performance of the Company's or any Guarantor's Indenture
Obligations, in any property, or assets, including any of which are required to
be mortgaged, pledged or hypothecated, or in which a security interest is
required to be granted to the Trustee pursuant to this Indenture or otherwise.
Section 902. Supplemental Indentures and Agreements with Consent of Holders.
--------------------------------------------------------------
In addition to the circumstances permitted by Section 901, with the
consent of the Holders of at least a majority in aggregate principal amount of
the Outstanding Securities, by Act of said Holders delivered to the Company,
each Guarantor, if any, and the Trustee, the Company and each Guarantor (if a
party thereto) when authorized by Board Resolutions, and the Trustee may (i)
enter into an indenture or indentures supplemental hereto or agreements or other
instruments with respect to any Guarantee in form and substance satisfactory to
the Trustee, for the purpose of adding any provisions to or amending, modifying
or changing in any manner or eliminating any of the provisions of this
Indenture, the Securities or any Guarantee (including but not limited to, for
the purpose of modifying in any manner the rights of the Holders under this
Indenture, the Securities or any Guarantee) or (ii) waive compliance with any
provision in this Indenture, the Securities or any Guarantee (other than waivers
of past Defaults covered by Section 513 and waivers of covenants which are
covered by Section 1022); provided, however, that no such supplemental
indenture, agreement or instrument shall, without the consent of the Holder of
each Outstanding Security affected thereby:
(a) change the Stated Maturity of the principal of, or any installment
of interest on, or change to an earlier date any redemption date of, or waive a
default in the payment of the principal or interest on, any such Security or
reduce the principal amount thereof or the rate of interest thereon or any
premium payable upon the redemption thereof, or change the coin or currency in
which the principal of 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 Stated Maturity thereof (or, in the case of redemption,
on or after the Redemption Date);
(b) amend, change or modify the obligation of the Company to make and
consummate an offer with respect to any Asset Sale or Asset Sales in accordance
with Section 1013 or the obligation of the Company to make and consummate a
Change of Control Offer in the event of a Change of Control in accordance with
Section 1016, including, in each case, amending, changing or modifying any
definitions relating thereto;
(c) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such supplemental
indenture,
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or the consent of whose Holders is required for any waiver or compliance with
certain provisions of this Indenture;
(d) modify any of the provisions of this Section 902, Section 513 or
1022, except to increase the percentage of such Outstanding Securities required
for any such actions or to provide that certain other provisions of this
Indenture cannot be modified or waived without the consent of the Holder of each
such Security affected thereby;
(e) except as otherwise permitted under Article Eight, consent to the
assignment or transfer by the Company or any Guarantor of any of its rights and
obligations hereunder; or
(f) amend or modify any of the provisions of this Indenture relating
to the subordination of the Securities or any Guarantee in any manner adverse to
the Holders or the holders of any Guarantee.
Upon the written request of the Company and each Guarantor, if any,
accompanied by a copy of Board Resolutions authorizing the execution of any such
supplemental indenture or Guarantee, and upon the filing with the Trustee of
evidence of the consent of Holders as aforesaid, the Trustee shall join with the
Company and each Guarantor in the execution of such supplemental indenture or
Guarantee.
It shall not be necessary for any Act of Holders under this Section
902 to approve the particular form of any proposed supplemental indenture or
Guarantee or agreement or instrument relating to any Guarantee, but it shall be
sufficient if such Act shall approve the substance thereof.
Section 903. Execution of Supplemental Indentures and Agreements.
---------------------------------------------------
In executing, or accepting the additional trusts created by, any
supplemental indenture, agreement, instrument or waiver permitted by this
Article Nine or the modifications thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and (subject to Trust
Indenture Act Sections 315(a) through 315(d) and Section 602 hereof) shall be
fully protected in relying upon, an Opinion of Counsel and an Officers'
Certificate stating that the execution of such supplemental indenture, agreement
or instrument (a) is authorized or permitted by this Indenture and (b) does not
violate the provisions of any agreement or instrument evidencing any other
Indebtedness of the Company, any Guarantor or any other Restricted Subsidiary.
The Trustee may, but shall not be obligated to, enter into any such supplemental
indenture, agreement or instrument which affects the Trustee's own rights,
duties or immunities under this Indenture, any Guarantee or otherwise.
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Section 904. Effect of Supplemental Indentures.
---------------------------------
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
Section 905. Conformity with Trust Indenture Act.
-----------------------------------
Every supplemental indenture executed pursuant to this Article Nine
shall conform to the requirements of the Trust Indenture Act as then in effect.
Section 906. Reference in Securities to Supplemental Indentures.
--------------------------------------------------
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article Nine may, and shall if required
by the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Board of Directors, to any such supplemental indenture may be prepared and
executed by the Company and each Guarantor and authenticated and delivered by
the Trustee in exchange for Outstanding Securities.
Section 907. Notice of Supplemental Indentures.
---------------------------------
Promptly after the execution by the Company, any Guarantor and the
Trustee of any supplemental indenture pursuant to the provisions of Section 902,
the Company shall give notice thereof to the Holders of each Outstanding
Security affected, in the manner provided for in Section 106, setting forth in
general terms the substance of such supplemental indenture; provided, however,
that the failure of the Company to transmit such notice to such Holders shall
not in any way impair or affect the validity of such supplemental indenture.
Section 908. Revocation and Effects of Consents.
----------------------------------
Until an amendment or waiver becomes effective, a consent to it by a
Holder of a Security is a continuing consent by the Holder and every subsequent
Holder of a Security or portion of a Security that evidences the same
Indebtedness as the consenting Holder's Security, even if a 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 a Security if
the Trustee receives the notice of revocation before the date the amendment or
waiver becomes effective. An amendment or waiver shall become effective in
accordance with its terms and thereafter bind every Holder.
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Section 909. Effect on Senior Indebtedness.
-----------------------------
No supplemental indenture shall adversely affect the rights under
Article Thirteen or Article Fourteen of any holder of Senior Indebtedness unless
the requisite holders of such issue of Senior Indebtedness affected thereby
shall have consented in writing to such supplemental indenture.
ARTICLE TEN
COVENANTS
Section 1001. Payment of Principal, Premium and Interest.
------------------------------------------
The Company shall duly and punctually pay the principal of, premium,
if any, and interest on the Securities in accordance with the terms of the
Securities and this Indenture.
Section 1002. Maintenance of Office or Agency.
-------------------------------
The Company shall maintain an office or agency where Securities may be
presented or surrendered for payment. The Company also will maintain in The
City of New York an office or agency where Securities may be surrendered for
registration of transfer, redemption or exchange and where notices and demands
to or upon the Company in respect of the Securities and this Indenture may be
served. The Company will give prompt written notice to the Trustee of the
location and any change in the location of any such offices or agencies. If at
any time the Company shall fail to maintain any such required offices or
agencies or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
office of the agent of the Trustee and the Company hereby appoints the Trustee
such agent as its agent to receive all such presentations, surrenders, notices
and demands.
The Company may from time to time designate one or more other offices
or agencies (in or outside of The City of New York) where the Securities may be
presented or surrendered for any or all such purposes, and may from time to time
rescind such designation. The Company will give prompt written notice to the
Trustee of any such designation or rescission and any change in the location of
any such office or agency.
The Trustee shall initially act as Paying Agent for the Securities.
Section 1003. Money for Security Payments to Be Held in Trust.
-----------------------------------------------
If the Company or any of its Affiliates shall at any time act as
Paying Agent, it will, on or before each due date of the principal of, premium,
if any, or interest
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on any of the Securities, segregate and hold in trust for the benefit of the
Holders entitled thereto a sum sufficient to pay the principal, premium, if any,
or interest so becoming due until such sums shall be paid to such Holders or
otherwise disposed of as herein provided, and will promptly notify the Trustee
of its action or failure so to act.
If the Company or any of its Affiliates is not acting as Paying Agent,
the Company will, on or before each due date of the principal of, premium, if
any, or interest on any of the Securities, deposit with a Paying Agent a sum in
same day funds sufficient to pay the principal, premium, if any, or interest so
becoming due, such sum to be held in trust for the benefit of the Persons
entitled to such principal, premium or interest, and (unless such Paying Agent
is the Trustee) the Company will promptly notify the Trustee of such action or
any failure so to act.
If the Company is not acting as Paying Agent, the Company will cause
each Paying Agent other than the Trustee to execute and deliver to the Trustee
an instrument in which such Paying Agent shall agree with the Trustee, subject
to the provisions of this Section, that such Paying Agent will:
(a) hold all sums held by it for the payment of the principal of,
premium, if any, or interest on the Securities in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(b) give the Trustee notice of any Default by the Company or any
Guarantor (or any other obligor upon the Securities) in the making of any
payment of principal, premium, if any, or interest on the Securities;
(c) at any time during the continuance of any such Default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such Paying Agent; and
(d) acknowledge, accept and agree to comply in all aspects with the
provisions of this Indenture relating to the duties, rights and disabilities of
such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
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Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest on any Security and remaining unclaimed for two years after such
principal and premium, if any, or interest has become due and payable shall
promptly be paid to the Company on Company Request, or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Security
shall thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in the New York Times and The
-------------- ---
Wall Street Journal (national edition), and mail to each such Holder, 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,
publication and mailing, any unclaimed balance of such money then remaining will
promptly be repaid to the Company.
Section 1004. Corporate Existence.
-------------------
Subject to Article Eight, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect the corporate
existence and related rights and franchises (charter and statutory) of the
Company and each Restricted Subsidiary; provided, however, that the Company
shall not be required to preserve any such right or franchise or the corporate
existence of any such Restricted Subsidiary if the Board of Directors of the
Company shall determine that the preservation thereof is no longer necessary or
desirable in the conduct of the business of the Company and its Restricted
Subsidiaries as a whole and that the loss thereof would not reasonably be
expected to have a material adverse effect on the ability of the Company to
perform its obligations hereunder; and provided, further, however, that the
foregoing shall not prohibit a sale, transfer or conveyance of a Restricted
Subsidiary or any of its assets in compliance with the terms of this Indenture.
Section 1005. Payment of Taxes and Other Claims.
---------------------------------
The Company shall pay or discharge or cause to be paid or discharged,
on or before the date the same shall become due and payable, (a) all taxes,
assessments and governmental charges levied or imposed upon the Company or any
of its Restricted Subsidiaries shown to be due on any return of the Company or
any of its Restricted Subsidiaries or otherwise assessed or upon the income,
profits or property of the Company or any of its Restricted Subsidiaries if
failure to pay or discharge the same could reasonably be expected to have a
material adverse effect on the ability of the Company or any Guarantor to
perform any of their obligations hereunder and (b) all lawful claims for labor,
materials and supplies, which, if unpaid, would by law become a
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Lien upon the property of the Company or any of its Restricted Subsidiaries,
except for any Lien permitted to be incurred under Section 1011, if failure to
pay or discharge the same could reasonably be expected to have a material
adverse effect on the ability of the Company or any Guarantor to perform any of
their obligations hereunder; provided, however, that the Company and the
Guarantors shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate proceedings properly
instituted and diligently conducted and in respect of which appropriate reserves
(in the good faith judgment of management of the Company) are being maintained
in accordance with GAAP.
Section 1006. Maintenance of Properties.
-------------------------
The Company shall cause all material properties owned by the Company
and any of its Restricted Subsidiaries or used or held for use in the conduct of
its business or the business of any of its Restricted Subsidiaries to be
maintained and kept in good condition, repair and working order (ordinary wear
and tear excepted) and supplied with all necessary equipment and will cause to
be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the reasonable judgment of the Company may be
consistent with sound business practice and necessary so that the business
carried on in connection therewith may be properly conducted at all times;
provided, however, that nothing in this Section shall prevent the Company from
discontinuing the maintenance of any of such properties if such discontinuance
is, in the reasonable judgment of the Company, desirable in the conduct of its
business or the business of any of its Restricted Subsidiaries and not
reasonably expected to have a material adverse effect on the ability of the
Company to perform its obligations hereunder.
Section 1007. Insurance.
---------
The Company shall at all times keep all of its and its Restricted
Subsidiaries' properties which are of an insurable nature insured with insurers,
believed by the Company in good faith to be financially sound and responsible,
against loss or damage to the extent that property of similar character is
usually so insured by corporations similarly situated and owning like properties
engaged in similar operations in the same general geographic areas in which the
Company and its Restricted Subsidiaries operate, except where the failure to do
so could not reasonably be expected to have a material adverse effect on the
condition (financial or otherwise), earnings, business affairs or prospects of
the Company and its Restricted Subsidiaries, taken as a whole, provided that
--------
such insurance is generally available at commercially reasonable rates, and
further provided that the Company may self-insure, or insure through captive
--------
insurers or insurance cooperatives to the extent consistent with prudent
business practices.
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Such insurance shall be in such amounts, contain such terms, be in such forms
and be for such periods as are customary in the Company's industry and
commercially reasonable. Such insurance may be subject to such deductibles as
are customary in the industry.
Section 1008. Limitation on Indebtedness.
--------------------------
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, create, issue, incur, assume, guarantee or otherwise in any
manner become directly or indirectly liable for the payment of or otherwise
incur (collectively, "incur"), any Indebtedness (including any Acquired
Indebtedness), unless such Indebtedness is incurred by the Company or a
Guarantor or constitutes Acquired Indebtedness of a Restricted Subsidiary (which
is not a Guarantor) and, in each case, the Company's Consolidated Fixed Charge
Coverage Ratio for the four full fiscal quarters for which financial statements
are available immediately preceding the incurrence of such Indebtedness taken as
one period (and after giving pro forma effect to (i) the incurrence of such
Indebtedness and (if applicable) the application of the net proceeds therefrom,
including the refinancing of other Indebtedness, as if such Indebtedness was
incurred, and the application of such proceeds occurred, on the first day of
such applicable period; (ii) the incurrence, repayment or retirement of any
other Indebtedness by the Company and its Restricted Subsidiaries since the
first day of such applicable period as if such Indebtedness was incurred, repaid
or retired at the beginning of such applicable period (except that, in making
such computation, the amount of Indebtedness under any revolving credit facility
shall be computed based upon the average daily balance of such Indebtedness
during such applicable period); (iii) in the case of Acquired Indebtedness or
any acquisition occurring at the time of the incurrence of such Indebtedness,
the related acquisition, assuming such acquisition had been consummated on the
first day of such applicable period; and (iv) any acquisition or disposition by
the Company and its Restricted Subsidiaries of any company or any business or
any assets out of the ordinary course of business, whether by merger, stock
purchase or sale or asset purchase or sale, or any related repayment of
Indebtedness, in each case since the first day of such applicable period,
assuming such acquisition or disposition had been consummated on the first day
of such applicable period) is at least equal to or greater than 2.00 to 1.
(b) Notwithstanding the foregoing, the Company and, to the extent
specifically set forth below, the Restricted Subsidiaries may incur each and all
of the following (collectively, the "Permitted Indebtedness"):
(i) Indebtedness of the Company or any Guarantor under the Credit
Facility and under any revolving credit facility or bank term loans in an
aggregate principal amount at any one time outstanding not to exceed $115
million;
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(ii) Indebtedness of the Company pursuant to the Securities and
Indebtedness of any Guarantor pursuant to a Guarantee of the Securities;
(iii) Indebtedness of the Company or any Restricted Subsidiary
outstanding on the date of this Indenture and listed on Schedule I hereto;
(iv) Indebtedness of the Company owing to a Restricted Subsidiary;
provided that any Indebtedness of the Company owing to a Restricted Subsidiary
is made pursuant to an intercompany note in the form of Exhibit A hereto and is
unsecured and subordinated in right of payment from and after such time as the
Securities shall become due and payable (whether at Stated Maturity,
acceleration or otherwise) to the payment and performance of the Company's
obligations under the Securities; provided, further, that any disposition,
pledge or transfer of any such Indebtedness to a Person (other than a
disposition, pledge or transfer to a Restricted Subsidiary) shall be deemed to
be an incurrence of such Indebtedness by the Company not permitted by this
clause (iv);
(v) Indebtedness of a Wholly Owned Restricted Subsidiary owing to
the Company or any Guarantor; provided that any such Indebtedness is made
pursuant to an intercompany note in the form of Exhibit A hereto; provided,
further, that (a) any disposition, pledge or transfer of any such Indebtedness
to a Person (other than the Company or a Guarantor) shall be deemed to be an
incurrence of such Indebtedness by the obligor not permitted by this clause (v),
and (b) any transaction pursuant to which any Wholly Owned Restricted
Subsidiary, which has Indebtedness owing to the Company or any Guarantor, ceases
to be a Wholly Owned Restricted Subsidiary shall be deemed to be the incurrence
of Indebtedness by such Wholly Owned Restricted Subsidiary that is not permitted
by this clause (v);
(vi) guarantees of any Restricted Subsidiary made in accordance with
the provisions of Section 1014 of this Indenture;
(vii) obligations of the Company entered into in the
ordinary course of business (a) pursuant to Interest Rate Agreements designed to
protect the Company or any Restricted Subsidiary against fluctuations in
interest rates in respect of Indebtedness of the Company or any Restricted
Subsidiary as long as such obligations do not exceed the aggregate principal
amount of such Indebtedness then outstanding, (b) under any Currency Hedging
Arrangements, which if related to Indebtedness do not increase the amount of
such Indebtedness other than as a result of currency price fluctuations, or (c)
under any Commodity Price Protection Agreements, which if related to
Indebtedness do not increase the amount of such Indebtedness other than as a
result of commodity price fluctuations;
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(viii) Indebtedness of the Company or any Guarantor represented by
Capital Lease Obligations or Purchase Money Obligations or other Indebtedness
incurred or assumed in connection with the acquisition or development of real or
personal, movable or immovable, property in each case incurred for the purpose
of financing or refinancing all or any part of the purchase price or cost of
construction or improvement of property used in the business of the Company or
such Guarantor, in an aggregate principal amount pursuant to this clause (viii)
not to exceed $10 million outstanding at any time;
(ix) (a) letters of credit (other than the Special Purpose Letter of
Credit) in the ordinary course of business in the aggregate amount of $15
million at any one time outstanding to the extent that such letters of credit
are not drawn upon or, to the extent drawn upon, such drawings are fully
reimbursed by the Company within 10 business days from the receipt by the
Company of a demand for reimbursement thereof (collectively "Undrawn Letters of
Credit") and (b) letters of credit (other than the Special Purpose Letter of
Credit and Undrawn Letters of Credit) and banker's acceptances in the ordinary
course of business in the aggregate amount of $5 million at any one time
outstanding;
(x) any renewals, extensions, substitutions, refundings,
refinancings or replacements (collectively, a "refinancing") of any Indebtedness
described in clauses (ii) and (iii) above, including any successive refinancings
so long as the aggregate principal amount of Indebtedness represented thereby
(or, if such Indebtedness provides for an amount less than the principal amount
thereof to be due and payable upon a declaration of acceleration of the maturity
thereof, the original issue price of such Indebtedness plus any accreted value
attributable thereto since the original issuance of such Indebtedness) is not
increased by such refinancing plus the lesser of (1) the stated amount of any
premium or other payment required to be paid in connection with such a
refinancing pursuant to the terms of the Indebtedness being refinanced or (2)
the amount of premium or other payment actually paid at such time to refinance
the Indebtedness, plus, in either case, the amount of expenses of the Company or
a Restricted Subsidiary incurred in connection such refinancing and (A) in the
case of any refinancing of Subordinated Indebtedness, such new Subordinated
Indebtedness is (I) made subordinated to the Securities at least to the same
extent as the Subordinated Indebtedness being refinanced, (II) has an Average
Life to Stated Maturity greater than the lesser of (x) the remaining Average
Life to Stated Maturity of the Subordinated Indebtedness being refinanced or (y)
the remaining Average Life to Stated Maturity of the Notes, and (III) has a
Stated Maturity for its final scheduled principal payment later than the earlier
of (x) the Stated Maturity for the final scheduled principal payment of the
Subordinated Debt being refinanced or (y) the Stated Maturity for the final
scheduled principal payment of the Notes, and (B) in the case of Pari Passu
Indebtedness, such refinancing does not reduce the Average Life to Stated
Maturity or the Stated Maturity of such Pari Passu Indebtedness; and
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(xi) Indebtedness of the Company or any Guarantor in addition to that
described in clauses (i) through (x) above, and any renewals, extensions,
substitutions, refinancings or replacements of such Indebtedness, so long as the
aggregate principal amount of all Indebtedness pursuant to this clause (xi)
shall not exceed in the aggregate $25 million at any one time outstanding.
Section 1009. Limitation on Restricted Payments.
---------------------------------
(a) The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly:
(i) declare or pay any dividend on, or make any distribution to
holders of, any shares of the Company's Capital Stock (other than
dividends or distributions payable solely in its shares of
Qualified Capital Stock or in options, warrants or other rights
to acquire shares of such Qualified Capital Stock);
(ii) purchase, redeem or otherwise acquire or retire for value,
directly or indirectly, the Company's Capital Stock or any
Capital Stock of any Affiliate of the Company (other than Capital
Stock of any Wholly Owned Restricted Subsidiary) or options,
warrants or other rights to acquire such Capital Stock;
(iii) make any principal payment on, or repurchase, redeem, defease,
retire or otherwise acquire for value, prior to any scheduled
principal payment, sinking fund payment or maturity, any
Subordinated Indebtedness;
(iv) declare or pay any dividend or distribution on any Capital Stock
of any Restricted Subsidiary to any Person (other than (a) to the
Company or any of its Wholly Owned Restricted Subsidiaries or (b)
to all holders of Capital Stock of such Restricted Subsidiary on
a pro rata basis); or
(v) make any Investment in any Person (other than any Permitted
Investments)
(any of the foregoing actions described in clauses (i) through (v), other than
any such action that is a Permitted Payment (as defined below), collectively,
"Restricted Payments") (the amount of any such Restricted Payment, if other than
cash, shall be determined by the Board of Directors of the Company, whose
determination shall be conclusive and evidenced by a Board Resolution), unless
(1) immediately before and immediately after giving effect to such proposed
Restricted Payment on a pro forma
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basis, no Default or Event of Default shall have occurred and be continuing and
such Restricted Payment shall not be an event which is, or after notice or lapse
of time or both, would be, an "event of default" under the terms of any
Indebtedness of the Company or its Restricted Subsidiaries; (2) immediately
before and immediately after giving effect to such Restricted Payment on a pro
forma basis, the Company could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under the provisions described in Section 1008
hereof; and (3) after giving effect to the proposed Restricted Payment, the
aggregate amount of all such Restricted Payments declared or made after the date
hereof, does not exceed the sum of:
(A) $3.0 million;
(B) 50% of the aggregate cumulative Consolidated Net Income of the Company
accrued on a cumulative basis during the period beginning on the first
day of the fiscal quarter beginning after the date of this Indenture
and ending on the last day of the Company's last fiscal quarter ending
prior to the date of the Restricted Payment (or, if such aggregate
cumulative Consolidated Net Income shall be a loss, minus 100% of such
loss);
(C) the aggregate Net Cash Proceeds received after the date of this
Indenture by the Company from the issuance or sale (other than to any
of its Subsidiaries) of Qualified Capital Stock of the Company or any
options, warrants or rights to purchase such Qualified Capital Stock
of the Company (except, in each case, to the extent such proceeds are
used to purchase, redeem or otherwise retire Capital Stock or
Subordinated Indebtedness as set forth below in clause (ii) or (iii)
of paragraph (b) below);
(D) the aggregate Net Cash Proceeds received after the date of this
Indenture by the Company (other than from any of its Restricted
Subsidiaries) upon the exercise of any options, warrants or rights to
purchase Qualified Capital Stock of the Company;
(E) the aggregate Net Cash Proceeds received after the date of this
Indenture by the Company from the conversion or exchange, if any, of
debt securities or Redeemable Capital Stock of the Company or its
Subsidiaries into or for Qualified Capital Stock of the Company plus,
to the extent such debt securities or Redeemable Capital Stock were
issued after the date of this Indenture, the aggregate of Net Cash
Proceeds from their original issuance; and
(F) in the case of the disposition or repayment of any Investment
constituting a Restricted Payment made after the date of this
Indenture, an amount which
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was treated as a Restricted Payment made after the date of the
Indenture (to the extent not included in Consolidated Net Income)
equal to the lesser of the return of capital with respect to such
Investment and the initial amount of such Investment, in either case,
less the cost of disposition of such Investment.
(b) Notwithstanding the foregoing, and in the case of clauses (ii)
through (vii) below, so long as there is no Default or Event of Default
continuing, the foregoing provisions shall not prohibit the following actions
(each of clauses (i) through (v) being referred to as a "Permitted Payment"):
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such
payment was permitted by the provisions of paragraph (a) of
this Section and such payment shall have been deemed to have
been paid on such date of declaration and shall not have been
deemed a "Permitted Payment" for purposes of the calculation
required by paragraph (a) of this Section;
(ii) the repurchase, redemption, or other acquisition or retirement
of any shares of any class of Capital Stock of the Company in
exchange for (including any such exchange pursuant to the
exercise of a conversion right or privilege in connection with
which cash is paid in lieu of the issuance of fractional shares
or scrip), or out of the Net Cash Proceeds of a substantially
concurrent issue and sale for cash (other than to a Subsidiary)
of, other shares of Qualified Capital Stock of the Company;
provided that such Net Cash Proceeds from the issuance of such
shares of Qualified Capital Stock are excluded from clause
(3)(C) of paragraph (a) of this Section;
(iii) the repurchase, redemption, defeasance, retirement or
acquisition for value or payment of principal of any
Subordinated Indebtedness in exchange for, or in an amount not
in excess of the Net Cash Proceeds of, a substantially
concurrent issuance and sale for cash (other than to any
Subsidiary of the Company) of any Qualified Capital Stock of
the Company, provided that the Net Cash Proceeds from the
issuance of such shares of Qualified Capital Stock are excluded
from clause (3)(C) of paragraph (a) of this Section;
(iv) the repurchase, redemption, defeasance, retirement,
refinancing, acquisition for value or payment of principal of
any Subordinated Indebtedness (other than Redeemable Capital
Stock) (a
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"refinancing") through the substantially concurrent issuance of
new Subordinated Indebtedness of the Company, provided that any
such new Subordinated Indebtedness (1) shall be in a principal
amount that does not exceed the principal amount so refinanced
(or, if such Subordinated Indebtedness provides for an amount
less than the principal amount thereof to be due and payable upon
a declaration of acceleration thereof, then such lesser amount as
of the date of determination), plus the lesser of (I) the stated
amount of any premium or other payment required to be paid in
connection with such a refinancing pursuant to the terms of the
Subordinated Indebtedness being refinanced or (II) the amount of
premium or other payment actually paid at such time to refinance
the Subordinated Indebtedness, plus, in either case, the amount
of expenses of the Company incurred in connection with such
refinancing; (2) has an Average Life to Stated Maturity greater
than the lesser of (x) the remaining Average Life to Stated
Maturity of the Subordinated Indebtedness being refinanced or (y)
the remaining Average Life to Stated Maturity of the Securities;
(3) has a Stated Maturity for its final scheduled principal
payment later than the earlier of (x) the Stated Maturity for the
final scheduled principal payment of the Subordinated
Indebtedness being refinanced or (y) the Stated Maturity for the
final scheduled principal payment of the Securities; and (4) is
expressly subordinated in right of payment to the Securities at
least to the same extent as the Subordinated Indebtedness to be
refinanced;
(v) repurchases of Capital Stock (or warrants or options convertible
into or exchangeable for such Capital Stock) deemed to occur upon
exercise of stock options to the extent that shares of such
Capital Stock (or warrants or options convertible into or
exchangeable for such Capital Stock) represents a portion of the
exercise price of such options;
(vi) the repurchase of any Subordinated Indebtedness of the Company or
any Guarantor at a purchase price not greater than 101% of the
principal amount of such Subordinated Indebtedness in the event
of a Change of Control (as defined below) pursuant to a provision
similar to Section 1016 hereof; provided that prior to or
simultaneously with such repurchase, the Company has made the
Change of Control Offer as provided in such covenant and has
repurchased all Securities validly tendered for payment in
connection with such Change of Control Offer; and
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(vii) the repurchase of any Subordinated Indebtedness of the Company or
any Guarantor, at a purchase price not greater than 100% of the
principal amount of such Indebtedness in the event of an Asset
Sale pursuant to a provision similar to Section 1013 hereof;
provided that prior to such repurchase the Company has made an
Offer to purchase the Securities as provided in such covenant and
has repurchased all Securities validly tendered for payment in
connection with such Offer.
Section 1010. Limitation on Transactions with Affiliates.
------------------------------------------
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into any transaction or series of
related transactions (including, without limitation, the sale, purchase,
exchange or lease of assets, property or services) with any Affiliate of the
Company (other than the Company or a Wholly Owned Restricted Subsidiary) unless
such transaction or series of related transactions is entered into in good faith
and in writing and (a) such transaction is on terms that are no less favorable
to the Company or such Restricted Subsidiary, as the case may be, than those
that would be available in a comparable transaction in arm's-length dealings
with an unrelated third party, (b) with respect to any transaction or series of
related transactions involving aggregate value in excess of $5,000,000, the
Company delivers an Officers' Certificate to the Trustee certifying that such
transaction or series of related transactions complies with clause (a) above and
(c) with respect to any transaction or series of related transactions involving
aggregate payments in excess of $10,000,000, either (i) such transaction or
series of related transactions has been approved by a majority of the
Disinterested Directors of the Company, or in the event there is only one
Disinterested Director, by such Disinterested Director, or (ii) the Company
delivers to the Trustee a written opinion of an investment banking firm of
national standing or other recognized independent expert with experience
appraising the terms and conditions of the type of transaction or series of
related transactions for which an opinion is required stating that the
transaction or series of related transactions is fair to the Company or such
Restricted Subsidiary from a financial point of view; provided, however, that
this provision shall not apply to any transaction with an officer or director of
the Company entered into in the ordinary course of business (including
compensation and employee benefit arrangements with any officer, director or
employee of the Company, including under any stock option or stock incentive
plans).
Section 1011. Limitation on Liens.
-------------------
(a) The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create, incur or affirm any Lien of any
kind securing any Pari Passu Indebtedness or Subordinated Indebtedness
(including any assumption, guarantee
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or other liability with respect thereto by any Restricted Subsidiary) upon any
property or assets (including any intercompany notes) of the Company or any
Subsidiary owned on the date of this Indenture or acquired after the date of
this Indenture, or any income or profits therefrom, unless the Securities are
directly secured equally and ratably with (or, in the case of Subordinated
Indebtedness, prior or senior thereto, with the same relative priority as the
Securities shall have with respect to such Subordinated Indebtedness) the
obligation or liability secured by such Lien except for Liens (A) securing any
Indebtedness which becomes Indebtedness pursuant to a transaction permitted
under Article Eight hereof or securing Acquired Indebtedness which, in each
case, were created prior to (and not created in connection with, or in
contemplation of) the incurrence of such Pari Passu Indebtedness or Subordinated
Indebtedness (including any assumption, guarantee or other liability with
respect thereto by any Restricted Subsidiary) and which Indebtedness is
permitted under the provisions of Section 1008 hereof or (B) securing any
Indebtedness incurred in connection with any refinancing, renewal, substitution
or replacement of any such Indebtedness described in clause (A), so long as the
aggregate principal amount of Indebtedness represented thereby is not increased
by such refinancing by an amount greater than the lesser of (i) the stated
amount of any premium or other payment required to be paid in connection with
such a refinancing pursuant to the terms of the Indebtedness being refinanced or
(ii) the amount of premium or other payment actually paid at such time to
refinance the Indebtedness, plus, in either case, the amount of expenses of the
Company incurred in connection with such refinancing; provided, however, that in
the case of clauses (A) and (B), any such Lien only extends to the assets that
were subject to such Lien securing such Indebtedness prior to the related
acquisition by the Company or its Restricted Subsidiaries.
(b) Notwithstanding the foregoing, any Lien securing the Securities
granted pursuant to clause (a) above shall be automatically and unconditionally
released and discharged upon the release by the holders of the Pari Passu
Indebtedness or Subordinated Indebtedness described in clause (a) above of their
Lien on the property or assets of the Company or any Restricted Subsidiary
(including any deemed release upon payment in full of all obligations under such
Indebtedness), at such time as the holders of all such Pari Passu Indebtedness
or Subordinated Indebtedness also release their Lien on the property or assets
of the Company or such Restricted Subsidiary.
Section 1012. Limitation on Senior Subordinated Indebtedness.
----------------------------------------------
The Company will not, and will not permit any Guarantor to, directly
or indirectly, create, incur, issue, assume, guarantee or otherwise in any
manner become directly or indirectly liable for or with respect to or otherwise
permit to exist any Indebtedness that is subordinate in right of payment to any
Indebtedness of the Company or such Guarantor, as the case may be, unless such
Indebtedness is also pari passu with the Securities or the Guarantee of such
Guarantor or subordinate in right of payment to
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the Securities or such Guarantee at least to the same extent as the Securities
or such Guarantee are subordinate in right of payment to Senior Indebtedness or
Senior Indebtedness of such Guarantor, as the case may be.
Section 1013. Limitation on Sale of Assets.
----------------------------
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, consummate an Asset Sale unless (i) at
least 80% of the consideration from such Asset Sale is received in cash or Cash
Equivalents and (ii) the Company or such Subsidiary receives consideration at
the time of such Asset Sale at least equal to the Fair Market Value of the
shares or assets subject to such Asset Sale (as determined by the Board of
Directors of the Company and evidenced in a Board Resolution). For the purposes
of this covenant, "Cash Equivalents" means (x) the assumption of Indebtedness of
the Company or any Restricted Subsidiary and the release of the Company or such
Restricted Subsidiary from all liability on such Indebtedness in connection with
such Asset Sale, (y) Temporary Cash Investments, and (z) securities received by
the Company or any Restricted Subsidiary from the transferee that are promptly
converted by the Company or such Restricted Subsidiary into cash.
(b) If all or a portion of the Net Cash Proceeds of any Asset Sale are
not required to be applied to repay permanently any Senior Indebtedness
outstanding as required by the terms thereof, or the Company determines not to
apply such Net Cash Proceeds to the permanent repayment of the Senior
Indebtedness, or if no such Senior Indebtedness is outstanding then, the Company
or a Subsidiary may, within 365 days of the Asset Sale invest the Net Cash
Proceeds in capital expenditures, properties, inventories and other assets that
(as determined by the Board of Directors of the Company) replace the properties
and assets that were the subject of the Asset Sale or in capital expenditures,
properties, inventories and other assets that will be used in the businesses of
the Company or its Restricted Subsidiaries existing on the date of this
Indenture or in businesses reasonably related thereto. The amount of such Net
Cash Proceeds not used or invested as set forth in this paragraph constitutes
"Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $10,000,000
or more, the Company will apply the Excess Proceeds to the repayment of the
Securities and any other Pari Passu Indebtedness outstanding with similar
provisions requiring the Company to make an offer to purchase such Indebtedness
with the proceeds from any Asset Sale as follows: (A) the Company will make an
offer to purchase (an "Offer") from all holders of the Securities in accordance
with the procedures set forth in this Indenture in the maximum principal amount
(expressed as a multiple of $1,000) of Securities that may be purchased out of
an amount (the "Security Amount") equal to the product of such Excess Proceeds
multiplied by a fraction, the numerator of which is the outstanding principal
amount of the Securities, and the denominator of which is the sum
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of the outstanding principal amount of the Securities and such Pari Passu
Indebtedness (subject to proration in the event such amount is less than the
aggregate Offered Price (as defined herein) of all Securities tendered) and (B)
to the extent required by such Pari Passu Indebtedness to permanently reduce the
principal amount of such Pari Passu Indebtedness, the Company will make an offer
to purchase or otherwise repurchase or redeem Pari Passu Indebtedness (a "Pari
Passu Offer") in an amount (the "Pari Passu Debt Amount") equal to the excess of
the Excess Proceeds over the Security Amount; provided that in no event will the
Company be required to make a Pari Passu Offer in a Pari Passu Debt Amount
exceeding the principal amount of such Pari Passu Indebtedness plus the amount
of any premium required to be paid to repurchase such Pari Passu Indebtedness.
The offer price for the Securities will be payable in cash in an amount equal to
100% of the principal amount of the Securities plus accrued and unpaid interest,
if any, to the date (the "Offer Date") such Offer is consummated (the "Offered
Price"), in accordance with the procedures set forth in this Indenture. To the
extent that the aggregate Offered Price of the Securities tendered pursuant to
the Offer is less than the Security Amount relating thereto or the aggregate
amount of Pari Passu Indebtedness that is purchased in a Pari Passu Offer is
less than the Pari Passu Debt Amount, the Company may use any remaining Excess
Proceeds for general corporate purposes. If the aggregate principal amount of
Securities and Pari Passu Indebtedness surrendered by holders thereof exceeds
the amount of Excess Proceeds, the Trustee shall select the Securities to be
purchased on a pro rata basis. Upon the completion of the purchase of all the
Securities tendered pursuant to an Offer and the completion of a Pari Passu
Offer, the amount of Excess Proceeds, if any, shall be reset at zero.
(d) When the aggregate amount of Excess Proceeds exceeds $10,000,000,
such Excess Proceeds will, prior to any purchase of Securities described in
paragraph (c) above, be set aside by the Company in a separate account pending
(i) deposit with the depository or a paying agent of the amount required to
purchase the Securities tendered in an Offer or Pari Passu Indebtedness tendered
in a Pari Passu Offer, (ii) delivery by the Company of the Offered Price to the
holders of the Securities tendered in an Offer or Pari Passu Indebtedness
tendered in a Pari Passu Offer and (iii) application, as set forth above, of
Excess Proceeds in the business of the Company and its Subsidiaries for general
corporate purposes. Such Excess Proceeds may be invested in Temporary Cash
Investments, provided that the maturity date of any such investment made after
the amount of Excess Proceeds exceeds $10,000,000 shall not be later than the
Offer Date. The Company shall be entitled to any interest or dividends accrued,
earned or paid on such Temporary Cash Investments; provided that the Company
shall not withdraw such interest from the separate account if an Event of
Default has occurred and is continuing.
(e) If the Company becomes obligated to make an Offer pursuant to
clause (c) above, the Securities and the Pari Passu Indebtedness shall be
purchased by the Company, at the option of the holders thereof, in whole or in
part in integral multiples of
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$1,000, on a date that is not earlier than 45 days and not later than 60 days
from the date the notice of the Offer is given to holders, or such later date as
may be necessary for the Company to comply with the requirements under the
Exchange Act.
(f) The Company will comply with the applicable tender offer rules,
including Rule 14e-1 under the Exchange Act, and any other applicable securities
laws or regulations in connection with an Offer.
(g) Subject to paragraph (f) above, within 30 days after the date on
which the amount of Excess Proceeds equals or exceeds $10,000,000, the Company
shall send or cause to be sent by first-class mail, postage prepaid, to the
Trustee and to each Holder, at his address appearing in the Security Register, a
notice stating or including:
(1) that the Holder has the right to require the Company to
repurchase, subject to proration, such Holder's Securities at the
Offered Price;
(2) the Offer Date;
(3) the instructions a Holder must follow in order to have his
Securities purchased in accordance with paragraph (c) of this Section;
(4) (i) the most recently filed Annual Report on Form 10-K
(including audited consolidated financial statements) of the Company,
the most recent subsequently filed Quarterly Report on Form 10-Q, as
applicable, and any Current Report on Form 8-K of the Company filed
subsequent to such Quarterly Report, other than Current Reports
describing Asset Sales otherwise described in the offering materials
(or corresponding successor reports) (or in the event the Company is
not required to prepare any of the foregoing Forms, the comparable
information required pursuant to Section 1020), (ii) a description of
material developments, if any, in the Company's business subsequent to
the date of the latest of such Reports, (iii) if material, appropriate
pro forma financial information, and (iv) such other information, if
any, concerning the business of the Company which the Company in good
faith believes will enable such Holders to make an informed investment
decision regarding the Offer;
(5) the Offered Price;
(6) the names and addresses of the Paying Agent and the offices
or agencies referred to in Section 1002;
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(7) that Securities must be surrendered prior to the Offer Date
to the Paying Agent at the office of the Paying Agent or to an office
or agency referred to in Section 1002 to collect payment;
(8) that any Securities not tendered will continue to accrue
interest and that unless the Company defaults in the payment of the
Offered Price, any Security accepted for payment pursuant to the Offer
shall cease to accrue interest on and after the Offer Date;
(9) the procedures for withdrawing a tender; and
(10) that the Offered Price for any Security which has been
properly tendered and not withdrawn and which has been accepted for
payment pursuant to the Offer will be paid promptly following the
Offered Date.
(h) Holders electing to have Securities purchased hereunder will be
required to surrender such Securities at the address specified in the notice on
or prior to the Offer Date. Holders will be entitled to withdraw their election
to have their Securities purchased pursuant to this Section 1013 if the Company
receives, not later than the Offer Date, a telegram, telex, facsimile
transmission or letter setting forth (1) the name of the Holder, (2) the
certificate number of the Security in respect of which such notice of withdrawal
is being submitted, (3) the principal amount of the Security (which shall be
$1,000 or an integral multiple thereof) delivered for purchase by the Holder as
to which his election is to be withdrawn, (4) a statement that such Holder is
withdrawing his election to have such principal amount of such Security
purchased, and (5) the principal amount, if any, of such Security (which shall
be $1,000 or an integral multiple thereof) that remains subject to the original
notice of the Offer and that has been or will be delivered for purchase by the
Company.
(i) The Company shall (i) not later than the Offer Date, accept for
payment Securities or portions thereof tendered pursuant to the Offer, (ii) not
later than 10:00 a.m. (New York time) on the Business Day following the Offer
Date, deposit with the Trustee or with a Paying Agent an amount of money in same
day funds (or New York Clearing House funds if such deposit is made prior to the
Offer Date) sufficient to pay the aggregate Offered Price of all the Securities
or portions thereof which are to be purchased on that date and (iii) not later
than 10:00 a.m. (New York time) on the Business Day following the Offer Date,
deliver to the Paying Agent an Officers' Certificate stating the Securities or
portions thereof accepted for payment by the Company. The Paying Agent shall
promptly mail or deliver to Holders of Securities so accepted payment in an
amount equal to the Offered Price of the Securities purchased from each such
Holder, and the Company shall execute and the Trustee shall promptly
authenticate and mail or deliver to
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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 Paying Agent at the Company's expense to the Holder
thereof. For purposes of this Section 1013, the Company shall choose a Paying
Agent which shall not be the Company.
Subject to applicable escheat laws, the Trustee and the Paying Agent
shall return to the Company any cash that remains unclaimed, together with
interest, if any, thereon, held by them for the payment of the Offered Price;
provided, however, that (x) to the extent that the aggregate amount of cash
deposited by the Company with the Trustee in respect of an Offer exceeds the
aggregate Offered Price of the Securities or portions thereof to be purchased,
then the Trustee shall hold such excess for the Company and (y) unless otherwise
directed by the Company in writing, no later than the second Business Day
following the Offer Date the Trustee shall return any such excess (including,
without limitation, monies deposited with respect to an election which has been
withdrawn in accordance with paragraph (h)) to the Company together with
interest or dividends, if any, thereon.
(j) Securities to be purchased shall, on the Offer Date, become due
and payable at the Offered Price and from and after such date (unless the
Company shall default in the payment of the Offered Price) such Securities shall
cease to bear interest. Such Offered Price shall be paid to such Holder
promptly following the later of the Offer Date and the time of delivery of such
Security to the relevant Paying Agent at the office of such Paying Agent by the
Holder thereof in the manner required. Upon surrender of any such Security for
purchase in accordance with the foregoing provisions, such Security shall be
paid by the Company at the Offered Price; provided, however, that installments
of interest whose Stated Maturity is on or prior to the Offer Date shall be
payable to the Person in whose name the Securities (or any Predecessor
Securities) is registered as such on the relevant Regular Record Dates according
to the terms and the provisions of Section 309; provided, further, that
Securities to be purchased are subject to proration in the event the Excess
Proceeds are less than the aggregate Offered Price of all Securities tendered
for purchase, with such adjustments as may be appropriate by the Trustee so that
only Securities in denominations of $1,000 or integral multiples thereof, shall
be purchased. If any Security tendered for purchase shall not be so paid upon
surrender thereof by deposit of funds with the Trustee or a Paying Agent in
accordance with paragraph (h) above, the principal thereof (and premium, if any,
thereon) shall, until paid, bear interest from the Offer Date at the rate borne
by such Security. Any Security that is to be purchased only in part shall be
surrendered to a Paying Agent at the office of such Paying Agent (with, if the
Company, the Security Registrar or the Trustee so requires, due endorsement by,
or a written instrument of transfer in form satisfactory to the Company and the
Security Registrar or the Trustee duly executed by, the Holder thereof or such
Holder's attorney duly authorized in writing), and the Company shall execute and
the Trustee shall
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authenticate and deliver to the Holder of such Security, without service charge,
one or more new Securities of any authorized denomination as requested by such
Holder in an aggregate principal amount equal to, and in exchange for, the
portion of the principal amount of the Security so surrendered that is not
purchased. The Company shall publicly announce the results of the Offer on or as
soon as practicable after the Offer Date.
Section 1014. Limitation on Issuances of Guarantees of Indebtedness.
-----------------------------------------------------
(a) The Company will not permit any Restricted Subsidiary, other than
the Guarantors, directly or indirectly, to secure the payment of any Senior
Indebtedness of the Company and the Company will not, and will not permit any
Restricted Subsidiary to, pledge any intercompany notes representing obligations
of any Restricted Subsidiary (other than the Guarantors) to secure the payment
of any Senior Indebtedness unless in each case such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture to this Indenture
providing for a guarantee of payment of the Securities by such Restricted
Subsidiary, which guarantee shall be on the same terms as the guarantee of the
Senior Indebtedness (if a guarantee of Senior Indebtedness is granted by any
such Restricted Subsidiary) except that the guarantee of the Securities need not
be secured and shall be subordinated to the claims against such Restricted
Subsidiary in respect of Senior Indebtedness to the same extent as the
Securities are subordinated to Senior Indebtedness of the Company under this
Indenture.
(b) The Company will not permit any Restricted Subsidiary, directly or
indirectly, to guarantee, assume or in any other manner become liable with
respect to any Indebtedness of the Company unless such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture to this Indenture
providing for a Guarantee of the Securities, on the same terms as the guarantee
of such Indebtedness except that (A) such guarantee need not be secured unless
required pursuant to Section 1011 hereof, (B) if such Indebtedness is by its
terms Senior Indebtedness, any such assumption, guarantee or other liability of
such Restricted Subsidiary with respect to such Indebtedness shall be senior to
such Restricted Subsidiary's Guarantee of the Securities to the same extent as
such Senior Indebtedness is senior to the Securities and (C) if such
Indebtedness is by its terms expressly subordinated to the Securities, any such
assumption, guarantee or other liability of such Restricted Subsidiary with
respect to such Indebtedness shall be subordinated to such Restricted
Subsidiary's Guarantee of the Securities at least to the same extent as such
Indebtedness is subordinated to the Securities.
(c) Notwithstanding the foregoing, any Guarantee by a Restricted
Subsidiary of the Securities shall provide by its terms that it (and all Liens
securing the same) shall be automatically and unconditionally released and
discharged upon (i) any sale, exchange or transfer, to any Person not an
Affiliate of the Company, of all of the Company's Capital Stock in, or all or
substantially all the assets of, such Restricted
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Subsidiary, which transaction is in compliance with the terms of this Indenture
and such Restricted Subsidiary is released from all guarantees, if any, by it of
other Indebtedness of the Company or any Restricted Subsidiaries or (ii) (with
respect to any Guarantees created after the date of this Indenture) the release
by the holders of the Indebtedness of the Company described in clauses (a) and
(b) above of their security interest or their guarantee by such Restricted
Subsidiary (including any deemed release upon payment in full of all obligations
under such Indebtedness), at such time as (A) no other Indebtedness of the
Company has been secured or guaranteed by such Restricted Subsidiary, as the
case may be, or (B) the holders of all such other Indebtedness which is secured
or guaranteed by such Restricted Subsidiary also release their security interest
in, or guarantee by such Restricted Subsidiary (including any deemed release
upon payment in full of all obligations under such Indebtedness).
Section 1015. Restriction on Transfer of Assets.
---------------------------------
The Company and the Guarantors will not sell, convey, transfer or
otherwise dispose of its assets or property to any of its Restricted
Subsidiaries, except for sales, conveyances, transfers or other dispositions (a)
made in the ordinary course of business or (b) to any Restricted Subsidiary if
such Subsidiary is a Guarantor or simultaneously executes and delivers a
supplemental indenture to this Indenture providing for a Guarantee of the
payment of the Securities by such Restricted Subsidiary on a senior subordinated
basis. For purposes of this provision any sale, conveyance, transfer, lease or
other disposition of property or assets having a Fair Market Value in excess of
(a) $5,000,000 for any sale, conveyance, transfer or disposition or series of
related sales, conveyances, transfers, leases or dispositions and (b)
$10,000,000 in the aggregate for all such sales, conveyances, transfers, leases
or dispositions in any fiscal year of the Company shall not be considered "in
the ordinary course of business."
Section 1016. Purchase of Securities Upon a Change of Control.
-----------------------------------------------
(a) If a Change of Control shall occur at any time, then each Holder
of Securities shall have the right to require that the Company purchase such
Holder's Securities in whole or in part in integral multiples of $1,000, at a
purchase price (the "Change of Control Purchase Price") in cash in an amount
equal to 101% of the principal amount of such Securities, plus accrued and
unpaid interest, if any, to the date of purchase (the "Change of Control
Purchase Date"), pursuant to the offer described below in this Section 1016 (the
"Change of Control Offer") and in accordance with the other procedures set forth
in subsections (b), (c), (d) and (e) of this Section 1016.
(b) Within 30 days following any Change of Control, the Company shall
notify the Trustee thereof and give written notice (a "Change of Control
Purchase Notice") of such Change of Control to each Holder of Securities by
first-class mail,
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postage prepaid, at such Holder's address appearing in the Security Register,
stating among other things:
(1) that a Change of Control has occurred, the date of such
event, and that such Holder has the right to require the Company to
repurchase such Holder's Securities at the Change of Control Purchase
Price;
(2) the circumstances and relevant facts regarding such Change of
Control (including but not limited to information with respect to pro
forma historical income, cash flow and capitalization after giving
effect to such Change of Control);
(3) (i) the most recently filed Annual Report on Form 10-K
(including audited consolidated financial statements) of the Company,
the most recent subsequently filed Quarterly Report on Form 10-Q, as
applicable, and any Current Report on Form 8-K of the Company filed
subsequent to such Quarterly Report (or in the event the Company is
not required to prepare any of the foregoing Forms, the comparable
information required to be prepared by the Company and any Guarantor
pursuant to Section 1020), (ii) a description of material
developments, if any, in the Company's business subsequent to the date
of the latest of such reports and (iii) such other information, if
any, concerning the business of the Company which the Company in good
faith believes will enable such Holders to make an informed investment
decision regarding the Change of Control Offer;
(4) that the Change of Control Offer is being made pursuant to
this Section 1016 and that all Securities properly tendered pursuant
to the Change of Control Offer will be accepted for payment at the
Change of Control Purchase Price;
(5) the Change of Control Purchase Date, which shall be a
Business Day fixed by the Company which shall be no earlier than 30
days nor later than 60 days from the date such notice is mailed, or
such later date as is necessary to comply with requirements under the
Exchange Act;
(6) the Change of Control Purchase Price;
(7) the names and addresses of the Paying Agent and the offices
or agencies referred to in Section 1002;
(8) that Securities must be surrendered prior to the Change of
Control Purchase Date to the Paying
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Agent at the office of the Paying Agent or to an office or agency
referred to in Section 1002 to collect payment;
(9) that the Change of Control Purchase Price for any Security
which has been properly tendered and not withdrawn will be paid
promptly following the Change of Control Offer Purchase Date;
(10) the procedures that a Holder must follow to accept a Change
of Control Offer or to withdraw such acceptance;
(11) that any Security not tendered will continue to accrue
interest; and
(12) that, unless the Company defaults in the payment of the
Change of Control Purchase Price, any Securities accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest
after the Change of Control Purchase Date.
(c) Upon receipt by the Company of the proper tender of Securities,
the Holder of the Security in respect of which such proper tender was made shall
(unless the tender of such Security is properly withdrawn) thereafter be
entitled to receive solely the Change of Control Purchase Price with respect to
such Security. Upon surrender of any such Security for purchase in accordance
with the foregoing provisions, such Security shall be paid by the Company at the
Change of Control Purchase Price; provided, however, that installments of
interest whose Stated Maturity is on or prior to the Change of Control Purchase
Date shall be payable to the Holders of such Securities, or one or more
Predecessor Securities, registered as such on the relevant Regular Record Dates
according to the terms and the provisions of Section 309. If any Security
tendered for purchase in accordance with the provisions of this Section 1016
shall not be so paid upon surrender thereof, the principal thereof (and premium,
if any, thereon) shall, until paid, bear interest from the Change of Control
Purchase Date at the rate borne by such Security. Holders electing to have
Securities purchased will be required to surrender such Securities to the Paying
Agent at the address specified in the Change of Control Purchase Notice on or
prior to the Change of Control Purchase Date. Any Security that is to be
purchased only in part shall be surrendered to a Paying Agent at the office of
such Paying Agent (with, if the Company, the Security Registrar or the Trustee
so requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company and the Security Registrar or the Trustee, as the
case may be, duly executed by, the Holder thereof or such Holder's attorney duly
authorized in writing), and the Company shall execute and the Trustee shall
authenticate and deliver to the Holder of such Security, without service charge,
one or more new Securities of any authorized denomination as
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requested by such Holder in an aggregate principal amount equal to, and in
exchange for, the portion of the principal amount of the Security so surrendered
that is not purchased.
(d) The Company shall (i) not later than the Change of Control
Purchase Date, accept for payment Securities or portions thereof tendered
pursuant to the Change of Control Offer, (ii) not later than 10:00 a.m. (New
York time) on the Business Day following the Change of Control Purchase Date,
deposit with the Trustee or with a Paying Agent an amount of money in same day
funds (or New York Clearing House funds if such deposit is made prior to the
Change of Control Purchase Date) sufficient to pay the aggregate Change of
Control Purchase Price of all the Securities or portions thereof which are to be
purchased as of the Change of Control Purchase Date and (iii) not later than
10:00 a.m. (New York time) on the Business Day following the Change of Control
Purchase Date, deliver to the Paying Agent an Officers' Certificate stating the
Securities or portions thereof accepted for payment by the Company. The Paying
Agent shall promptly mail or deliver to Holders of Securities so accepted
payment in an amount equal to the Change of Control Purchase Price of the
Securities purchased from each such Holder, and the Company shall execute 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 Paying Agent at the Company's expense to the Holder thereof.
The Company will publicly announce the results of the Change of Control Offer on
the Change of Control Purchase Date. For purposes of this Section 1016, the
Company shall choose a Paying Agent which shall not be the Company.
(e) A tender made in response to a Change of Control Purchase Notice
may be withdrawn if the Company receives, not later than one Business Day prior
to the Change of Control Purchase Date, a telegram, telex, facsimile
transmission or letter, specifying, as applicable:
(1) the name of the Holder;
(2) the certificate number of the Security in respect of which
such notice of withdrawal is being submitted;
(3) the principal amount of the Security (which shall be $1,000
or an integral multiple thereof) delivered for purchase by the Holder
as to which such notice of withdrawal is being submitted;
(4) a statement that such Holder is withdrawing his election to
have such principal amount of such Security purchased; and
(5) the principal amount, if any, of such Security (which shall
be $1,000 or an integral multiple thereof) that remains subject to the
original
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Change of Control Purchase Notice and that has been or will
be delivered for purchase by the Company.
(f) Subject to applicable escheat laws, the Trustee and the Paying
Agent shall return to the Company any cash that remains unclaimed, together with
interest or dividends, if any, thereon, held by them for the payment of the
Change of Control Purchase Price; provided, however, that, (x) to the extent
that the aggregate amount of cash deposited by the Company pursuant to clause
(ii) of paragraph (d) above exceeds the aggregate Change of Control Purchase
Price of the Securities or portions thereof to be purchased, then the Trustee
shall hold such excess for the Company and (y) unless otherwise directed by the
Company in writing, no later than the second Business Day following the Change
of Control Purchase Date the Trustee shall return any such excess (including,
without limitation, monies deposited with respect to a tender withdrawn in
accordance with the provisions of paragraph (e)) to the Company together with
interest, if any, thereon.
(g) The Company shall comply, to the extent applicable, with the
applicable tender offer rules, including Rule 14e-1 under the Exchange Act, and
any other applicable securities laws or regulations in connection with a Change
of Control Offer.
Section 1017. Limitation on Restricted Subsidiary Capital Stock.
-------------------------------------------------
The Company will not permit (a) any Restricted Subsidiary of the
Company to issue, sell or transfer any Capital Stock, except for (i) Capital
Stock issued or sold to, held by or transferred to the Company or a Wholly Owned
Restricted Subsidiary, and (ii) Capital Stock issued by a Person prior to the
time (A) such Person becomes a Restricted Subsidiary, (B) such Person merges
with or into a Restricted Subsidiary or (C) a Restricted Subsidiary merges with
or into such Person; provided that such Capital Stock was not issued or incurred
by such Person in anticipation of the type of transaction contemplated by
subclause (A), (B) or (C) or (b) any Person (other than the Company or a Wholly
Owned Restricted Subsidiary) to acquire Capital Stock of any Restricted
Subsidiary from the Company or any Wholly Owned Restricted Subsidiary except, in
the case of clause (a) or (b), upon the acquisition of all the outstanding
Capital Stock of such Restricted Subsidiary in accordance with the terms of this
Indenture.
Section 1018. Limitation on Dividends and Other Payment Restrictions
------------------------------------------------------
Affecting Restricted Subsidiaries.
- ---------------------------------
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause to become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other distribution on its
Capital Stock, (ii) pay any
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Indebtedness owed to the Company or any other Restricted Subsidiary, (iii) make
any Investment in the Company or any other Restricted Subsidiary or (iv)
transfer any of its properties or assets to the Company or any other Restricted
Subsidiary, except for: (a) any agreement in effect on the date of this
Indenture and listed on Schedule II hereto; (b) any encumbrance or restriction,
with respect to a Restricted Subsidiary that is not a Restricted Subsidiary of
the Company on the date of this Indenture, in existence at the time such Person
becomes a Restricted Subsidiary of the Company and not incurred in connection
with, or in contemplation of, such Person becoming a Restricted Subsidiary; and
(c) any encumbrance or restriction existing under any agreement that extends,
renews, refinances or replaces the agreements containing the encumbrances or
restrictions in the foregoing clauses (a) and (b), or in this clause (c),
provided that the terms and conditions of any such encumbrances or restrictions
are no more restrictive in any material respect than those under or pursuant to
the agreement evidencing the Indebtedness so extended, renewed, refinanced or
replaced.
Section 1019. Limitations on Unrestricted Subsidiaries.
----------------------------------------
The Company will not make, and will not permit its Restricted
Subsidiaries to make, any Investment in Unrestricted Subsidiaries if, at the
time thereof, the aggregate amount of such Investments would exceed the amount
of Restricted Payments then permitted to be made pursuant to Section 1009 of
this Indenture. Any Investments in Unrestricted Subsidiaries permitted to be
made pursuant to this Section 1019 (i) will be treated as a Restricted Payment
in calculating the amount of Restricted Payments made by the Company and (ii)
may be made in cash or property.
Section 1020. Provision of Financial Statements.
---------------------------------
Whether or not the Company or any Guarantor is subject to Section
13(a) or 15(d) of the Exchange Act, the Company and such Guarantor will, to the
extent permitted under the Exchange Act, file with the Commission the annual
reports, quarterly reports and other documents which the Company and such
Guarantor would have been required to file with the Commission pursuant to such
Section 13(a) or 15(d) if the Company and such Guarantor were so subject, such
documents to be filed with the Commission on or prior to the date (the "Required
Filing Date") by which the Company and such Guarantor would have been required
so to file such documents if the Company and such Guarantor were so subject.
The Company and such Guarantor will also in any event (x) within 15 days of each
Required Filing Date (i) transmit by mail to all Holders, as their names and
addresses appear in the Security Register, without cost to such Holders and (ii)
file with the Trustee copies of the annual reports, quarterly reports and other
documents which the Company and such Guarantor would have been required to file
with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act if
the Company and such Guarantor were subject to either of such Sections and (y)
if filing such documents by the
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Company and such Guarantor with the Commission is not permitted under the
Exchange Act, promptly upon written request and payment of the reasonable cost
of duplication and delivery, supply copies of such documents to any prospective
Holder at the Company's and such Guarantor's cost.
Section 1021. Statement by Officers as to Default.
-----------------------------------
(a) The Company and the Guarantors will deliver to the Trustee, on or
before a date not more than 60 days after the end of each fiscal quarter and not
more than 120 days after the end of each fiscal year of the Company ending
after the date hereof, a written statement signed by two executive officers of
the Company and each Guarantor, one of whom shall be the principal executive
officer, principal financial officer or principal accounting officer of the
Company and such Guarantor, as to compliance herewith, including whether or not,
after a review of the activities of the Company during such year or such quarter
and of the Company's and each Guarantor's performance under this Indenture, to
the best knowledge, based on such review, of the signers thereof, no Default or
Event of Default exists, or if a Default exists, specifying the nature and
status thereof and any actions being taken by the Company and the Guarantors
with respect thereto.
(b) When any Default or Event of Default has occurred and is
continuing, or if the Trustee or any Holder or the trustee for or the holder of
any other evidence of Indebtedness of the Company or any Subsidiary gives any
notice or takes any other action with respect to a claimed default the Company
and the Guarantors shall deliver to the Trustee by registered or certified mail
or facsimile transmission followed by hard copy an Officers' Certificate
specifying such Default, Event of Default, notice or other action, the status
thereof and what actions the Company and the Guarantors are taking or propose to
take with respect thereto, within five Business Days of its occurrence.
Section 1022. Waiver of Certain Covenants.
---------------------------
The Company and the Guarantors may omit in any particular instance to
comply with any covenant or condition set forth in Sections 1006 through 1012,
1014, 1015, and 1017 through 1020, if, before or after the time for such
compliance, the Holders of not less than a majority in aggregate principal
amount of the Securities at the time Outstanding shall, by Act of such Holders,
waive such compliance in such instance with such covenant or provision, but no
such waiver shall extend to or affect such covenant or condition except to the
extent so expressly waived, and, until such waiver shall become effective, the
obligations of the Company and the duties of the Trustee in respect of any such
covenant or condition shall remain in full force and effect.
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ARTICLE ELEVEN
REDEMPTION OF SECURITIES
Section 1101. Rights of Redemption.
--------------------
(a) The Securities are subject to redemption at any time on or after
October 15, 2002, at the option of the Company, in whole or in part, subject to
the conditions, and at the Redemption Prices, specified in the form of Security,
together with accrued and unpaid interest, if any, to the Redemption Date
(subject to the right of Holders of record on relevant Regular Record Dates and
Special Record Dates to receive interest due on relevant Interest Payment Dates
and Special Payment Dates).
(b) At any time prior to October 15, 2000, the Company may, at its
option, use the net proceeds of one or more Public Equity Offerings to redeem up
to an aggregate of 30% of the aggregate principal amount of Securities
originally issued under this Indenture at a redemption price equal to 109.25% of
the aggregate principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the redemption date; provided that at least $70 million of
the principal amount of Securities remains outstanding immediately after the
occurrence of such redemption. In order to effect the foregoing redemption, the
Company must mail a notice of redemption no later than 60 days after the closing
of the related Public Equity Offering and must consummate such redemption within
90 days of the closing of the Public Equity Offering.
Section 1102. Applicability of Article.
------------------------
Redemption of Securities at the election of the Company or otherwise,
as permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article Eleven.
Section 1103. Election to Redeem; Notice to Trustee.
-------------------------------------
The election of the Company to redeem any Securities pursuant to
Section 1101 shall be evidenced by a Company Order and an Officers' Certificate.
In case of any redemption at the election of the Company, the Company shall, not
less than 45 nor more than 60 days prior to the Redemption Date fixed by the
Company (unless a shorter notice period shall be satisfactory to the Trustee),
notify the Trustee in writing of such Redemption Date and of the principal
amount of Securities to be redeemed.
Section 1104. Selection by Trustee of Securities to Be Redeemed.
-------------------------------------------------
If less than all the Securities are to be redeemed, the particular
Securities or portions thereof to be redeemed shall be selected not more than 30
days prior to the
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Redemption Date. The Trustee shall select the Securities or portions thereof to
be redeemed pro rata or by lot. The amounts to be redeemed shall be equal to
$1,000 or any integral multiple thereof.
The Trustee shall promptly notify the Company and the Security
Registrar in writing of the Securities selected for redemption and, in the case
of any Securities selected for partial redemption, the principal amount thereof
to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Securities shall relate, in
the case of any Security redeemed or to be redeemed only in part, to the portion
of the principal amount of such Security which has been or is to be redeemed.
Section 1105. Notice of Redemption.
--------------------
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 days nor more than 60 days prior to the
Redemption Date, to each Holder of Securities to be redeemed, at its address
appearing in the Security Register. If the redemption is pursuant to Section
1101 (b) hereof, notice of redemption shall be mailed no later than 60 days
after the closing of the related Public Equity Offering.
All notices of redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) if less than all Outstanding Securities are to be redeemed, the
identification of the particular Securities to be redeemed;
(d) in the case of a Security to be redeemed in part, the principal
amount of such Security to be redeemed and that after the Redemption Date upon
surrender of such Security, new Security or Securities in the aggregate
principal amount equal to the unredeemed portion thereof will be issued;
(e) that Securities called for redemption must be surrendered to the
Paying Agent to collect the Redemption Price;
(f) that on the Redemption Date the Redemption Price will become due
and payable upon each such Security or portion thereof to be redeemed, and that
(unless the Company shall default in payment of the Redemption Price) interest
thereon shall cease to accrue on and after said date;
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(g) the names and addresses of the Paying Agent and the offices or
agencies referred to in Section 1002 where such Securities are to be surrendered
for payment of the Redemption Price;
(h) subject to Section 310, the CUSIP number, if any,
relating to such Securities; and
(i) the procedures that a Holder must follow to surrender
the Securities to be redeemed.
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's written request,
by the Trustee in the name and at the expense of the Company. If the Company
elects to give notice of redemption, it shall provide the Trustee with a
certificate stating that such notice has been given in compliance with the
requirements of this Section 1105.
The notice if mailed in the manner herein provided shall be
conclusively presumed to have been given, whether or not the Holder receives
such notice. In any case, failure to give such notice by mail or any defect in
the notice to the Holder of any Security designated for redemption as a whole or
in part shall not affect the validity of the proceedings for the redemption of
any other Security.
Section 1106. Deposit of Redemption Price.
---------------------------
On or prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company or any of its Affiliates is
acting as Paying Agent, segregate and hold in trust as provided in Section 1003)
an amount of money in same day funds sufficient to pay timely the Redemption
Price of, and (except if the Redemption Date shall be an Interest Payment Date
or Special Payment Date) accrued interest on, all the Securities or portions
thereof which are to be redeemed on that date. The Paying Agent shall promptly
mail or deliver to Holders of Securities so redeemed payment in an amount equal
to the Redemption Price of the Securities purchased from each such Holder. All
money, if any, earned on funds held in trust by the Trustee or any Paying Agent
shall be remitted to the Company. For purposes of this Section 1106, the
Company shall choose a Paying Agent which shall not be the Company.
Section 1107. Securities Payable on Redemption Date.
-------------------------------------
Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such Security for redemption in accordance with
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said notice, such Security shall be paid by the Company at the Redemption Price
together with accrued and unpaid interest to the Redemption Date; provided,
however, that installments of interest whose Stated Maturity is on or prior to
the Redemption Date shall be payable to the Holders of such Securities, or one
or more Predecessor Securities, registered as such on the relevant Regular
Record Dates and Special Record Dates according to the terms and the provisions
of Section 309.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal and premium, if any, shall,
until paid, bear interest from the Redemption Date at the rate borne by such
Security.
Section 1108. Securities Redeemed or Purchased in Part.
----------------------------------------
Any Security which is to be redeemed or purchased only in part shall
be surrendered to the Paying Agent at the office or agency maintained for such
purpose pursuant to Section 1002 (with, if the Company, the Security Registrar
or the Trustee so requires, due endorsement by, or a written instrument of
transfer in form satisfactory to the Company, the Security Registrar or the
Trustee, as the case may be, duly executed by, the Holder thereof or such
Holder's attorney duly authorized in writing), and the Company shall execute,
and the Trustee shall authenticate and deliver to the Holder of such Security
without service charge, a new Security or Securities, of any authorized
denomination as requested by such Holder in aggregate principal amount equal to,
and in exchange for, the unredeemed portion of the principal of the Security so
surrendered that is not redeemed or purchased.
ARTICLE TWELVE
SATISFACTION AND DISCHARGE
Section 1201. Satisfaction and Discharge of Indenture.
---------------------------------------
This Indenture shall be discharged and shall cease to be of further
effect (except as to surviving rights of registration of transfer or exchange of
Securities as expressly provided for herein) as to all Outstanding Securities
hereunder, and the Trustee, upon Company Request and at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(a) either
(1) all the Securities theretofore authenticated and delivered
(other than (i) lost, stolen or destroyed Securities which have been
replaced or paid as provided in Section 308 or (ii) all Securities for
whose payment
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United States dollars have theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to
the Company or discharged from such trust as provided in Section 1003)
have been delivered to the Trustee for cancellation; or
(2) all such Securities not theretofore delivered to the Trustee
for cancellation (i) have become due and payable, (ii) will become due
and payable at their Stated Maturity within one year or (iii) are to
be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption by
the Trustee in the name, and at the expense, of the Company; and the
Company or any Guarantor has irrevocably deposited or caused to be
deposited with the Trustee as trust funds in trust an amount in United
States dollars sufficient to pay and discharge the entire Indebtedness
on the Securities not theretofore delivered to the Trustee for
cancellation, including the principal of, premium, if any, and accrued
interest on, such Securities at such Maturity, Stated Maturity or
Redemption Date;
(b) the Company or any Guarantor has paid or caused to be paid all
other sums payable hereunder by the Company and any Guarantor; and
(c) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Independent Counsel, in form and substance reasonably
satisfactory to the Trustee, each stating that (i) all conditions precedent
herein relating to the satisfaction and discharge hereof have been complied with
and (ii) such satisfaction and discharge will not result in a breach or
violation of, or constitute a default under, this Indenture or any other
material agreement or instrument to which the Company, any Guarantor or any
Subsidiary is a party or by which the Company, any Guarantor or any Subsidiary
is bound.
Notwithstanding the satisfaction and discharge hereof, the obligations
of the Company to the Trustee under Section 607 and, if United States dollars
shall have been deposited with the Trustee pursuant to subclause (2) of
subsection (a) of this Section 1201, the obligations of the Trustee under
Section 1202 and the last paragraph of Section 1003 shall survive.
Section 1202. Application of Trust Money.
--------------------------
Subject to the provisions of the last paragraph of Section 1003, all
United States dollars deposited with the Trustee pursuant to Section 1201 shall
be held in trust and applied by it, in accordance with the provisions of the
Securities and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company
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acting as its own Paying Agent) as the Trustee may determine, to the Persons
entitled thereto, of the principal of, premium, if any, and interest on, the
Securities for whose payment such United States dollars have been deposited with
the Trustee.
ARTICLE THIRTEEN
SUBORDINATION OF SECURITIES
Section 1301. Securities Subordinate to Senior Indebtedness.
---------------------------------------------
The Company covenants and agrees, and each Holder of a Security, by
such Holder's acceptance thereof, likewise covenants and agrees, that, to the
extent and in the manner hereinafter set forth in this Article, the Indebtedness
represented by the Securities and the payment of the principal of, premium, if
any, and interest on, the Securities are hereby expressly made subordinate and
subject in right of payment as provided in this Article to the prior payment in
full of the Senior Indebtedness.
This Article Thirteen shall constitute a continuing offer to all
Persons who, in reliance upon such provisions, become holders of, or continue to
hold Senior Indebtedness; and such provisions are made for the benefit of the
holders of Senior Indebtedness; and such holders are made obligees hereunder and
they or each of them may enforce such provisions as provided herein.
Section 1302. Payment Over of Proceeds Upon Dissolution, etc.
-----------------------------------------------
In the event of (a) any insolvency or bankruptcy case or proceeding,
or any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relative to the Company or to its creditors,
as such, or to its assets, or (b) any liquidation, dissolution or other winding
up of the Company, whether voluntary or involuntary, or whether or not involving
insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or
any other marshaling of assets or liabilities of the Company, then and in any
such event:
(1) the holders of Senior Indebtedness shall be entitled to receive
payment in full of all amounts due on or in respect of Senior Indebtedness
before the Holders of the Securities are entitled to receive any payment or
distribution of any kind or character (excluding securities of the Company as
reorganized or readjusted or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment the payment of which
are subordinated in right of payment to all Senior Indebtedness, that may be
outstanding, at least to the extent as, or to a greater extent than, the
Securities are so subordinated as provided in this Article ("Permitted Junior
Securities")) on account of the principal of, premium, if any, or interest on
the Securities
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or on account of the purchase, redemption, defeasance or other acquisition of,
or in respect of, the Securities (other than amounts previously set aside with
the Trustee, or payments previously made, in either case, pursuant to the
provisions of Sections 402 and 403 of this Indenture); and
(2) any payment or distribution of assets of the Company of any kind
or character, whether in cash, property or securities (excluding Permitted
Junior Securities), by set-off or otherwise, to which the Holders or the Trustee
would be entitled but for the provisions of this Article shall be paid by the
liquidating trustee or agent or other Person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee
or otherwise, directly to the holders of Senior Indebtedness or their
representative or representatives or to the trustee or trustees under any
indenture under which any instruments evidencing any of such Senior Indebtedness
may have been issued, ratably according to the aggregate amounts remaining
unpaid on account of the Senior Indebtedness held or represented by each, to the
extent necessary to make payment in full of all Senior Indebtedness remaining
unpaid, after giving effect to any concurrent payment or distribution to the
holders of such Senior Indebtedness; and
(3) in the event that, notwithstanding the foregoing provisions of
this Section, the Trustee or the Holder of any Security shall have received any
payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities (excluding Permitted Junior Securities),
in respect of principal, premium, if any, and interest on the Securities or on
account of the purchase, redemption, defeasance or other acquisition of, or in
respect of, the Securities (other than amounts previously set aside with the
Trustee, or payments previously made, in either case, pursuant to Sections 402
and 403 of this Indenture) before all Senior Indebtedness is paid in full, then
and in such event such payment or distribution (excluding Permitted Junior
Securities) shall be paid over or delivered forthwith to the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other
Person making payments or distributions of assets of the Company for application
to the payment of all Senior Indebtedness remaining unpaid, to the extent
necessary to pay all Senior Indebtedness in full after giving effect to any
concurrent payment or distribution to or for the holders of Senior Indebtedness;
and
(4) the Trustee shall execute and deliver to any Senior Representative
all such further instruments as shall be reasonably requested confirming the
subordination of the Securities pursuant to this Article Thirteen.
The consolidation of the Company with, or the merger of the Company
with or into, another Person or the liquidation or dissolution of the Company
following the sale, assignment, conveyance, transfer, lease or other disposal of
its properties and assets substantially as an entirety to another Person upon
the terms and conditions set forth in Article Eight shall not be deemed a
dissolution, winding up, liquidation, reorganization,
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assignment for the benefit of creditors or marshaling of assets and liabilities
of the Company for the purposes of this Section if the Person formed by such
consolidation or the surviving entity of such merger or the Person which
acquires by sale, assignment, conveyance, transfer, lease or other disposal of
such properties and assets substantially as an entirety, as the case may be,
shall, as a part of such consolidation, merger, sale, assignment, conveyance,
transfer, lease or other disposal, agrees to be bound by the subordination
provisions contained in Article Thirteen of this Indenture and each of the
conditions set forth in Section 801 (as in effect on the date hereof) shall have
been satisfied in full.
Section 1303. Suspension of Payment When Designated Senior Indebtedness in
------------------------------------------------------------
Default.
- -------
(a) Unless Section 1302 shall be applicable, upon the occurrence and
during the continuance of any default in the payment of any principal of,
premium, if any, or interest on, or any other obligation owing in respect of,
any Designated Senior Indebtedness beyond any applicable grace period (a
"Payment Default") and after the receipt by the Trustee from a Senior
Representative of any Designated Senior Indebtedness of written notice of such
default, no payment (other than amounts previously set aside with the Trustee or
payments previously made, in either case, pursuant to Section 402 or 403 in this
Indenture) or distribution of any assets of the Company or any Subsidiary of any
kind or character (excluding Permitted Junior Securities) may be made by the
Company or any Subsidiary on account of the principal of, premium, if any, or
interest on, the Securities, or on account of the purchase, redemption,
defeasance or other acquisition of or in respect of, the Securities unless and
until such Payment Default shall have been cured or waived or shall have ceased
to exist or the Designated Senior Indebtedness shall have been discharged or
paid in full, after which the Company shall (subject to the other provisions of
this Article Thirteen) resume making any and all required payments in respect of
the Securities, including any missed payments.
(b) Unless Section 1302 shall be applicable, (1) upon the occurrence
and during the continuance of any non-payment default with respect to any
Designated Senior Indebtedness pursuant to which the maturity thereof may then
be accelerated immediately (a "Non-payment Default") and (2) after the receipt
by the Trustee and the Company from a Senior Representative of any Designated
Senior Indebtedness of written notice of such Non-payment Default, no payment
(other than any amounts previously set aside with the Trustee, or payments
previously made, in either case, pursuant to the provisions of Sections 402 or
403 in this Indenture) or distribution of any assets of the Company of any kind
or character (excluding Permitted Junior Securities) may be made by the Company
or any Subsidiary on account of the principal of, premium, if any, or interest
on, the Securities, or on account of the purchase, redemption, defeasance or
other acquisition of,
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or in respect of, the Securities for the period specified below ("Payment
Blockage Period").
(c) The Payment Blockage Period shall commence upon the receipt of
notice of the Non-payment Default by the Trustee and the Company from a Senior
Representative and shall end on the earliest of (i) the 179th day after such
commencement, (ii) the date on which such Non-payment Default (and all Non-
payment Defaults as to which notice is given after such Payment Blockage Period
is initiated) is properly cured, waived or ceases to exist or on which such
Designated Senior Indebtedness is discharged or paid in full, or (iii) the date
on which such Payment Blockage Period (and all Non-payment Defaults as to which
notice is given after such Payment Blockage Period is initiated) shall have been
terminated by written notice to the Company or the Trustee from the Senior
Representative initiating such Payment Blockage Period, after which, in the case
of clauses (i), (ii) and (iii), the Company shall promptly resume making any and
all required payments in respect of the Securities, including any missed
payments. In no event will a Payment Blockage Period extend beyond 179 days
from the date of the receipt by the Company and the Trustee of the notice
initiating such Payment Blockage Period (such 179-day period referred to as the
"Initial Period"). Any number of notices of Non-payment Defaults may be given
during the Initial Period; provided that during any period of 365 consecutive
days only one Payment Blockage Period, during which payment of principal of,
premium, if any, or interest on, the Securities may not be made, may commence
and the duration of such period may not exceed 179 days. No Non-payment Default
with respect to any Designated Senior Indebtedness that existed or was
continuing on the date of the commencement of any Payment Blockage Period will
be, or can be, made the basis for the commencement of a second Payment Blockage
Period, whether or not within a period of 365 consecutive days, unless such
default has been cured or waived in writing for a period of not less than 90
consecutive days. The Company shall deliver a notice to the Trustee promptly
after the date on which any Non-payment Default is cured or waived in writing or
ceases to exist or on which the Designated Senior Indebtedness related thereto
is discharged or paid in full, and the Trustee is authorized to act in reliance
on such notice.
(d) In the event that, notwithstanding the foregoing, the Company
shall make any payment or distribution of any assets of the Company or any
Subsidiary of any kind or character (excluding Permitted Junior Securities) to
the Trustee or the Holder of any Security prohibited by the foregoing provisions
of this Section, then and in such event such payment shall be held in trust for
the holders of Senior Indebtedness and paid over and delivered forthwith to a
Senior Representative of the holders of the Designated Senior Indebtedness or as
a court of competent jurisdiction shall direct.
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Section 1304. Payment Permitted if No Default.
-------------------------------
Nothing contained in this Article, elsewhere in this Indenture or in
any of the Securities shall prevent the Company, at any time except during the
pendency of any case, proceeding, dissolution, liquidation or other winding-up,
assignment for the benefit of creditors or other marshaling of assets and
liabilities of the Company referred to in Section 1302 or under the conditions
described in Section 1303, from making payments at any time of principal of,
premium, if any, or interest on the Securities.
Section 1305. Subrogation to Rights of Holders of Senior Indebtedness.
-------------------------------------------------------
After the payment in full of all Senior Indebtedness, the Holders of
the Securities shall be subrogated to the rights of the holders of such Senior
Indebtedness to receive payments and distributions of cash, property and
securities applicable to the Senior Indebtedness until the principal of,
premium, if any, and interest on, the Securities shall be paid in full. For
purposes of such subrogation, no payments or distributions to the holders of
Senior Indebtedness of any cash, property or securities to which the Holders of
the Securities or the Trustee would be entitled except for the provisions of
this Article, and no payments over pursuant to the provisions of this Article to
the holders of Senior Indebtedness by Holders of the Securities or the Trustee,
shall, as among the Company, its creditors other than holders of Senior
Indebtedness, and the Holders of the Securities, be deemed to be a payment or
distribution by the Company to or on account of the Senior Indebtedness.
Section 1306. Provisions Solely to Define Relative Rights.
-------------------------------------------
The provisions of this Article are intended solely for the purpose of
defining the relative rights of the Holders of the Securities on the one hand
and the holders of Senior Indebtedness on the other hand. Nothing contained in
this Article or elsewhere in this Indenture or in the Securities is intended to
or shall (a) impair, as among the Company, its creditors other than holders of
Senior Indebtedness and the Holders of the Securities, the obligation of the
Company, which is absolute and unconditional, to pay to the Holders of the
Securities the principal of, premium, if any, and interest on, the Securities as
and when the same shall become due and payable in accordance with their terms;
or (b) affect the relative rights against the Company or the Holders of the
Securities and creditors of the Company other than the holders of Senior
Indebtedness; or (c) prevent the Trustee or the Holder of any Security from
exercising all remedies otherwise permitted by applicable law upon default under
this Indenture, subject to the rights, if any, under this Article of the holders
of Senior Indebtedness (1) in any case, proceeding, dissolution, liquidation or
other winding up, assignment for the benefit of creditors or other marshaling of
assets and liabilities of the Company referred to in Section 1302, to receive,
pursuant to and in accordance with such Section, cash, property
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and securities otherwise payable or deliverable to the Trustee or such Holder,
or (2) under the conditions specified in Section 1303, to prevent any payment
prohibited by such Section or enforce their rights pursuant to Section 1303(d).
Section 1307. Trustee to Effectuate Subordination.
-----------------------------------
Each Holder of a Security by such Holder's acceptance thereof
authorizes and directs the Trustee on such Holder's behalf to take such action
as may be necessary or appropriate to effectuate the subordination provided in
this Article and appoints the Trustee such Holder's attorney-in-fact for any and
all such purposes, including, in the event of any dissolution, winding-up,
liquidation or reorganization of the Company whether in bankruptcy, insolvency,
receivership proceedings, or otherwise, the timely filing of a claim for the
unpaid balance of the indebtedness of the Company owing to such Holder in the
form required in such proceedings and the causing of such claim to be approved.
Section 1308. No Waiver of Subordination Provisions.
-------------------------------------
(a) No right of any present or future holder of any Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act, in good faith, by any such holder
or any Senior Representative, or by any non-compliance by the Company with the
terms, provisions and covenants of this Indenture, regardless of any knowledge
thereof any such holder may have or be otherwise charged with.
(b) Without limiting the generality of subsection (a) of this Section,
the holders of Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article or
the obligations hereunder of the Holders of the Securities to the holders of
Senior Indebtedness, do any one or more of the following: (1) change the
manner, place or terms of payment or extend the time of payment of, or renew or
alter, Senior Indebtedness or any instrument evidencing the same or any
agreement under which Senior Indebtedness is outstanding; (2) sell, exchange,
release or otherwise deal with any property pledged, mortgaged or otherwise
securing Senior Indebtedness; (3) release any Person liable in any manner for
the collection or payment of Senior Indebtedness; (4) exercise or refrain from
exercising any rights against the Company and any other Person; and (5) sell,
assign or transfer the Senior Indebtedness to any Person; provided, however,
that in no event shall any such actions limit the right of the Holders of the
Securities to take any action to accelerate the maturity of the Securities
pursuant to Article Five of this Indenture or to pursue any rights or remedies
hereunder or
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under applicable laws if the taking of such action does not otherwise violate
the terms of this Article.
Section 1309. Notice to Trustee.
-----------------
(a) The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment to or
by the Trustee in respect of the Securities. Notwithstanding the provisions of
this Article or any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Securities, unless
and until a Responsible Officer of the Trustee shall have received written
notice thereof from the Company or a holder of Senior Indebtedness or from a
Senior Representative or any trustee, fiduciary or agent therefor; and, prior to
the receipt of any such written notice, the Trustee shall be entitled in all
respects to assume that no such facts exist; provided, however, that if a
Responsible Officer of the Trustee shall not have received the notice provided
for in this Section by Noon, Eastern Time, on the Business Day prior to the date
upon which by the terms hereof any money may become payable for any purpose
(including, without limitation, the payment of the principal of, premium, if
any, or interest on any Security), then, anything herein contained to the
contrary notwithstanding but without limiting the rights and remedies of the
holders of Senior Indebtedness, a Senior Representative or any trustee,
fiduciary or agent thereof, the Trustee shall have full power and authority to
receive such money and to apply the same to the purpose for which such money was
received and shall not be affected by any notice to the contrary which may be
received by it after such date; nor shall the Trustee be charged with knowledge
of the curing of any such default or the elimination of the act or condition
preventing any such payment unless and until the Trustee shall have received an
Officers' Certificate to such effect.
(b) The Trustee shall be entitled to rely on the delivery to it of a
written notice to the Trustee and the Company by a Person which represents
itself as a Senior Representative or a holder of Senior Indebtedness (or a
trustee, fiduciary or agent therefor) to establish that such notice has been
given by a Senior Representative or a holder of Senior Indebtedness (or a
trustee, fiduciary or agent therefor); provided, however, that failure to give
such notice to the Company shall not affect in any way the ability of the
Trustee to rely on such notice. In the event that the Trustee determines in
good faith that further evidence is required with respect to the right of any
Person as a holder of Senior Indebtedness to participate in any payment or
distribution pursuant to this Article, the Trustee may request such Person to
furnish evidence to the reasonable satisfaction of the Trustee as to the amount
of Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article, and if such
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evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
Section 1310. Reliance on Judicial Orders or Certificates.
-------------------------------------------
Upon any payment or distribution of assets of the Company referred to
in this Article, the Trustee and the Holders of the Securities shall be entitled
to rely upon any order or decree entered by any court of competent jurisdiction
in which such insolvency, bankruptcy, receivership, liquidation, reorganization,
dissolution, winding up or similar case or proceeding is pending, or a
certificate of the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee for the benefit of creditors, agent or other person making
such payment or distribution, or a certificate of a Senior Representative,
delivered to the Trustee or to the Holders of Securities for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, the holders of Senior Indebtedness and other indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article,
provided that the foregoing shall apply only if such court has been fully
apprised of the provisions of this Article.
Section 1311. Rights of Trustee as a Holder of Senior Indebtedness;
-----------------------------------------------------
Preservation of Trustee's Rights.
--------------------------------
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article with respect to any Senior Indebtedness which
may at any time be held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder. Nothing in this Article shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 607.
Section 1312. Article Applicable to Paying Agents.
-----------------------------------
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting under this Indenture, the term
"Trustee" as used in this Article shall in such case (unless the context
otherwise requires) be construed as extending to and including such Paying Agent
within its meaning as fully for all intents and purposes as if such Paying Agent
were named in this Article in addition to or in place of the Trustee; provided,
however, that Section 1311 shall not apply to the Company or any Affiliate of
the Company if it or such Affiliate acts as Paying Agent.
Section 1313. No Suspension of Remedies.
-------------------------
Nothing contained in this Article shall limit the right of the Trustee
or the Holders of Securities to take any action to accelerate the maturity of
the Securities
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pursuant to Article Five of this Indenture or to pursue any rights or remedies
hereunder or under applicable law, subject to the rights, if any, under this
Article of the holders, from time to time, of Senior Indebtedness to receive the
cash, property or securities receivable from the Company or any Subsidiary upon
the exercise of such rights or remedies.
Section 1314. Trustee's Relation to Senior Indebtedness.
-----------------------------------------
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Article against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness and the Trustee shall
not be liable to any holder of Senior Indebtedness if it shall in good faith
mistakenly (absent negligence or willful misconduct) pay over or deliver to
Holders, the Company or any other Person moneys or assets to which any holder of
Senior Indebtedness shall be entitled by virtue of this Article or otherwise.
ARTICLE FOURTEEN
GUARANTEES
Section 1401. Guarantors' Guarantee.
---------------------
For value received, each of the Guarantors, in accordance with this
Article Fourteen, hereby absolutely, unconditionally and irrevocably guarantees,
jointly and severally, to the Trustee and the Holders, as if the Guarantors were
the principal debtor, the punctual payment and performance when due of all
Indenture Obligations (which for purposes of this Guarantee shall also be deemed
to include all commissions, fees, charges, costs and other expenses (including
reasonable legal fees and disbursements of one counsel) arising out of or
incurred by the Trustee or the Holders in connection with the enforcement of
this Guarantee).
Section 1402. Continuing Guarantee; No Right of Set-Off; Independent
------------------------------------------------------
Obligation.
- ----------
(a) This Guarantee shall be a continuing guarantee of the payment and
performance of all Indenture Obligations and shall remain in full force and
effect until the payment in full of all of the Indenture Obligations and shall
apply to and secure any ultimate balance due or remaining unpaid to the Trustee
or the Holders; and this Guarantee shall not be considered as wholly or
partially satisfied by the payment or liquidation at any time or from time to
time of any sum of money for the time being due or remaining unpaid to the
Trustee or the Holders. Each Guarantor, jointly and severally, covenants and
agrees to comply with all obligations, covenants, agreements and
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provisions applicable to it in this Indenture including those set forth in
Article Eight. Without limiting the generality of the foregoing, each
Guarantor's liability shall extend to all amounts which constitute part of the
Indenture Obligations and would be owed by the Company under this Indenture and
the Securities but for the fact that they are unenforceable, reduced, limited,
impaired, suspended or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving the Company.
(b) Each Guarantor, jointly and severally, hereby guarantees that the
Indenture Obligations will be paid to the Trustee without set-off or
counterclaim or other reduction whatsoever (whether for taxes, withholding or
otherwise) in lawful currency of the United States of America.
(c) Each Guarantor, jointly and severally, guarantees that the
Indenture Obligations shall be paid strictly in accordance with their terms
regardless of any law, regulation or order now or hereafter in effect in any
jurisdiction affecting any of such terms or the rights of the holders of the
Securities.
(d) Each Guarantor's liability to pay or perform or cause the
performance of the Indenture Obligations under this Guarantee shall arise
forthwith after demand for payment or performance by the Trustee has been given
to the Guarantors in the manner prescribed in Section 106 hereof.
(e) Except as provided herein, the provisions of this Article Fourteen
cover all agreements between the parties hereto relative to this Guarantee and
none of the parties shall be bound by any representation, warranty or promise
made by any Person relative thereto which is not embodied herein; and it is
specifically acknowledged and agreed that this Guarantee has been delivered by
each Guarantor free of any conditions whatsoever and that no representations,
warranties or promises have been made to any Guarantor affecting its liabilities
hereunder, and that the Trustee shall not be bound by any representations,
warranties or promises now or at any time hereafter made by the Company to any
Guarantor.
(f) This Guarantee is a guarantee of payment, performance and
compliance and not of collectibility and is in no way conditioned or contingent
upon any attempt to collect from or enforce performance or compliance by the
Company or upon any event or condition whatsoever.
(g) The obligations of the Guarantors set forth herein constitute the
full recourse obligations of the Guarantors enforceable against them to the full
extent of all their assets and properties.
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Section 1403. Guarantee Absolute.
------------------
The obligations of the Guarantors hereunder are independent of the
obligations of the Company under the Securities and this Indenture and a
separate action or actions may be brought and prosecuted against any Guarantor
whether or not an action or proceeding is brought against the Company and
whether or not the Company is joined in any such action or proceeding. The
liability of the Guarantors hereunder is irrevocable, absolute and unconditional
and (to the extent permitted by law) the liability and obligations of the
Guarantors hereunder shall not be released, discharged, mitigated, waived,
impaired or affected in whole or in part by:
(a) any defect or lack of validity or enforceability in respect of
any Indebtedness or other obligation of the Company or any other
Person under this Indenture or the Securities, or any agreement
or instrument relating to any of the foregoing;
(b) any grants of time, renewals, extensions, indulgences, releases,
discharges or modifications which the Trustee or the Holders may
extend to, or make with, the Company, any Guarantor or any other
Person, or any change in the time, manner or place of payment of,
or in any other term of, all or any of the Indenture Obligations,
or any other amendment or waiver of, or any consent to or
departure from, this Indenture or the Securities, including any
increase or decrease in the Indenture Obligations;
(c) the taking of security from the Company, any Guarantor or any
other Person, and the release, discharge or alteration of, or
other dealing with, such security;
(d) the occurrence of any change in the laws, rules, regulations or
ordinances of any jurisdiction by any present or future action of
any governmental authority or court amending, varying, reducing
or otherwise affecting, or purporting to amend, vary, reduce or
otherwise affect, any of the Indenture Obligations and the
obligations of any Guarantor hereunder;
(e) the abstention from taking security from the Company, any
Guarantor or any other Person or from perfecting, continuing to
keep perfected or taking advantage of any security;
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(f) any loss, diminution of value or lack of enforceability of any
security received from the Company, any Guarantor or any other
Person, and including any other guarantees received by the
Trustee;
(g) any other dealings with the Company, any Guarantor or any other
Person, or with any security;
(h) the Trustee's or the Holders' acceptance of compositions from the
Company or any Guarantor;
(i) the application by the Holders or the Trustee of all monies at
any time and from time to time received from the Company, any
Guarantor or any other Person on account of any indebtedness and
liabilities owing by the Company or any Guarantor to the Trustee
or the Holders, in such manner as the Trustee or the Holders
deems best and the changing of such application in whole or in
part and at any time or from time to time, or any manner of
application of collateral, or proceeds thereof, to all or any of
the Indenture Obligations, or the manner of sale of any
collateral;
(j) the release or discharge of the Company or any Guarantor of the
Securities or of any Person liable directly as surety or
otherwise by operation of law or otherwise for the Securities,
other than an express release in writing given by the Trustee, on
behalf of the Holders, of the liability and obligations of any
Guarantor hereunder;
(k) any change in the name, business, capital structure or governing
instrument of the Company or any Guarantor or any refinancing or
restructuring of any of the Indenture Obligations;
(l) the sale of the Company's or any Guarantor's business or any part
thereof;
(m) subject to Section 1414, any merger or consolidation, arrangement
or reorganization of the Company, any Guarantor, any Person
resulting from the merger or consolidation of the Company or any
Guarantor with any other Person or any other successor to such
Person or merged or consolidated Person or any other change in
the corporate existence, structure or ownership of the Company or
any Guarantor or any change in the corporate relationship between
the Company and any Guarantor, or any termination of such
relationship;
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(n) the insolvency, bankruptcy, liquidation, winding-up, dissolution,
receivership, arrangement, readjustment, assignment for the
benefit of creditors or distribution of the assets of the Company
or its assets or any resulting discharge of any obligations of
the Company (whether voluntary or involuntary) or of any
Guarantor (whether voluntary or involuntary) or the loss of
corporate existence;
(o) subject to Section 1414, any arrangement or plan of
reorganization affecting the Company or any Guarantor;
(p) any failure, omission or delay on the part of the Company to
conform or comply with any term of this Indenture;
(q) any limitation on the liability or obligations of the Company or
any other Person under this Indenture, or any discharge,
termination, cancellation, distribution, irregularity, invalidity
or unenforceability in whole or in part of this Indenture;
(r) any other circumstance (including any statute of limitations)
that might otherwise constitute a defense available to, or
discharge of, the Company or any Guarantor; or
(s) any modification, compromise, settlement or release by the
Trustee, or by operation of law or otherwise, of the Indenture
Obligations or the liability of the Company or any other obligor
under the Securities, in whole or in part, and any refusal of
payment by the Trustee, in whole or in part, from any other
obligor or other guarantor in connection with any of the
Indenture Obligations, whether or not with notice to, or further
assent by, or any reservation of rights against, each of the
Guarantors.
Section 1404. Right to Demand Full Performance.
--------------------------------
In the event of any demand for payment or performance by the Trustee
from any Guarantor hereunder, the Trustee or the Holders shall have the right to
demand its full claim and to receive all dividends or other payments in respect
thereof until the Indenture Obligations have been paid in full, and the
Guarantors shall continue to be jointly and severally liable hereunder for any
balance which may be owing to the Trustee or the Holders by the Company under
this Indenture and the Securities. The retention by the Trustee or the Holders
of any security, prior to the realization by the Trustee or the
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Holders of its rights to such security upon foreclosure thereon, shall not, as
between the Trustee and any Guarantor, be considered as a purchase of such
security, or as payment, satisfaction or reduction of the Indenture Obligations
due to the Trustee or the Holders by the Company or any part thereof. Each
Guarantor, promptly after demand, will reimburse the Trustee and the Holders for
all costs and expenses of collecting such amount under, or enforcing this
Guarantee, including, without limitation, the reasonable fees and expenses of
counsel.
Section 1405. Waivers.
-------
(a) Each Guarantor hereby expressly waives (to the extent permitted
by law) notice of the acceptance of this Guarantee and notice of the existence,
renewal, extension or the non-performance, non-payment, or non-observance on the
part of the Company of any of the terms, covenants, conditions and provisions of
this Indenture or the Securities or any other notice whatsoever to or upon the
Company or such Guarantor with respect to the Indenture Obligations, whether by
statute, rule of law or otherwise. Each Guarantor hereby acknowledges
communication to it of the terms of this Indenture and the Securities and all of
the provisions therein contained and consents to and approves the same. Each
Guarantor hereby expressly waives (to the extent permitted by law) diligence,
presentment, protest and demand for payment with respect to (i) any notice of
sale, transfer or other disposition of any right, title to or interest in the
Securities by the Holders or in this Indenture, (ii) any release of any
Guarantor from its obligations hereunder resulting from any loss by it of its
rights of subrogation hereunder and (iii) any other circumstances whatsoever
that might otherwise constitute a legal or equitable discharge, release or
defense of a guarantor or surety or that might otherwise limit recourse against
such Guarantor.
(b) Without prejudice to any of the rights or recourses which the
Trustee or the Holders may have against the Company, each Guarantor hereby
expressly waives (to the extent permitted by law) any right to require the
Trustee or the Holders to:
(i) enforce, assert, exercise, initiate or exhaust any rights,
remedies or recourse against the Company, any Guarantor or
any other Person under this Indenture or otherwise;
(ii) value, realize upon, or dispose of any security of the
Company or any other Person held by the Trustee or the
Holders;
(iii) initiate or exhaust any other remedy which the Trustee or
the Holders may have in law or equity; or
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(iv) mitigate the damages resulting from any default under this
Indenture;
before requiring or becoming entitled to demand payment from such Guarantor
under this Guarantee.
Section 1406. The Guarantors Remain Obligated in Event the Company is No
----------------------------------------------------------
Longer Obligated to Discharge Indenture Obligations.
- ---------------------------------------------------
It is the express intention of the Trustee and the Guarantors that if
for any reason the Company has no legal existence, is or becomes under no legal
obligation to discharge the Indenture Obligations owing to the Trustee or the
Holders by the Company or if any of the Indenture Obligations owing by the
Company to the Trustee or the Holders becomes irrecoverable from the Company by
operation of law or for any reason whatsoever, this Guarantee and the covenants,
agreements and obligations of the Guarantors contained in this Article Fourteen
shall nevertheless be binding upon the Guarantors, as principal debtor, until
such time as all such Indenture Obligations have been paid in full to the
Trustee and all Indenture Obligations owing to the Trustee or the Holders by the
Company have been discharged, or such earlier time as Section 402 shall apply to
the Securities and the Guarantors shall be responsible for the payment thereof
to the Trustee or the Holders upon demand.
Section 1407. Fraudulent Conveyance; Contribution; Subrogation.
-------------------------------------------------
(a) Any term or provision of this Guarantee to the contrary
notwithstanding, the aggregate amount of the Indenture Obligations guaranteed
hereunder shall be reduced to the extent necessary to prevent this Guarantee
from violating or becoming voidable under applicable law relating to fraudulent
conveyance or fraudulent transfer or similar laws affecting the rights of
creditors generally.
(b) Each Guarantor that makes a payment or distribution under its
Note Guarantee shall be entitled to a contribution from each other Guarantor in
a pro rata amount based on the net assets of each Guarantor, determined in
accordance with GAAP.
(c) Each Guarantor shall be subrogated to all rights of Holders
against the Company in respect of any amounts paid by any Gurantor pursuant to
the provisions of this Article Fourteen; that, if an Event of Default has
occurred and is continuing, no Guarantor shall be entitled to enforce or receive
any payments arising out of, or based upon, such right of subrogation until 91
days after all amounts due and payable by the Company under this Indenture or
the Notes shall have been paid in full.
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Section 1408. Guarantee is in Addition to Other Security.
------------------------------------------
This Guarantee shall be in addition to and not in substitution for any
other guarantees or other security which the Trustee may now or hereafter hold
in respect of the Indenture Obligations owing to the Trustee or the Holders by
the Company and (except as may be required by law) the Trustee shall be under no
obligation to marshal in favor of each of the Guarantors any other guarantees or
other security or any moneys or other assets which the Trustee may be entitled
to receive or upon which the Trustee or the Holders may have a claim.
Section 1409. Release of Security Interests.
-----------------------------
Without limiting the generality of the foregoing and except as
otherwise provided in this Indenture, each Guarantor hereby consents and agrees,
to the fullest extent permitted by applicable law, that the rights of the
Trustee hereunder, and the liability of the Guarantors hereunder, shall not be
affected by any and all releases for any purpose of any collateral, if any, from
the Liens and security interests created by any collateral document and that
this Guarantee shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Indenture Obligations is rescinded
or must otherwise be returned by the Trustee upon the insolvency, bankruptcy or
reorganization of the Company or otherwise, all as though such payment had not
been made.
Section 1410. No Bar to Further Actions.
-------------------------
Except as provided by law, no action or proceeding brought or
instituted under Article Fourteen and this Guarantee and no recovery or judgment
in pursuance thereof shall be a bar or defense to any further action or
proceeding which may be brought under Article Fourteen and this Guarantee by
reason of any further default or defaults under Article Fourteen and this
Guarantee or in the payment of any of the Indenture Obligations owing by the
Company.
Section 1411. Failure to Exercise Rights Shall Not Operate as a Waiver; No
------------------------------------------------------------
Suspension of Remedies.
- ----------------------
(a) No failure to exercise and no delay in exercising, on the part of
the Trustee or the Holders, any right, power, privilege or remedy under this
Article Fourteen and this Guarantee shall operate as a waiver thereof, nor shall
any single or partial exercise of any rights, power, privilege or remedy
preclude any other or further exercise thereof, or the exercise of any other
rights, powers, privileges or remedies. The rights and remedies herein provided
for are cumulative and not exclusive of any rights or remedies provided in law
or equity.
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(b) Nothing contained in this Article Fourteen shall limit the right
of the Trustee or the Holders to take any action to accelerate the maturity of
the Securities pursuant to Article Five or to pursue any rights or remedies
hereunder or under applicable law.
Section 1412. Trustee's Duties; Notice to Trustee.
-----------------------------------
(a) Any provision in this Article Fourteen or elsewhere in this
Indenture allowing the Trustee to request any information or to take any action
authorized by, or on behalf of any Guarantor, shall be permissive and shall not
be obligatory on the Trustee except as the Holders may direct in accordance with
the provisions of this Indenture or where the failure of the Trustee to request
any such information or to take any such action arises from the Trustee's
negligence, bad faith or willful misconduct.
(b) The Trustee shall not be required to inquire into the existence,
powers or capacities of the Company, any Guarantor or the officers, directors or
agents acting or purporting to act on their respective behalf.
Section 1413. Successors and Assigns.
----------------------
All terms, agreements and conditions of this Article Fourteen shall
extend to and be binding upon each Guarantor and its successors and permitted
assigns and shall enure to the benefit of and may be enforced by the Trustee and
its successors and assigns; provided, however, that the Guarantors may not
assign any of their rights or obligations hereunder other than in accordance
with Article Eight.
Section 1414. Release of Guarantee.
--------------------
Notwithstanding anything in this Article Fourteen to the contrary,
concurrently with the payment in full of all of the Indenture Obligations, the
Guarantors shall be released from and relieved of their obligations under this
Article Fourteen. Upon the delivery by the Company to the Trustee of an
Officers' Certificate and, if requested by the Trustee, an Opinion of Counsel to
the effect that the transaction giving rise to the release of this Guarantee was
made by the Company in accordance with the provisions of this Indenture and the
Securities, the Trustee shall execute any documents reasonably required in order
to evidence the release of the Guarantors from their obligations under this
Guarantee. If any of the Indenture Obligations are revived and reinstated after
the termination of this Guarantee, then all of the obligations of the Guarantors
under this Guarantee shall be revived and reinstated as if this Guarantee had
not been terminated until such time as the Indenture Obligations are paid in
full, and each Guarantor shall
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enter into an amendment to this Guarantee, reasonably satisfactory to the
Trustee, evidencing such revival and reinstatement.
This Guarantee shall terminate with respect to each Guarantor and
shall be automatically and unconditionally released and discharged as provided
in Section 1014(c).
Section 1415. Execution of Guarantee; Additional Guarantors.
----------------------------------------------
(a) To evidence the Guarantee, each Guarantor hereby agrees to
execute the guarantee substantially in the form set forth in Section 205, to be
endorsed on each Security authenticated and delivered by the Trustee and that
this Indenture shall be executed on behalf of each Guarantor by its Chairman of
the Board, its President, its Chief Executive Officer, Chief Operating Officer
or one of its Vice Presidents, attested by its Secretary or one of its Assistant
Secretaries. The signature of any of these officers on the Securities may be
manual or facsimile.
(b) Any person that was not a Guarantor on the date of this Indenture
may become a Guarantor by executing and delivering to the Trustee (i) a
supplemental indenture in form and substance satisfactory to the Trustee, which
subjects such person to the provisions (including the representations and
warranties) of this Indenture as a Guarantor, (ii) in the event that as of the
date of such supplemental indenture any Registrable Securities are outstanding,
an instrument in form and substance satisfactory to the Trustee which subjects
such person to the provisions of the Registration Rights Agreement with respect
to such outstanding Registrable Securities, and (iii) an Opinion of Counsel to
the effect that such supplemental indenture has been duly authorized and
executed by such person and constitutes the legal, valid and binding obligation
of such person (subject to such customary assumptions and exceptions as may be
acceptable to the Trustee in its reasonable discretion).
(c) If an officer whose signature is on this Indenture no longer
holds that office at the time the Trustee authenticates a Security on which this
Guarantee is endorsed, such Guarantee shall be valid nevertheless.
Section 1416. Guarantee Subordinate to Guarantor Senior Indebtedness.
------------------------------------------------------
Each Guarantor covenants and agrees, and each Holder of a Guarantee,
by his acceptance thereof, likewise covenants and agrees, that, to the extent
and in the manner hereinafter set forth in this Article, the Indebtedness
represented by the Guarantees is hereby expressly made subordinate and subject
in right of payment as provided in this Article to the prior payment in full of
all Guarantor Senior Indebtedness; provided, however, that the Indebtedness
represented by this Guarantee in all respects
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shall rank equally with, or prior to, all existing and future Indebtedness of
such Guarantor that is expressly subordinated to such Guarantor's Guarantor
Senior Indebtedness.
This Article Fourteen shall constitute a continuing offer to all
Persons who, in reliance upon such provisions, become holders of, or continue to
hold Guarantor Senior Indebtedness; and such provisions are made for the benefit
of the holders of Guarantor Senior Indebtedness; and such holders are made
obligees hereunder and they or each of them may enforce such provisions.
Section 1417. Payment Over of Proceeds Upon Dissolution of the Guarantor,
-----------------------------------------------------------
etc.
- ----
In the event of (a) any insolvency or bankruptcy case or proceeding,
or any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relative to any Guarantor or to its
creditors, as such, or to its assets, or (b) any liquidation, dissolution or
other winding up of any Guarantor, whether voluntary or involuntary, or whether
or not involving insolvency or bankruptcy, or (c) any assignment for the benefit
of creditors or any other marshaling of assets or liabilities of any Guarantor,
then and in any such event:
(1) the holders of Guarantor Senior Indebtedness shall be entitled to
receive payment in full of all amounts due on or in respect of all Guarantor
Senior Indebtedness before the Holders of the Securities are entitled to receive
any payment or distribution of any kind or character (excluding securities of
any Guarantor as reorganized or readjusted or Securities of such Guarantor or
any other corporation provided for by a plan of reorganization or readjustment
the payment of which are subordinated in right of payment to all Guarantor
Senior Indebtedness that may be outstanding, at least to the same extent as, or
to a greater extent than, the Guarantees are so subordinated as provided in this
Article ("Permitted Guarantor Junior Securities")) on account of the Guarantee
of such Guarantor (other than amounts previously set aside with the Trustee, or
payments previously made, in either case, pursuant to the provisions of Sections
402 and 403 of this Indenture); and
(2) any payment or distribution of assets of any Guarantor of any
kind or character, whether in cash, property or securities (excluding Permitted
Guarantor Junior Securities), by set-off or otherwise, to which the Holders or
the Trustee would be entitled but for the provisions of this Article shall be
paid by the liquidating trustee or agent or other Person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee
or otherwise, directly to the holders of Guarantor Senior Indebtedness or their
representative or representatives or to the trustee or trustees under any
indenture under which any instruments evidencing any of such Guarantor Senior
Indebtedness may have been issued, ratably according to the aggregate amounts
remaining unpaid on account of the Guarantor Senior Indebtedness held or
represented by
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each, to the extent necessary to make payment in full of all Guarantor Senior
Indebtedness remaining unpaid, after giving effect to any concurrent payment or
distribution to the holders of such Guarantor Senior Indebtedness; and
(3) in the event that, notwithstanding the foregoing provisions of
this Section, the Trustee or the Holder of any Security shall have received any
payment or distribution of assets of any Guarantor of any kind or character,
whether in cash, property or securities (excluding Permitted Guarantor Junior
Securities), in respect of the Guarantee of such Guarantor or on account of the
purchase, redemption, defeasance or other acquisition of, or in respect of, the
Guarantee of such Guarantor (other than amounts previously set aside with the
Trustee, or payments previously made, in either case, pursuant to Sections 402
and 403 of this Indenture) before all Guarantor Senior Indebtedness is paid in
full, then and in such event such payment or distribution (excluding Permitted
Guarantor Junior Securities) shall be paid over or delivered forthwith to the
trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent
or other Person making payments or distributions of assets of such Guarantor for
application to the payment of all Guarantor Senior Indebtedness remaining
unpaid, to the extent necessary to pay all Guarantor Senior Indebtedness in full
after giving effect to any concurrent payment or distribution to or for the
holders of Guarantor Senior Indebtedness; and
(4) the Trustee shall execute and deliver to any Senior
Representative all such further instruments as shall be reasonably requested
confirming the subordination of the Guarantees pursuant to this Article
Fourteen.
The consolidation of any Guarantor with, or the merger of any
Guarantor with or into, another Person or the liquidation or dissolution of any
Guarantor following the sale, assignment, conveyance, transfer, lease or other
disposal of its properties and assets substantially as an entirety to another
Person upon the terms and conditions set forth in Article Eight shall not be
deemed a dissolution, winding up, liquidation, reorganization, assignment for
the benefit of creditors or marshaling of assets and liabilities of such
Guarantor for the purposes of this Section if the Person formed by such
consolidation or the surviving entity of such merger or the Person which
acquires by sale, assignment, conveyance, transfer, lease or other disposal of
such properties and assets substantially as an entirety, as the case may be,
shall, as a part of such consolidation, merger, sale, assignment, conveyance,
transfer, lease or other disposal, agrees to be bound by the subordination
provisions contained in Article Fourteen of this Indenture and each of the
conditions set forth in Section 801 (as in effect on the date hereof) shall have
been satisfied in full.
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Section 1418. Default on Guarantor Senior Indebtedness.
----------------------------------------
(a) Upon the maturity of any Guarantor Senior Indebtedness by lapse
of time, acceleration or otherwise, all principal thereof and interest thereon
and other amounts due in connection therewith shall first be paid in full or
such payment duly provided for before any payment is made by any of the
Guarantors or any Person acting on behalf of any of the Guarantors in respect of
the Guarantee of such Guarantor.
(b) No payment or distribution of any assets of any Guarantor of any
kind or character (excluding Permitted Guarantor Junior Securities) shall be
made by any Guarantor in respect of its Guarantee during the period in which
Section 1417 shall be applicable, during any suspension of payments in effect
under Section 1303(a) of this Indenture or during any Payment Blockage Period in
effect under Sections 1303(b) and (c) of this Indenture.
(c) In the event that, notwithstanding the foregoing, any Guarantor
shall make any payment or distribution of any assets of any Guarantor of any
kind or character (excluding Permitted Guarantor Junior Securities) to the
Trustee or the Holder of its Guarantee prohibited by the foregoing provisions of
this Section, then and in such event such payment shall be held in trust for the
holders of Senior Indebtedness and paid over and delivered forthwith to the
representatives of the holders of the Guarantor Senior Indebtedness or as a
court of competent jurisdiction shall direct.
Section 1419. Payment Permitted by Each of the Guarantors if No Default.
---------------------------------------------------------
Nothing contained in this Article, elsewhere in this Indenture or in
any of the Securities shall prevent any Guarantor, at any time except during the
pendency of any case, proceeding, dissolution, liquidation or other winding-up,
assignment for the benefit of creditors or other marshaling of assets and
liabilities of such Guarantor referred to in Section 1417 or under the
conditions described in Section 1418, from making payments at any time of
principal of, premium, if any, or interest on the Securities.
Section 1420. Subrogation to Rights of Holders of Guarantor Senior
----------------------------------------------------
Indebtedness.
- ------------
After the payment in full of all Guarantor Senior Indebtedness, the
Holders of the Securities shall be subrogated to the rights of the holders of
such Guarantor Senior Indebtedness to receive payments and distributions of
cash, property and securities applicable to the Guarantor Senior Indebtedness
until the principal of, premium, if any, and interest on, the Securities shall
be paid in full. For purposes of such subrogation, no payments or distributions
to the holders of Guarantor Senior Indebtedness of any cash, property or
securities to which the Holders of the Securities or the Trustee would be
entitled except for the provisions of this Article, and no payments over
pursuant to the
161
<PAGE>
provisions of this Article to the holders of Guarantor Senior Indebtedness by
Holders of the Securities or the Trustee, shall, as among any Guarantor, its
creditors other than holders of Guarantor Senior Indebtedness, and the Holders
of the Securities, be deemed to be a payment or distribution by such Gurantor to
or on account of the Guarantor Senior Indebtedness.
Section 1421. Provisions Solely to Define Relative Rights.
-------------------------------------------
The provisions of Sections 1416 through 1429 of this Indenture are
intended solely for the purpose of defining the relative rights of the Holders
of the Securities on the one hand and the holders of Guarantor Senior
Indebtedness on the other hand. Nothing contained in this Article or elsewhere
in this Indenture or in the Securities is intended to or shall (a) impair, as
among any Guarantor, its creditors other than holders of Guarantor Senior
Indebtedness and the Holders of the Securities, the obligation of such
Guarantor, which is absolute and unconditional, to pay to the Holders of the
Securities the principal of, premium, if any, and interest on, the Securities as
and when the same shall become due and payable in accordance with their terms;
or (b) affect the relative rights against each of the Guarantors of the Holders
of the Securities and creditors of each of the Guarantors other than the holders
of Guarantor Senior Indebtedness; or (c) prevent the Trustee or the Holder of
any Security from exercising all remedies otherwise permitted by applicable law
upon default under this Indenture, subject to the rights, if any, under this
Article of the holders of Guarantor Senior Indebtedness (1) in any case,
proceeding, dissolution, liquidation or other winding up, assignment for the
benefit of creditors or other marshaling of assets and liabilities of the
Guarantors referred to in Section 1417, to receive, pursuant to and in
accordance with such Section, cash, property and securities otherwise payable or
deliverable to the Trustee or such Holder, or (2) under the conditions specified
in Section 1418, to prevent any payment prohibited by such Section or enforce
their rights pursuant to Section 1418(c).
Section 1422. Trustee to Effectuate Subordination.
-----------------------------------
Each Holder of a Security by such Holder's acceptance thereof
authorizes and directs the Trustee on such Holder's behalf to take such action
as may be necessary or appropriate to effectuate the subordination provided in
this Article and appoints the Trustee such Holder's attorney-in-fact for any and
all such purposes, including, in the event of any dissolution, winding-up,
liquidation or reorganization of any Guarantor whether in bankruptcy,
insolvency, receivership proceedings, or otherwise, the timely filing of a claim
for the unpaid balance of the indebtedness of any Guarantor owing to such Holder
in the form required in such proceedings and the causing of such claim to be
approved.
162
<PAGE>
Section 1423. No Waiver of Subordination Provisions.
-------------------------------------
(a) No right of any present or future holder of any Guarantor Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
any Guarantor or by any act or failure to act, in good faith, by any such holder
or any Senior Representative, or by any non-compliance by any Guarantor with the
terms, provisions and covenants of this Indenture, regardless of any knowledge
thereof any such holder may have or be otherwise charged with.
(b) Without limiting the generality of subsection (a) of this
Section, the holders of Guarantor Senior Indebtedness may, at any time and from
time to time, without the consent of or notice to the Trustee or the Holders of
the Securities, without incurring responsibility to the Holders of the
Securities and without impairing or releasing the subordination provided in this
Article or the obligations hereunder of the Holders of the Securities to the
holders of Guarantor Senior Indebtedness, do any one or more of the following:
(1) change the manner, place or terms of payment or extend the time of payment
of, or renew or alter, Guarantor Senior Indebtedness or any instrument
evidencing the same or any agreement under which Guarantor Senior Indebtedness
is outstanding; (2) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Guarantor Senior Indebtedness; (3)
release any Person liable in any manner for the collection or payment of
Guarantor Senior Indebtedness; (4) exercise or refrain from exercising any
rights against any of the Guarantors and any other Person; and (5) sell, assign
or transfer the Guarantor Senior Indebtedness to any Person; provided, however,
that in no event shall any such actions limit the right of the Holders of the
Securities to take any action to accelerate the maturity of the Securities
pursuant to Article Five of this Indenture or to pursue any rights or remedies
hereunder or under applicable laws if the taking of such action does not
otherwise violate the terms of this Article.
Section 1424. Notice to Trustee by Each of the Guarantors.
-------------------------------------------
(a) Each Guarantor shall give prompt written notice to the Trustee of
any fact known to such Guarantor which would prohibit the making of any payment
to or by the Trustee in respect of the Guarantee. Notwithstanding the
provisions of this Article or any other provision of this Indenture, the Trustee
shall not be charged with knowledge of the existence of any facts which would
prohibit the making of any payment to or by the Trustee in respect of the
Securities, unless and until the Trustee shall have received written notice
thereof from any Guarantor or a holder of Guarantor Senior Indebtedness or any
trustee, fiduciary or agent therefor; and, prior to the receipt of any such
written notice, the Trustee shall be entitled in all respects to assume that no
such facts exist; provided, however, that if the Trustee shall not have received
the notice provided for in
163
<PAGE>
this Section by Noon, Eastern Time, on the Business Day prior to the date upon
which by the terms hereof any money may become payable for any purpose
(including, without limitation, the payment of the principal of, premium, if
any, or interest on any Security), then, anything herein contained to the
contrary notwithstanding but without limiting the rights and remedies of the
holders of Guarantor Senior Indebtedness or any trustee, fiduciary or agent
thereof, the Trustee shall have full power and authority to receive such money
and to apply the same to the purpose for which such money was received and shall
not be affected by any notice to the contrary which may be received by it after
such date; nor shall the Trustee be charged with knowledge of the curing of any
such default or the elimination of the act or condition preventing any such
payment unless and until the Trustee shall have received an Officers'
Certificate to such effect.
(b) The Trustee shall be entitled to rely on the delivery to it of a
written notice to the Trustee and each Guarantor by a Person which represents
itself as a representative of one or more holders of Guarantor Senior or a
holder of Guarantor Senior Indebtedness (or a trustee, fiduciary or agent
therefor) to establish that such notice has been given by a representative of or
a holder of Guarantor Senior Indebtedness (or a trustee, fiduciary or agent
therefor); provided, however, that failure to give such notice to the Company or
any Guarantor shall not affect in any way the ability of the Trustee to rely on
such notice. In the event that the Trustee determines in good faith that
further evidence is required with respect to the right of any Person as a holder
of Guarantor Senior Indebtedness to participate in any payment or distribution
pursuant to this Article, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Guarantor Senior Indebtedness held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and any other
facts pertinent to the rights of such Person under this Article, and if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
Section 1425. Reliance on Judicial Orders or Certificates.
-------------------------------------------
Upon any payment or distribution of assets of any Guarantor referred
to in this Article, the Trustee and the Holders of the Securities shall be
entitled to rely upon any order or decree entered by any court of competent
jurisdiction in which such insolvency, bankruptcy, receivership, liquidation,
reorganization, dissolution, winding up or similar case or proceeding is
pending, or a certificate of the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee for the benefit of creditors, agent or other person
making such payment or distribution, delivered to the Trustee or to the Holders
of Securities for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of Guarantor Senior
Indebtedness and other indebtedness of such Guarantor, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article,
164
<PAGE>
provided that the foregoing shall apply only if such court has been fully
apprised of the provisions of this Article.
Section 1426. Rights of Trustee as a Holder of Guarantor Senior
-------------------------------------------------
Indebtedness; Preservation of Trustee's Rights.
- ----------------------------------------------
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article with respect to any Guarantor Senior
Indebtedness which may at any time be held by it, to the same extent as any
other holder of Guarantor Senior Indebtedness, and nothing in this Indenture
shall deprive the Trustee of any of its rights as such holder. Nothing in this
Article shall apply to claims of, or payments to, the Trustee under or pursuant
to Section 607.
Section 1427. Article Applicable to Paying Agents.
-----------------------------------
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting under this Indenture, the term
"Trustee" as used in this Article shall in such case (unless the context
otherwise requires) be construed as extending to and including such Paying Agent
within its meaning as fully for all intents and purposes as if such Paying Agent
were named in this Article in addition to or in place of the Trustee; provided,
however, that Section 1426 shall not apply to the Company or any Affiliate of
the Company if it or such Affiliate acts as Paying Agent.
Section 1428. No Suspension of Remedies.
-------------------------
Nothing contained in this Article shall limit the right of the Trustee
or the Holders of Securities to take any action to accelerate the maturity of
the Securities pursuant to Article Five of this Indenture or to pursue any
rights or remedies hereunder or under applicable law, subject to the rights, if
any, under this Article of the holders, from time to time, of Guarantor Senior
Indebtedness to receive the cash, property or securities receivable from any
Guarantor upon the exercise of such rights or remedies.
Section 1429. Trustee's Relation to Guarantor Senior Indebtedness.
---------------------------------------------------
With respect to the holders of Guarantor Senior Indebtedness, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article, and no implied
covenants or obligations with respect to the holders of Guarantor Senior
Indebtedness shall be read into this Article against the Trustee. The Trustee
shall not be deemed to owe any fiduciary duty to the holders of Guarantor Senior
Indebtedness and the Trustee shall not be liable to any holder of Guarantor
Senior Indebtedness if it shall in good faith mistakenly (absent negligence or
willful misconduct) pay over or deliver to Holders, the Company or any other
Person
165
<PAGE>
moneys or assets to which any holder of Guarantor Senior Indebtedness shall be
entitled by virtue of this Article or otherwise.
* * *
166
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, all as of the day and year first above written.
THE MAXIM GROUP, INC.
By: /s/ A.J. Nassar
-------------------------------
Name: A. J. Nassar
Title: President and
Chief Executive Officer
Attest: /s/ Gene Harper
------------------------------
Name: Gene Harper
Title: Secretary
IMAGE INDUSTRIES, INC.
By: /s/ H. Stanley Padgett
-------------------------------
Name: H. Stanley Padgett
Title: President
Attest: /s/ Sue Pettit
------------------------------
Name: Sue Pettit
Title: Assistant Secretary
<PAGE>
KINNAIRD & FRANCKE INTERIORS, INC.
KINNAIRD & FRANCKE DRAPERY CO., INC.
FIRST QUALITY, INC.
STEVE PETERSON INTERIORS &
ASSOCIATES, INC.
BAY AREA CARPETS, INC.
CARPET WORLD, INC.
RNA ENTERPRISES, INC.
DUBOSE CARPETS & FLOORS, INC.
RUGS N REMNANTS, INC.
CARPET GALLERY, INC. (GEORGIA)
LOSANTVILLE CARPET OUTLET, INC.
AMERICAN CARPETS & INTERIORS, INC.
CARPET COUNTRY, INC.
CARPETMAX OF NEW MEXICO, INC.
CARPETMAX ALABAMA CONTRACT, INC.
By:/s/ Herbert A. Biggers
---------------------------------
Name: Herbert A. Biggers
Title: President
Attest:/s/ Gene Harper
------------------------------
Name: Gene Harper
Title: Secretary
MAXIM RETAIL GROUP, INC.
By:/s/ Paul Renn
---------------------------------
Name: Paul Renn
Title: President
Attest:/s/ Gene Harper
------------------------------
Name: Gene Harper
Title: Secretary
<PAGE>
INVESTOR MANAGEMENT, INC.
By:/s/ A.J. Nassar
------------------------------
Name: A.J. Nassar
Title: President
Attest:/s/ Gene Harper
------------------------------
Name: Gene Harper
Title: Assistant Secretary
TRI-R OF ORLANDO, INC.
CARPETMAX OF PALM BEACH, INC.
CARPETMAX OF CHARLOTTE, INC.
CLOUD CARPETS, INC.
MAXIM EQUIPMENT LEASING
COMPANY, INC.
By:/s/ A.J. Nassar
-------------------------------
Name: A.J. Nassar
Title: President
Attest:/s/ Gene Harper
------------------------------
Name: Gene Harper
Title: Secretary
CREDITMAX CORP.
By:/s/ A.J. Nassar
-------------------------------
Name: A.J. Nassar
Title: President
Attest:/s/ Thomas P. Leahey
------------------------------
Name: Thomas P. Leahey
Title: Secretary
<PAGE>
GCO, INC.
GCO CARPET OUTLET, INC.
BAILEY & ROBERTS CARPETMAX
OF TENNESSEE, INC.
By:/s/ A.J. Nassar
-------------------------------
Name: A.J. Nassar
Title: Chief Executive Officer
Attest:/s/ Gene Harper
-------------------------------
Name: Gene Harper
Title: Secretary
CARPETMAX, L.P.
By: The Maxim Group, Inc., as
General Partner
By:/s/ A.J. Nassar
-------------------------------
Name: A.J. Nassar
Title: President and Chief
Executive
Officer
Attest:/s/ Gene Harper
-------------------------------
Name: Gene Harper
Title: Secretary
STATE STREET BANK AND TRUST COMPANY
By:/s/ Susan T. Keller
-------------------------------
Name: Susan T. Keller
Title: Vice President
Attest:/s/ Debra Johnson
------------------------------
Name: Debra Johnson
Title: Assistant Secretary
<PAGE>
STATE OF GEORGIA )
-------------
) ss.:
COUNTY OF COBB )
------------
On the 16th day of October, 1997, before me personally came A.J.
----
Nassar, to me known, who, being by me duly sworn, did depose and say that he
resides at 8885 Dogwood Trail, Cumming, Georgia; that he is (i) President and
Chief Executive Officer of The Maxim Group, Inc., (ii) President of each of
Investor Management, Inc., Tri-R of Orlando, Inc., CarpetMAX of Palm Beach,
Inc., CreditMAX Corp., CarpetMAX of Charlotte, Inc., Cloud Carpets, Inc.,
Maxim Equipment Leasing Company, Inc., (iii) Chief Executive Officer of GCO,
Inc., GCO Carpet Outlet, Inc., Bailey & Roberts CarpetMAX of Tennessee, Inc.,
(iv) President and Chief Executive Officer of The Maxim Group, Inc., the
general partner of CarpetMAX, L.P and (v) that he signed his name thereto
pursuant to authority of the Board of Directors of each such corporation.
(NOTARIAL
SEAL)
/s/ Zenith Carol De Vico
----------------------------------
Notary Public, Cobb County, Georgia
My Commission Expires June 28, 2001
<PAGE>
STATE OF GEORGIA )
-----------
) ss.:
COUNTY OF COBB )
-----------
On the 16th day of October, 1997, before me personally came Herbet A.
----
Biggers to me known, who, being by me duly sworn, did depose and say that he
resides at 2205 River Green Drive, Atlanta, Georgia; that he is President of
each of, Kinnaird & Francke Interiors, Inc., Kinnaird & Francke Drapery Co.,
Inc., First Quality, Inc., Steve Peterson Interiors & Associates, Inc., Bay
Area Carpets, Inc., Carpet World, Inc., RNA Enterprises, Inc., Dubose Carpets
& Floors, Inc., Rugs N Remnants, Inc., Carpet Gallery, Inc. (Georgia),
Losantville Carpet Outlet, Inc., American Carpets & Interiors, Inc., Carpet
Country, Inc., CarpetMAX Of New Mexico, Inc., CarpetMAX Alabama Contract, Inc.
and that he signed his name thereto pursuant to authority of the Board of
Directors of each such corporation.
(NOTARIAL
SEAL)
/s/ Zenith Carol De Vico
----------------------------------
Notary Public, Cobb County, Georgia
My Commission Expires June 28, 2001
<PAGE>
STATE OF GEORGIA )
-----------
) ss.:
COUNTY OF COBB )
-----------
On the 16th day of October, 1997, before me personally came H. Stanley
----
Padgett, to me known, who, being by me duly sworn, did depose and say that he
resides at 103 Carpenter Road, Calhoun, Georgia; that he is President of Image
Industries, Inc., and that he signed his name thereto pursuant to authority of
the Board of Directors of such corporation.
(NOTARIAL
SEAL)
/s/ Zenith Carol De Vico
----------------------------------
Notary Public, Cobb County, Georgia
My Commission Expires June 28, 2001
<PAGE>
STATE OF GEORGIA )
-------------
) ss.:
COUNTY OF COBB )
----------
On the 16th day of October, 1997, before me personally came Paul Renn,
----
to me known, who, being by me duly sworn, did depose and say that he resides at
7050 Hunters Ridge, Woodstock, GIA 30189; that he is President of Maxim Retail
- ----------------------------------------
Group, Inc., and that he signed his name thereto pursuant to authority of the
Board of Directors of such corporation.
(NOTARIAL
SEAL)
/s/ Zenith Carol De Vico
----------------------------------
Notary Public, Cobb County, Georgia
My Commission Expires June 28, 2001
<PAGE>
STATE OF NEW YORK )
--------------
) ss.:
COUNTY OF NEW YORK )
--------------
On the 16th day of October, 1997, before me personally came Susan
---- -----
Keller, to me known, who, being by me duly sworn, did depose and say that she
- ------
resides at 41 Pleasant St., West Hartford, CT06107; that she is Vice President
of State Street Bank and Trust Company, a Massachusetts trust company described
in and which executed the foregoing instrument; and that she signed her name
thereto pursuant to authority of the Board of Directors of such corporation.
(NOTARIAL
SEAL)
/s/ STEVEN H. SCHEICHET
-------------------------------
STEVEN H. SCHEICHET
Notary Public State of New York
No. 02SC5008681
Qualified in New York County
Commission Expires 02/22/99
<PAGE>
SCHEDULE I
EXISTING INDEBTEDNESS
A. LONG TERM DEBT:
Note payable to former owner in monthly installments of $315.30 including
interest at 10.00% due November 1, 2000.
(Carpet World)
Note payable to former shareholder (R. Ashby's mother) with interest only
at 8.00% due and payable until paid out on demand. Unsecured.
(Carpet World)
Note payable to former shareholder (R. Ashby's father) with interest only
at 8.00% due and payable until paid out on demand. Unsecured.
(Carpet World)
Note payable to bank payable in monthly installments of $550.24 including
interest, at 9.26% with final payment due September 30, 1998, secured by
vehicle.
(Carpet World)
Note payable to bank payable in monthly installments of $10,221.00 plus
interest at prime, secured by vehicles, due on dates from July 1997 to
March 1998.
(Kinnaird & Francke)
Note payable to Vangard payable in monthly installments of $200.00
including interest at 9.55%, secured by copier, with final payment due
June 2000.
(Kinnaird & Francke)
Note payable to bank payable in monthly installments of $197.00 including
interest, at 6.60%, due August 15, 1998, secured by equipment.
(National Carpet Brokers)
Note payable to Fed CU payable in monthly installments of $337.00 including
interest, at 7.9%, due April 17, 1999, secured by vehicle.
(National Carpet Brokers)
Note payable to bank payable in monthly installments of $243.00 including
interest, at 6.5% due February 1998, secured by vehicle.
(Steve Peterson Interiors)
Note payable to bank payable in monthly installments of $796.15 including
interest, at 7.75% secured by building with final payment due April 1998.
(American Carpet Interiors)
<PAGE>
Note payable to bank payable in monthly installments of $833.00 including
interest at prime plus 1%, secured by a building with final payment due
January 1998.
(American Carpet Interiors)
Note payable to bank payable in monthly installments of $811.43 including
interest at 9.5% secured by vehicle with final payment due October 1997.
(CarpeTime)
Note payable to Credit Union payable in monthly installments of $555.00
including interest, at 7.2%, secured by vehicle with final payment due
April 1998.
(CarpeTime)
Note payable to bank payable in monthly installments of $811.43 including
interest at 9.5%, secured by vehicle with final payment due March 2000.
(Nevada)
Note payable to bank payable in monthly installments of $811.43 including
interest, at 9.5% secured by vehicle with final payment due March 2000.
(Nevada)
Note payable to bank payable in monthly installments of $703.11 including
interest, at 7.92% secured by vehicle with final payment due October
1997.
(Image)
Note payable to First American National Bank payable in monthly
installments of $455.70 including interest at 7.95%, with final payment
due September 15, 1999, secured by vehicle.
(Sexton)
Note payable to previous owner, Mr. Hightower, payable in three annual
installments of $53,333.33, with final payment due FY 2000.
(New Mexico)
Credit Agreement dated as of August 26, 1997 (as amended on September 24,
1997) by and among the Company and its subsidiaries as co-borrowers, and
First Union National Bank, NationsBank, N.A., Fleet National Bank and the
other lenders named therein ($130 million). (Maxim Corporate)
Loan Agreement dated as of September 1, 1997 by and between Image
Industries, Inc. and the Development Authority of the City of
Summerville, Georgia ($30 million). (Image)
2
<PAGE>
B. CAPITAL LEASES:
--------------
<TABLE>
<CAPTION>
TOTAL LEASE
PAYMENTS AS OF
LOCATION NAME COMPANY LANDLORD JANUARY 31, 1997
- ------------- ------- -------- -----------------
<S> <C> <C> <C>
Phone System, Shelving B&R Kennesaw Leasing $ 42,038
Showroom Display B&R Kennesaw Leasing 42,046
Folklift Cpt Wld Barnett Bank 11,191
RFMS Software Cpt Wld Dana Commercial 1,636
Cutting Machine Cpt Wld AT&T Corp. 10,511
Cutting Machine Cpt Wld AT&T Corp. 4,847
Cutting Machine DuBose EZ Cut 1,610
Folklift DuBose Safeline 22,886
Satellite GCO 6,966
Summerville Manufacturing Image City of Summerville 613,064
Equipment
Forklift Image Kalmar 2,199
Printer & Phone Equipment Image NationsBank 16,595
Telephone Equipment Image AT&T 2,952
Telephone Equipment Image IBM 11,229
Two Forklifts Image NationsBank 118,511
Copier NCB Ikon Capital 4,198
Pathfinder Cpt Wld Shareholder 13,497
Van Cpt Wld Shareholder 1,600
Real Property Lease - Madison K&F FKBC 86,625
Real Property Lease - Poplar K&F FKBC 494,950
Level Rd
Real Property Lease - K&F FKBC 174,075
Clarksville
Real Property Lease - Lexington K&F Shareco 1,170,000
</TABLE>
3
<PAGE>
C. LETTERS OF CREDIT
-----------------
<TABLE>
<CAPTION>
LOC NUMBER LOC AMOUNT MATURITY DATE
- ---------- ---------- -------------
<S> <C> <C>
LCSR30103240 375,000.00 8/26/2000
LCSR30110729 1,125,000.00 8/26/2000
LCS000130879 30,616,438.36 8/15/2000
</TABLE>
4
<PAGE>
SCHEDULE II
Dividend and Other Payment Restrictions
Affecting Subsidiaries
1. The Credit Agreement, dated as of August 26, 1997, by the among the
Company, the Subsidiaries of the Company, First Union National Bank, as
Administrative Agent, NationsBank, N.A., as Documentation Agent, and Fleet
National Bank, as Co-Agent, as amended, restated and supplemented from time
to time (the "Credit Agreement").
2. The Loan Documents (as such term is defined in the Credit Agreement).
3. The Security Documents (as such term is defined in the Credit Agreement),
together with any other security agreements, mortgages, pledge agreements,
assignments and financing statements now or hereafter entered into or
provided by the Company and the Subsidiaries for the benefit of, and to
secure the obligations of the Company and the Subsidiaries to, the Lenders
(as such term is defined in the Credit Agreement).
<PAGE>
EXHIBIT A
---------
INTERCOMPANY NOTE
-----------------
___________ , 19_______
Evidences of all loans or advances ("Loans") made hereunder shall be
reflected on the grid attached hereto. FOR VALUE RECEIVED, ______________, a
________________ corporation (the "Maker"), HEREBY PROMISES TO PAY ON DEMAND to
the order of ________________ (the "Holder") the principal sum of the aggregate
unpaid principal amount of all Loans (plus accrued interest thereon) at any time
and from time to time made hereunder which has not been previously paid.
All capitalized terms used herein that are defined in, or by reference
in, the Indenture among The Maxim Group, Inc., a Delaware corporation (the
"Company"), the Guarantors listed therein and State Street Bank and Trust
Company, as trustee, dated as of October 16, 1997 (the "Indenture"), have the
meanings assigned to such terms therein, or by reference therein, unless
otherwise defined.
ARTICLE I
TERMS OF INTERCOMPANY NOTE
Section 1.01 Note Not Forgivable. Unless the Maker of the Loan
--------------------
hereunder is the Company or any Guarantor, the Holder may not forgive any
amounts owing under this intercompany note.
Section 1.02 Interest: Prepayment. (a) The interest rate ("Interest
---------------------
Rate") on the Loans shall be a rate per annum reflected on the grid attached
hereto.
(b) The interest, if any, payable on each of the Loans shall accrue from
the date such Loan is made and, subject to Section 2.01, shall be payable upon
demand of the Holder.
(c) If the principal or accrued interest, if any, of the Loans is not
paid on the date demand is made, interest on the unpaid principal and interest
will accrue at a rate equal to the Interest Rate, if any, plus 100 basis points
per annum from maturity until the principal and interest on such Loans are fully
paid.
(d) Subject to Section 2.01, any amounts hereunder may be repaid at any
time by the Maker.
Section 1.02 Subordination. All Loans made to the Company or any
-------------
Guarantor shall be subordinated in right of payment to the payment and
performance of the obligations of the Company, the Guarantors and any Restricted
Subsidiary under the Indenture, the Securities, the Guarantees or any other
Indebtedness ranking senior to or pari passu with the Securities or the
Guarantees, including, without limitation, any Indebtedness incurred under the
Revolving
A-1
<PAGE>
Credit Agreements; provided, that with respect to a Subsidiary in any specific
instance, such Restricted Subsidiary is also an obligor under the Indenture, the
Securities, the Guarantees or such other senior or pari passu Indebtedness, as
the case may be, whether as a borrower, guarantor or pledgor of collateral.
ARTICLE II
EVENTS OF DEFAULT
Section 2.01 Events of Default. If after the date of issuance of this
-----------------
Loan (i) an Event of Default has occurred under the Indenture, (ii) an Event of
Default (as defined) has occurred under either of the Revolving Credit
Agreements or any refinancing of the Revolving Credit Agreements or (iii) an
"event of default" (as defined) has occurred under any other Indebtedness of the
Company or any Guarantor, then (x) in the event the Maker is not either one of
the Company or a Guarantor, all amounts owing under the Loans hereunder shall be
immediately due and payable to the Holder, and (y) in the event the Maker is
either the Company or a Guarantor, the amounts owing under the Loans hereunder
shall not be due and payable; provided, however, that if such Event of Default
or event of default has been waived, cured or rescinded, such amounts shall no
longer be due and payable in the case of clause (x), and such amounts may be
payable in the case of clause (y). If the Holder is a Subsidiary, then the
Holder hereby agrees that if it receives any payments or distributions on any
Loan from the Company or a Guarantor which is not payable pursuant to clause (y)
of the prior sentence after any Event of Default or event of default described
in clauses (i), (ii) or (iii) above has occurred, is continuing and has not been
waived, cured or rescinded, it will pay over and deliver forthwith to the
Company or such Guarantor, as the case may be, all such payments and
distributions.
ARTICLE III
MISCELLANEOUS
Section 3.01 Amendments, Etc. No amendment or waiver of any provision
----------------
of this intercompany note, or consent to depart herefrom is permitted at any
time for any reason, except with the consent of the Holders of not less than a
majority in aggregate principal amount of the Outstanding Securities.
Section 3.02 Assignment. No party to this Agreement may assign, in
----------
whole or in part, any of its rights and obligations under this intercompany
note, except to its legal successor in interest.
Section 3.03 Third Party Beneficiaries. The holders of the Securities
-------------------------
or any other Indebtedness ranking pari passu with or senior to, the Securities
or any Guarantees, including without limitation, any Indebtedness incurred under
the Credit Facility, shall be third party beneficiaries to this intercompany
note and upon an Event of Default shall have the right to enforce this
intercompany note against the Company or any of its Subsidiaries.
A-2
<PAGE>
Section 3.04 Headings. Article and Section headings in this
--------
intercompany note are included for convenience of reference only and shall not
constitute a part of this intercompany note for any other purpose.
Section 3.05 Entire Agreement. This intercompany note sets forth the
----------------
entire agreement of the parties with respect to its subject matter and
supersedes all previous understandings, written or oral, in respect thereof.
Section 3.06 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING
EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF).
A-3
<PAGE>
Section 3.07 Waivers. The Maker hereby waives presentment, demand for
-------
payment, notice of protest and all other demands and notices in connection with
the delivery, acceptance, performance or enforcement hereof.
By:_______________________
A-4
<PAGE>
BORROWINGS, MATURITIES, AND PAYMENTS OF PRINCIPAL
Amount of Maturity of Amount
Borrowing/ Borrowing/ Principal Paid Unpaid Principal Notation
Date Principal Principal or Prepaid Balance Made by
- ---- ---------- ----------- -------------- ---------------- --------
A-5
<PAGE>
Exhibit B
---------
Form of Certificate to Be Delivered
in Connection with Transfers
Pursuant to Rule 144(k)
________________________
________________, _____
State Street Bank and Trust Company
225 Asylum Street
Hartford, Connecticut 06103
Attention: Corporation Trust Department
Re: The Maxim Group, Inc. (the "Company")
9 1/4% Senior Subordinated Notes due 2007, Series A (the "Securities")
----------------------------------------------------------------------
Ladies and Gentlemen:
In connection with our proposed sale of $________ aggregate principal
amount of the Securities, we confirm that such sale has been effected pursuant
to and in accordance with Rule 144(k) under the Securities Act of 1933, as
amended (the "Securities Act"), and, accordingly, we represent that:
(1) a period of at least two years has elapsed since the later of the
date the Securities were acquired from the Company or from an Affiliate (as
defined in Rule 144 under the Securities Act) of the Company; and
(2) the undersigned is not and has not been during the preceding three
months an Affiliate (as defined in Rule 144 under the Securities Act) of
the Company.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in the Indenture dated October 16, 1997 among the Company,
the Guarantors named therein and State Street Bank and Trust Company as trustee.
Very truly yours,
[Name of Transferor]
By: ___________________________
Authorized Signature
B-1
<PAGE>
Exhibit C
---------
Form of Certificate to Be Delivered
in Connection with Transfers
Pursuant to Regulation S
________________________
________________, _____
State Street Bank and Trust Company
225 Asylum Street
Hartford, Connecticut 06103
Attention: Corporation Trust Department
Re: The Maxim Group, Inc. (the "Company")
9 1/4% Senior Subordinated Notes due 2007 (the "Securities")
------------------------------------------------------------
Ladies and Gentlemen:
In connection with our proposed sale of $________ aggregate principal
amount of the Securities, we confirm that such sale has been effected pursuant
to and in accordance with Regulation S under the Securities Act of 1933, as
amended, and, accordingly, we represent that:
(1) the offer of the Securities was not made to a person in the United
States;
(2) either (a) at the time the buy order was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United
States or (b) the transaction was executed in, on or through the facilities
of a designated off-shore securities market and neither we nor any person
acting on our behalf knows that the transaction has been pre-arranged with
a buyer in the United States;
(3) no directed selling efforts have been made in the United States in
contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the U.S. Securities Act of 1933, as amended.
In addition, if the sale is made during a restricted period and the
provisions of Rule 903(c)(3) or Rule 904(c)(1) of Regulation S are applicable
thereto, we confirm that such
C-1
<PAGE>
sale has been made in accordance with the applicable provisions of Rule
903(c)(3) or Rule 904(c)(1), as the case may be.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By: ___________________________
Authorized Signature
C-2
<PAGE>
APPENDIX I
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
- -----------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please print or typewrite name and address including zip code of assignee)
- --------------------------------------------------------------------------------
the within Security and all rights thereunder, hereby irrevocably constituting
and appointing
- --------------------------------------------------------------------------------
attorney to transfer such Security on the books of the Company with full power
of substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL CERTIFICATES FOR SERIES A SECURITIES
EXCEPT PERMANENT OFFSHORE PHYSICAL
CERTIFICATES]
In connection with any transfer of this Security occurring prior to the
date which is the earlier of the date of an effective Registration Statement or
October 16, 1999, the undersigned confirms that without utilizing any general
solicitation or general advertising that:
[Check One]
[_] (a) this Security is being transferred in compliance with the exemption
from registration under the Securities Act of 1933, as amended,
provided by Rule 144A thereunder.
or
--
I-1
<PAGE>
[_] (b) this Security is being transferred other than in accordance with
(a) above and documents are being furnished which comply with the
conditions of transfer set forth in this Security and the Indenture.
If none of the foregoing boxes is checked, the Trustee or other Security
Registrar shall not be obligated to register this Security in the name of any
Person other than the Holder hereof unless and until the conditions to any such
transfer of registration set forth herein and in Section 307 of the Indenture
shall have been satisfied.
Date: _______________________
_________________________________________
NOTICE: The signature to this assignment
must correspond with the name as written upon
the face of the within-mentioned instrument in every
particular, without alteration or any change
whatsoever.
Signature Guarantee: _____________________________
[Signature must be guaranteed by an eligible Guarantor Institution (banks, stock
brokers, savings and loan associations and credit unions) with membership in an
approved guarantee medallion program pursuant to Securities and Exchange
Commission Rule 17Ad-15]
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Security
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated:__________________ _________________________________________________
NOTICE: To be executed by an authorized signatory
I-2
<PAGE>
APPENDIX II
FORM OF TRANSFEREE CERTIFICATE
I or we assign and transfer this Security to:
- --------------------------------------------
Please insert social security or other identifying number of assignee
- ---------------------------------------------------------------------
________________________________________________________________________________
________________________________________________________________________________
Print or type name, address and zip code 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 must be guaranteed by an eligible Guarantor Institution (banks, stock
brokers, savings and loan associations and credit unions) with membership in an
approved guarantee medallion program pursuant to Securities and Exchange
Commission Rule 17 Ad-15]
<PAGE>
EXHIBIT 4.3
-----------------------------------
REGISTRATION RIGHTS AGREEMENT
DATED AS OF OCTOBER 16, 1997
AMONG
THE MAXIM GROUP, INC.,
IMAGE INDUSTRIES, INC.,
KINNAIRD & FRANCKE INTERIORS, INC.,
KINNAIRD & FRANCKE DRAPERY CO., INC.,
FIRST QUALITY, INC.,
STEVE PETERSON INTERIORS & ASSOCIATES, INC.,
BAY AREA CARPETS, INC.,
CARPET WORLD, INC.,
RNA ENTERPRISES, INC.,
GCO, INC.,
DUBOSE CARPETS & FLOORS, INC.,
RUGS N REMNANTS, INC.,
CARPET GALLERY, INC. (GEORGIA),
LOSANTVILLE CARPET OUTLET, INC.,
AMERICAN CARPETS & INTERIORS, INC.,
INVESTOR MANAGEMENT, INC.,
GCO CARPET OUTLET, INC.,
MAXIM RETAIL GROUP, INC.,
CARPET COUNTRY, INC.,
CARPETMAX, L.P.,
TRI-R OF ORLANDO, INC.,
CARPETMAX OF PALM BEACH, INC.,
CREDITMAX CORP.,
CARPETMAX OF NEW MEXICO, INC.,
CARPETMAX OF CHARLOTTE, INC.,
CLOUD CARPETS, INC.,
CARPETMAX ALABAMA CONTRACT, INC.,
BAILEY & ROBERTS CARPETMAX OF TENNESSEE, INC.
AND
MAXIM EQUIPMENT LEASING COMPANY, INC.,
AND
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED,
FIRST UNION CAPITAL MARKETS CORP.,
AND
WHEAT, FIRST SECURITIES, INC.
-----------------------------------
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
entered into this 16th day of October, 1997, among The Maxim Group, Inc., a
Delaware corporation (the "Company"), Image Industries, Inc., a Delaware
corporation, Kinnaird & Francke Interiors, Inc., a Delaware corporation,
Kinnaird & Francke Drapery Co., Inc., a Kentucky corporation, First Quality,
Inc., a Delaware corporation, Steve Peterson Interiors & Associates, Inc., a
Utah corporation, Bay Area Carpets, Inc., a Delaware corporation, Carpet World,
Inc., a Delaware corporation, RNA Enterprises, Inc., a Delaware corporation,
GCO, Inc., a Nevada corporation, Dubose Carpets & Floors, Inc., a Delaware
corporation, Rugs N Remnants, Inc., a Texas corporation, Carpet Gallery, Inc.
(Georgia), a Georgia corporation, Losantville Carpet Outlet, Inc., an Indiana
corporation, American Carpets & Interiors, Inc., a Georgia corporation, Investor
Management, Inc., an Alabama corporation, GCO Carpet Outlet, Inc., an Alabama
corporation, Maxim Retail Group, Inc., a Georgia corporation, Carpet Country,
Inc., a Georgia corporation, CarpetMAX, L.P., a Georgia limited partnership,
Tri-R of Orlando, Inc., a Georgia corporation, CarpetMAX of Palm Beach, Inc., a
Georgia corporation, CreditMAX Corp., a Georgia corporation, CarpetMAX of New
Mexico, Inc., a Georgia corporation, CarpetMAX of Charlotte, Inc., a Georgia
corporation, Cloud Carpets, Inc., a Georgia corporation, CarpetMAX Alabama
Contract, Inc., an Alabama corporation, Bailey & Roberts CarpetMAX of Tennessee,
Inc., a Tennessee corporation, and Maxim Equipment Leasing Company, Inc., a
Georgia corporation, as guarantors (collectively, the "Guarantors"), and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, First Union Capital Markets Corp.
and Wheat, First Securities, Inc. (collectively, the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement, dated
October 9, 1997, among the Company, the Guarantors and the Initial Purchasers
(the "Purchase Agreement"), which provides for the sale by the Company to the
Initial Purchasers of an aggregate of $100 million principal amount of the
Company's 9 1/4% Senior Subordinated Notes due 2007, Series A, and related
guarantees by the Guarantors (collectively, the "Securities"). In order to
induce the Initial Purchasers to enter into the Purchase Agreement, the Company
has agreed to provide to the Initial Purchasers and their direct and indirect
transferees the registration rights set forth in this Agreement. The execution
of this Agreement is a condition to the closing under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as follows:
1. Definitions.
-----------
<PAGE>
As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended from time
--------
to time.
"1934 Act" shall mean the Securities Exchange Act of l934, as amended
--------
from time to time.
"Closing Date" shall mean the Closing Time as defined in the Purchase
------------
Agreement.
"Company" shall have the meaning set forth in the preamble and shall
-------
also include the Company's successors.
"Depositary" shall mean The Depository Trust Company, or any other
----------
depositary appointed by the Company, provided, however, that such depositary
must have an address in the Borough of Manhattan, in the City of New York.
"Exchange Offer" shall mean the exchange offer by the Company of
--------------
Exchange Securities for Registrable Securities pursuant to Section 2.1
hereof.
"Exchange Offer Registration" shall mean a registration under the 1933
---------------------------
Act effected pursuant to Section 2.1 hereof.
"Exchange Offer Registration Statement" shall mean an exchange offer
-------------------------------------
registration statement on Form S-4 (or, if applicable, on another
appropriate form), and all amendments and supplements to such registration
statement, including the Prospectus contained therein, all exhibits thereto
and all documents incorporated by reference therein.
"Exchange Period" shall have the meaning set forth in Section 2.1
---------------
hereof.
"Exchange Securities" shall mean (i) the 9 1/4% Senior Subordinated
-------------------
Notes due 2007, Series B issued by the Company and (ii) the related
guarantees issued by the Guarantors, in each case under the Indenture
containing terms identical to the Securities in all material respects
(except for references to certain interest rate provisions, restrictions on
transfers and restrictive legends), to be offered to Holders of Securities
in exchange for Registrable Securities (other than Unsold Securities)
pursuant to the Exchange Offer.
2
<PAGE>
"Holder" shall mean an Initial Purchaser, for so long as it owns any
------
Registrable Securities, and each of its successors, assigns and direct and
indirect transferees who become registered owners of Registrable Securities
under the Indenture.
"Indenture" shall mean the Indenture relating to the Securities, the
---------
Exchange Securities and the Private Exchange Securities, dated as of October
16, 1997, between the Company and State Street Bank and Trust Company, as
trustee, as the same may be amended, supplemented, waived or otherwise
modified from time to time in accordance with the terms thereof.
"Initial Purchaser" or "Initial Purchasers" shall have the meaning set
----------------- ------------------
forth in the preamble.
"Majority Holders" shall mean the Holders of a majority of the
----------------
aggregate principal amount of Outstanding (as defined in the Indenture)
Registrable Securities; provided that whenever the consent or approval of
Holders of a specified percentage of Registrable Securities is required
hereunder, Registrable Securities held by the Company and other obligors on
the Registrable Securities or any Affiliate (as defined in the Indenture) of
the Company shall be disregarded in determining whether such consent or
approval was given by the Holders of such required percentage amount.
"Participating Broker-Dealer" shall mean any of Merrill Lynch, Pierce,
---------------------------
Fenner & Smith Incorporated, First Union Capital Markets Corp., Wheat, First
Securities, Inc. and any other broker-dealer which makes a market in the
Securities and exchanges Registrable Securities (other than Unsold
Securities) in the Exchange Offer for Exchange Securities.
"Person" shall mean an individual, partnership (general or limited),
------
corporation, limited liability company, trust or unincorporated
organization, or a government or agency or political subdivision thereof.
"Prospectus" shall mean the prospectus included in a Registration
----------
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including any such
prospectus supplement with respect to the terms of the offering of any
portion of the Registrable Securities covered by a Shelf Registration
Statement, and by all other amendments and supplements to a prospectus,
including post-effective amendments, and in each case including all material
incorporated by reference therein.
3
<PAGE>
"Private Exchange" shall have the meaning set forth in Section 2.1
----------------
hereof.
"Private Exchange Securities" shall have the meaning set forth in
---------------------------
Section 2.1 hereof.
"Purchase Agreement" shall have the meaning set forth in the preamble.
------------------
"Registrable Securities" shall mean the Securities and, if issued, the
----------------------
Private Exchange Securities; provided, however, that Securities and, if
issued, the Private Exchange Securities, shall cease to be Registrable
Securities when (i) a Registration Statement with respect to such Securities
and, if issued, such Private Exchange Securities shall have been declared
effective under the 1933 Act and such Securities shall have been disposed of
pursuant to such Registration Statement, (ii) such Securities and, if
issued, such Private Exchange Securities have been sold to the public
pursuant to Rule l44 (or any similar provision then in force, but not Rule
144A) under the 1933 Act, (iii) such Securities and, if issued, such Private
Exchange Securities shall have ceased to be outstanding or (iv) the Exchange
Offer is consummated (except in the case of Unsold Securities and Private
Exchange Securities).
"Registration Expenses" shall mean any and all expenses incident to
---------------------
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC, stock exchange or National Association of
Securities Dealers, Inc. (the "NASD") registration and filing fees,
including, if applicable, the fees and expenses of any "qualified
independent underwriter" (and its counsel) that is required to be retained
by any holder of Registrable Securities in accordance with the rules and
regulations of the NASD, (ii) all fees and expenses incurred in connection
with compliance with state securities or blue sky laws and compliance with
the rules of the NASD (including reasonable fees and disbursements of
counsel for any underwriters or Holders in connection with blue sky
qualification of any of the Exchange Securities or Registrable Securities
and any filings with the NASD), (iii) all expenses of any Persons in
preparing or assisting in preparing, word processing, printing and
distributing any Registration Statement, any Prospectus, any amendments or
supplements thereto, any underwriting agreements, securities sales
agreements and other documents relating to the performance of and compliance
with this Agreement, (iv) all fees and expenses incurred in connection with
the listing, if any, of any of the Registrable Securities on any securities
exchange or exchanges, (v) all rating agency fees, (vi) the fees and
disbursements of counsel for the Company and of the independent public
accountants of the Company, including the expenses of any special audits or
"cold comfort" letters required by or incident to such performance and
compliance, (vii) the fees and expenses of the Trustee, and any escrow agent
or custodian,
4
<PAGE>
(viii) the reasonable fees and expenses of the Initial Purchasers in
connection with any Shelf Registration Statement, including the reasonable
fees and expenses of counsel to the Initial Purchasers in connection
therewith, (ix) in connection with any Shelf Registration Statement, the
reasonable fees and disbursements of Fried, Frank, Harris, Shriver &
Jacobson, special counsel representing the Holders of Registrable Securities
and (x) any fees and disbursements of the underwriters customarily required
to be paid by issuers or sellers of securities and the fees and expenses of
any special experts retained by the Company in connection with any
Registration Statement, but excluding underwriting discounts and commissions
and transfer taxes, if any, relating to the sale or disposition of
Registrable Securities by a Holder.
"Registration Statement" shall mean any registration statement of the
----------------------
Company which covers any of the Exchange Securities or Registrable
Securities pursuant to the provisions of this Agreement, and all amendments
and supplements to any such Registration Statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"SEC" shall mean the United States Securities and Exchange Commission
---
or any successor agency or government body performing the functions
currently performed by the United States Securities and Exchange Commission.
"Shelf Registration" shall mean a registration effected pursuant to
------------------
Section 2.2 hereof.
"Shelf Registration Statement" shall mean a "shelf" registration
----------------------------
statement of the Company pursuant to the provisions of Section 2.2 of this
Agreement which covers all of the Registrable Securities on an appropriate
form under Rule 415 under the 1933 Act, or any similar rule that may be
adopted by the SEC, and all amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material
incorporated by reference therein.
"Trustee" shall mean the trustee with respect to the Securities, the
-------
Exchange Securities and the Private Exchange Securities under the Indenture.
"Unsold Securities" shall have the meaning set forth in Section 2.1
-----------------
hereof.
5
<PAGE>
2. Registration Under the 1933 Act.
-------------------------------
2.1 Exchange Offer. The Company and the Guarantors shall (A) prepare
--------------
and, as soon as practicable but not later than 30 days following the Closing
Date, file with the SEC an Exchange Offer Registration Statement on an
appropriate form under the 1933 Act with respect to a proposed Exchange Offer
and the issuance and delivery to the Holders, in exchange for the Registrable
Securities (other than Unsold Securities and Private Exchange Securities), a
like principal amount of Exchange Securities, (B) use their best efforts to
cause the Exchange Offer Registration Statement to be declared effective under
the 1933 Act within 90 days of the Closing Date, (C) use their best efforts to
keep the Exchange Offer Registration Statement effective until the closing of
the Exchange Offer and (D) use their best efforts to cause the Exchange Offer to
be consummated not later than 120 days following the Closing Date. The Exchange
Securities will be issued under the Indenture. Upon the effectiveness of the
Exchange Offer Registration Statement, the Company and the Guarantors shall
promptly commence the Exchange Offer, it being the objective of such Exchange
Offer to enable each Holder eligible and electing to exchange Registrable
Securities (other than Unsold Securities and Private Exchange Securities) for
Exchange Securities (assuming that such Holder (a) is not an affiliate of the
Company within the meaning of Rule 405 under the 1933 Act, (b) is not a broker-
dealer tendering Registrable Securities acquired directly from the Company for
its own account, (c) acquired the Exchange Securities in the ordinary course of
such Holder's business and (d) has no arrangements or understandings with any
Person to participate in the Exchange Offer for the purpose of distributing the
Exchange Securities) to transfer such Exchange Securities from and after their
receipt without any limitations or restrictions under the 1933 Act and without
material restrictions under the securities laws of a substantial proportion of
the several states of the United States.
In connection with the Exchange Offer, the Company and the Guarantors
shall:
(a) mail to each Holder a copy of the Prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter of
transmittal and related documents;
(b) keep the Exchange Offer open for acceptance for a period of not
less than 30 calendar days after the date notice thereof is mailed to the
Holders (or longer if required by applicable law) (such period referred to
herein as the "Exchange Period");
(c) utilize the services of the Depositary for the Exchange Offer;
6
<PAGE>
(d) permit Holders to withdraw tendered Registrable Securities at any
time prior to 5:00 p.m. (Eastern Standard Time), on the last business day of the
Exchange Period, by sending to the institution specified in the notice, a
telegram, telex, facsimile transmission or letter setting forth the name of such
Holder, the principal amount of Registrable Securities delivered for exchange,
and a statement that such Holder is withdrawing such Holder's election to have
such Registrable Securities exchanged;
(e) notify each Holder that any Registrable Security not tendered will
remain outstanding and continue to accrue interest, but will not retain any
rights under this Agreement (except in the case of the Initial Purchasers and
Participating Broker-Dealers as provided herein); and
(f) otherwise comply in all respects with all applicable laws
relating to the Exchange Offer.
If, prior to consummation of the Exchange Offer the Initial Purchasers
hold any Securities acquired by them and having the status of an unsold
allotment in the initial distribution ("Unsold Securities"), the Company and the
Guarantors upon the request of any Initial Purchaser shall, simultaneously with
the delivery of the Exchange Securities in the Exchange Offer, issue and deliver
to such Initial Purchaser in exchange (the "Private Exchange") for the Unsold
Securities held by such Initial Purchaser, a like principal amount of debt
securities of the Company, guaranteed by the Guarantors on a senior basis, that
are identical (except that such securities shall bear appropriate transfer
restrictions) to the Exchange Securities (the "Private Exchange Securities").
The Exchange Securities and the Private Exchange Securities shall be
issued under (i) the Indenture or (ii) an indenture identical in all material
respects to the Indenture and which, in either case, has been qualified under
the Trust Indenture Act of 1939, as amended (the "TIA"), or is exempt from such
qualification and shall provide that the Exchange Securities shall not be
subject to the transfer restrictions set forth in the Indenture but that the
Private Exchange Securities shall be subject to such transfer restrictions. The
Indenture or such indenture shall provide that the Exchange Securities, the
Private Exchange Securities and the Securities shall vote and consent together
on all matters as one class and that none of the Exchange Securities, the
Private Exchange Securities or the Securities will have the right to vote or
consent as a separate class on any matter. The Private Exchange Securities
shall be of the same series as and the Company and the Guarantors shall use all
commercially reasonable efforts to have the Private Exchange Securities bear the
same CUSIP number as the Exchange Securities. Neither the Company nor any of
the Guarantors shall have any liability under this
7
<PAGE>
Agreement solely as a result of such Private Exchange Securities not bearing the
same CUSIP number as the Exchange Securities.
As soon as practicable after the close of the Exchange Offer and/or the
Private Exchange, the Company and the Guarantors shall:
(i) accept for exchange all Registrable Securities (other than
Unsold Securities and Private Exchange Securities) duly tendered and
not validly withdrawn pursuant to the Exchange Offer in accordance with
the terms of the Exchange Offer Registration Statement and the letter
of transmittal which shall be an exhibit thereto;
(ii) accept for exchange all Unsold Securities properly tendered
pursuant to the Private Exchange;
(iii) deliver, or cause to be delivered, to the Trustee for
cancellation all Registrable Securities so accepted for exchange; and
(iv) cause the Trustee promptly to authenticate and deliver
Exchange Securities or Private Exchange Securities, as the case may be,
to each Holder of Registrable Securities so accepted for exchange in a
principal amount equal to the principal amount of the Registrable
Securities of such Holder so accepted for exchange.
Interest on each Exchange Security and Private Exchange Security will
accrue from the last date on which interest was paid on the Registrable
Securities surrendered in exchange therefor or, if no interest has been paid on
the Registrable Securities, from the date of original issuance. The Exchange
Offer and the Private Exchange shall not be subject to any conditions, other
than (i) that the Exchange Offer or the Private Exchange, or the making of any
exchange by a Holder, does not violate applicable law or any applicable
interpretation of the staff of the SEC, (ii) the due tendering of Registrable
Securities in accordance with the Exchange Offer and the Private Exchange, (iii)
that each Holder of Registrable Securities exchanged in the Exchange Offer shall
have represented that all Exchange Securities to be received by it shall be
acquired in the ordinary course of its business and that at the time of the
consummation of the Exchange Offer it shall have no arrangement or understanding
with any person to participate in the distribution (within the meaning of the
1933 Act) of the Exchange Securities and shall have made such other
representations as may be reasonably necessary under applicable SEC rules,
regulations or interpretations to render the use of Form S-4 or other
appropriate form under the 1933 Act available and (iv) that no action or
proceeding shall have been instituted or threatened in any court or by or before
any governmental agency with respect to the Exchange Offer or the Private
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Exchange which, in the Company's and the Guarantors' judgment, would reasonably
be expected to impair the ability of the Company and the Guarantors to proceed
with the Exchange Offer or the Private Exchange. The Company and the Guarantors
shall inform the Initial Purchasers of the names and addresses of the Holders to
whom the Exchange Offer is made, and the Initial Purchasers shall have the right
to contact such Holders and otherwise facilitate the tender of Registrable
Securities in the Exchange Offer.
2.2 Shelf Registration. (i) If, because of any changes in law, SEC
------------------
rules or regulations or applicable interpretations thereof by the staff of the
SEC, the Company and the Guarantors are not permitted to effect the Exchange
Offer as contemplated by Section 2.1 hereof, (ii) if for any other reason the
Exchange Offer Registration Statement is not declared effective within 90 days
following the original issue of the Registrable Securities or the Exchange Offer
is not consummated within 120 days after the original issue of the Registrable
Securities, (iii) upon the request of any of the Initial Purchasers or (iv) if a
Holder is not permitted to participate in the Exchange Offer or participates in
the Exchange Offer but does not receive fully tradeable Exchange Securities
pursuant to the Exchange Offer, then in case of each of clauses (i) through (iv)
the Company and the Guarantors shall, whether or not the Exchange Offer has been
consummated at their cost:
(a) As promptly as practicable, file with the SEC, and thereafter
shall use its best efforts to cause to be declared effective as
promptly as practicable but no later than 120 days after the original
issue of the Securities, a Shelf Registration Statement relating to the
offer and sale of the Registrable Securities by the Holders from time
to time in accordance with the methods of distribution elected by the
Majority Holders participating in the Shelf Registration and set forth
in such Shelf Registration Statement.
(b) Use their best efforts to keep the Shelf Registration
Statement continuously effective in order to permit the Prospectus
forming part thereof to be usable by Holders for a period of two years
from the date the Shelf Registration Statement is declared effective by
the SEC (or one year from the effective date of the Shelf Registration
Statement if such Shelf Registration Statement solely covers
Registrable Securities of the Initial Purchasers), or for such shorter
period that will terminate when all Registrable Securities covered by
the Shelf Registration Statement have been sold pursuant to the Shelf
Registration Statement or cease to be outstanding or otherwise to be
Registrable Securities or when all Registrable Securities became
eligible for resale pursuant to Rule 144 under the 1933 Act without
volume and manner of sale restrictions (the
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"Effectiveness Period"); provided, however, that the Effectiveness
Period in respect of the Shelf Registration Statement shall be extended
to the extent required to permit dealers to comply with the applicable
prospectus delivery requirements of Rule 174 under the 1933 Act and as
otherwise provided herein.
(c) Notwithstanding any other provisions hereof, use their best
efforts to ensure that (i) any Shelf Registration Statement and any
amendment thereto and any Prospectus forming part thereof and any
supplement thereto complies in all material respects with the 1933 Act
and the rules and regulations thereunder, (ii) any Shelf Registration
Statement and any amendment thereto does not, when it becomes
effective, contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading and (iii) any Prospectus
forming part of any Shelf Registration Statement, and any supplement to
such Prospectus (as amended or supplemented from time to time), does
not include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements, in light of
the circumstances under which they were made, not misleading.
The Company and the Guarantors further agree, if necessary, to
supplement or amend the Shelf Registration Statement, as required by Section
3(b) below, and to furnish to the Holders of Registrable Securities copies of
any such supplement or amendment promptly after its being used or filed with the
SEC; provided, however, that no Holder shall be entitled to have its Registrable
Securities covered by the Shelf Registration Statement unless such Holder agrees
in writing to be bound by the terms and provisions of this Agreement.
2.3 Expenses. The Company and the Guarantors shall pay all
--------
Registration Expenses in connection with the registration pursuant to Section
2.1 or 2.2. Each Holder shall pay all underwriting discounts and commissions
and transfer taxes, if any, relating to the sale or disposition of such Holder's
Registrable Securities pursuant to the Shelf Registration Statement.
2.4. Effectiveness. (a) The Company and the Guarantors will be deemed
-------------
not to have used their best efforts to cause the Exchange Offer Registration
Statement or the Shelf Registration Statement, as the case may be, to become, or
to remain, effective during the requisite period if the Company or any of the
Guarantors voluntarily takes any action that would, or omits to take any action
which omission would, result in any such Registration Statement not being
declared effective or in the Holders of Registrable Securities covered thereby
not being able to exchange or offer and sell such Registrable
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Securities during that period as and to the extent contemplated hereby, unless
(i) such action is required by applicable law or (ii) such action is taken by
the Company and the Guarantors in good faith and for valid business reasons (but
not including avoidance of the Company's or the Guarantors', as applicable,
obligations hereunder), including a material corporate transaction, so long as
the Company and the Guarantors promptly comply with the requirements of Section
3(k) hereof, if applicable.
(b) An Exchange Offer Registration Statement pursuant to Section 2.1
hereof or a Shelf Registration Statement pursuant to Section 2.2 hereof will not
be deemed to have become effective unless it has been declared effective by the
SEC; provided, however, that if, after it has been declared effective, the
offering of Registrable Securities pursuant to an Exchange Offer Registration
Statement or a Shelf Registration Statement is interfered with by any stop
order, injunction or other order or requirement of the SEC or any other
governmental agency or court, such Registration Statement will be deemed not to
have become effective during the period of such interference, until the offering
of Registrable Securities pursuant to such Registration Statement may legally
resume.
2.5 Interest. The Indenture executed in connection with the
--------
Securities will provide that in the event that either (a) the Exchange Offer
Registration Statement is not filed with the Commission on or prior to the 30th
calendar day following the date of original issue of the Securities, (b) the
Exchange Offer Registration Statement has not been declared effective on or
prior to the 90th calendar day following the date of original issue of the
Securities, (c) with respect to any Registrable Securities (other than Unsold
Securities and Private Exchange Securities), the Exchange Offer is not
consummated with respect to any such Registrable Securities or a Shelf
Registration Statement is not declared effective, in either case, on or prior to
the 120th calendar day following the date of original issue of the Securities or
(d) with respect to Unsold Securities and Private Exchange Securities, a Shelf
Registration Statement is not declared effective on or prior to the 120th
calendar day following the date of original issue of the Securities (each such
event referred to in clauses (a) through (d) above, a "Registration Default"),
the interest rate borne by the Securities and the Private Exchange Securities
shall be increased ("Additional Interest") by one-quarter of one percent per
annum upon the occurrence of each Registration Default, which rate will increase
by one quarter of one percent each 90-day period that such Additional Interest
continues to accrue under any such circumstance, provided that the maximum
aggregate increase in the interest rate will in no event exceed one percent (1%)
per annum. Upon the cure of all Registration Defaults, the accrual of
Additional Interest will cease and the interest rate will revert to the original
rate.
If the Shelf Registration Statement is unusable by the Holders for any
reason, and the aggregate number of days in any consecutive twelve-month period
for which the Shelf Registration Statement shall not be usable exceeds 30 days
in the
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aggregate, then the interest rate borne by the Securities and the Private
Exchange Securities will be increased by 0.25% per annum of the principal amount
of the Securities and the Private Exchange Securities for the first 90-day
period (or portion thereof) beginning on the 31st such date that such Shelf
Registration Statement ceases to be usable, which rate shall be increased by an
additional 0.25% per annum of the principal amount of the Securities and the
Private Exchange Securities at the beginning of each subsequent 90-day period,
provided that the maximum aggregate increase in the interest rate will in no
event exceed one percent (1%) per annum. Upon the Shelf Registration Statement
once again becoming usable, the interest rate borne by the Securities and the
Private Exchange Securities will be reduced to the original interest rate if the
Company is otherwise in compliance with this Agreement at such time. Additional
Interest shall be computed based on the actual number of days elapsed in each
90-day period in which the Shelf Registration Statement is unusable.
The Company and the Guarantors shall notify the Trustee within three
Business Days after each and every date on which an event occurs in respect of
which Additional Interest is required to be paid (an "Event Date"). Additional
Interest shall be paid by depositing with the Trustee, in trust, for the benefit
of the Holders of Registrable Securities, on or before the applicable semiannual
interest payment date, immediately available funds in sums sufficient to pay the
Additional Interest then due. The Additional Interest due shall be payable on
each interest payment date to the record Holders of Securities and Private
Exchange Securities entitled to receive the interest payment to be paid on such
date as set forth in the Indenture. Each obligation to pay Additional Interest
shall be deemed to accrue from and including the day following the applicable
Event Date.
3. Registration Procedures.
-----------------------
In connection with the obligations of the Company and the Guarantors
with respect to Registration Statements pursuant to Sections 2.1 and 2.2 hereof,
the Company and the Guarantors shall:
(a) prepare and file with the SEC a Registration Statement, within the
relevant time period specified in Section 2, on the appropriate form under the
1933 Act, which form (i) shall be selected by the Company and the Guarantors,
(ii) shall, in the case of a Shelf Registration, be available for the sale of
the Registrable Securities by the selling Holders thereof, (iii) shall comply as
to form in all material respects with the requirements of the applicable form
and include or incorporate by reference all financial statements required by the
SEC to be filed therewith or incorporated by reference therein, and (iv) shall
comply in all respects with the requirements of Regulation S-T under the 1933
Act, and use their best efforts to cause such Registration Statement to become
effective and remain effective in accordance with Section 2 hereof;
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(b) prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary under applicable
law to keep such Registration Statement effective for the applicable period; and
cause each Prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed pursuant to Rule 424 under the 1933 Act and
comply with the provisions of the 1933 Act applicable to them with respect to
the disposition of all securities covered by each Registration Statement during
the applicable period in accordance with the intended method or methods of
distribution by the selling Holders thereof;
(c) in the case of a Shelf Registration, (i) notify each Holder of
Registrable Securities, at least five business days prior to filing, that a
Shelf Registration Statement with respect to the Registrable Securities is being
filed and advising such Holders that the distribution of Registrable Securities
will be made in accordance with the method selected by the Majority Holders
participating in the Shelf Registration; (ii) furnish to each Holder of
Registrable Securities and to each underwriter of an underwritten offering of
Registrable Securities, if any, without charge, as many copies of each
Prospectus, including each preliminary Prospectus, and any amendment or
supplement thereto and such other documents as such Holder or underwriter may
reasonably request, including financial statements and schedules and, if the
Holder so requests, all exhibits in order to facilitate the public sale or other
disposition of the Registrable Securities; and (iii) subject to the third from
last paragraph of this Section 3, hereby consent to the use of the Prospectus or
any amendment or supplement thereto by each of the selling Holders of
Registrable Securities in connection with the offering and sale of the
Registrable Securities covered by the Prospectus or any amendment or supplement
thereto;
(d) use their best efforts to register or qualify the Registrable
Securities under all applicable state securities or "blue sky" laws of such
jurisdictions as any Holder of Registrable Securities covered by a Registration
Statement and each underwriter of an underwritten offering of Registrable
Securities shall reasonably request by the time the applicable Registration
Statement is declared effective by the SEC, and do any and all other acts and
things which may be reasonably necessary or advisable to enable each such Holder
and underwriter to consummate the disposition in each such jurisdiction of such
Registrable Securities owned by such Holder; provided, however, that none of the
Company and the Guarantors shall be required to (i) qualify as a foreign
corporation or as a dealer in securities in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), or (ii) take any
action which would subject it to general service of process or taxation in any
such jurisdiction where it is not then so subject;
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(e) notify promptly each Holder of Registrable Securities under a Shelf
Registration or any Participating Broker-Dealer who has notified the Company and
the Guarantors that it is utilizing the Exchange Offer Registration Statement as
provided in paragraph (f) below and, if requested by such Holder or
Participating Broker-Dealer, confirm such advice in writing promptly (i) when a
Registration Statement has become effective and when any post-effective
amendments and supplements thereto become effective, (ii) of any request by the
SEC or any state securities authority for post-effective amendments and
supplements to a Registration Statement and Prospectus or for additional
information after the Registration Statement has become effective, (iii) of the
issuance by the SEC or any state securities authority of any stop order
suspending the effectiveness of a Registration Statement or the initiation of
any proceedings for that purpose, (iv) in the case of a Shelf Registration, if,
between the effective date of such Registration Statement and the closing of any
sale of Registrable Securities covered thereby, the representations and
warranties of the Company and the Guarantors contained in any underwriting
agreement, securities sales agreement or other similar agreement, if any,
relating to the offering cease to be true and correct in all material respects,
(v) of the happening of any event or the discovery of any facts during the
period a Shelf Registration Statement is effective which makes any statement
made in such Registration Statement or the related Prospectus untrue in any
material respect or which requires the making of any changes in such
Registration Statement or Prospectus in order to make the statements therein not
misleading, (vi) of the receipt by the Company and the Guarantors of any
notification with respect to the suspension of the qualification of the
Registrable Securities or the Exchange Securities, as the case may be, for sale
in any jurisdiction or the initiation or threatening of any proceeding for such
purpose and (vii) of any determination by the Company and the Guarantors that a
post-effective amendment to such Registration Statement would be appropriate;
(f) (A) in the case of the Exchange Offer Registration Statement (i)
include in the Exchange Offer Registration Statement a section entitled "Plan of
Distribution" which section shall be reasonably acceptable to the Initial
Purchasers, and 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 holds Registrable Securities
acquired for its own account as a result of market-making activities or other
trading activities and that will be the beneficial owner (as defined in Rule
13d-3 under the Exchange Act) of Exchange Securities to be received by such
broker-dealer in the Exchange Offer, whether such positions or policies have
been publicly disseminated by the staff of the SEC or such positions or
policies, in the reasonable judgment of the Initial Purchasers and its counsel,
represent the prevailing views of the staff of the SEC, including a statement
that any such broker-dealer who receives Exchange Securities for Registrable
Securities pursuant to the Exchange Offer may be deemed a statutory underwriter
and must deliver a prospectus meeting the requirements of the 1933 Act in
connection with any resale of such
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Exchange Securities, (ii) furnish to each Participating Broker-Dealer who has
delivered to the Company the notice referred to in Section 3(e), without charge,
as many copies of each Prospectus included in the Exchange Offer Registration
Statement, including any preliminary prospectus, and any amendment or supplement
thereto, as such Participating Broker-Dealer may reasonably request, (iii)
subject to the third from last paragraph of this Section 3, hereby consent to
the use of the Prospectus forming part of the Exchange Offer Registration
Statement or any amendment or supplement thereto, by any Person subject to the
prospectus delivery requirements of the SEC, including all Participating Broker-
Dealers, in connection with the sale or transfer of the Exchange Securities
covered by the Prospectus or any amendment or supplement thereto and (iv)
include in the transmittal letter or similar documentation to be executed by an
exchange offeree in order to participate in the Exchange Offer (x) the following
provision:
"If the exchange offeree is not a broker-dealer, it represents that it
is not engaged in, and does not intend to engage in, a distribution of
the Exchange Securities. If the exchange offeree is a broker-dealer
holding Registrable Securities acquired for its own account as a result
of market-making activities or other trading activities, it will
deliver a prospectus meeting the requirements of the 1933 Act in
connection with any resale of Exchange Securities received in respect
of such Registrable Securities pursuant to the Exchange Offer;" and
(y) a statement to the effect that by a broker-dealer making the acknowledgment
described in clause (x) and by delivering a Prospectus in connection with the
exchange of Registrable Securities, the broker-dealer will not be deemed to
admit that it is an underwriter within the meaning of the 1933 Act; and
(B) in the case of any Exchange Offer Registration Statement, the
Company and the Guarantors agree to deliver to the Initial Purchasers on behalf
of the Participating Broker-Dealers upon the effectiveness of the Exchange Offer
Registration Statement (i) an opinion of counsel or opinions of counsel
substantially in the form attached hereto as Exhibit A, (ii) officers'
certificates substantially in the form customarily delivered in a public
offering of debt securities and (iii) a comfort letter or comfort letters in
customary form if permitted by Statement on Auditing Standards No. 72 of the
American Institute of Certified Public Accountants (or if such a comfort letter
is not permitted, an agreed upon procedures letter in customary form) at least
as broad in scope and coverage as the comfort letter or comfort letters
delivered to the Initial Purchasers in connection with the initial sale of the
Securities to the Initial Purchasers;
(g) (i) in the case of an Exchange Offer, furnish counsel for the
Initial Purchasers and (ii) in the case of a Shelf Registration, furnish counsel
for the Holders of Registrable Securities copies of any comment letters received
from the SEC or any other
15
<PAGE>
request by the SEC or any state securities authority for amendments or
supplements to a Registration Statement and Prospectus or for additional
information;
(h) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement at the earliest
possible moment;
(i) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, and each underwriter, if any, without charge, at least
one conformed copy of each Registration Statement and any post-effective
amendment thereto, including financial statements and schedules (without
documents incorporated therein by reference and all exhibits thereto, unless
requested);
(j) in the case of a Shelf Registration, cooperate with the selling
Holders of Registrable Securities to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and not
bearing any restrictive legends; and enable such Registrable Securities to be in
such denominations (consistent with the provisions of the Indenture) and
registered in such names as the selling Holders or the underwriters, if any, may
reasonably request at least one business day prior to the closing of any sale of
Registrable Securities;
(k) in the case of a Shelf Registration, upon the occurrence of any
event or the discovery of any facts, each as contemplated by Sections 3(e)(v)
and 3(e)(vi) hereof, use their best efforts to prepare a supplement or post-
effective amendment to the Registration Statement or the related Prospectus or
any document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of the Registrable
Securities or Participating Broker-Dealers, such Prospectus will not contain at
the time of such delivery any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading or will remain so
qualified. The Company agrees to notify each Holder to suspend use of the
Prospectus as promptly as practicable after the occurrence of such an event, and
each Holder hereby agrees to suspend use of the Prospectus until the Company and
the Guarantors have amended or supplemented the Prospectus to correct such
misstatement or omission. At such time as such public disclosure is otherwise
made or the Company determines that such disclosure is not necessary, in each
case to correct any misstatement of a material fact or to include any omitted
material fact, the Company agrees promptly to notify each Holder of such
determination and to furnish each Holder such number of copies of the
Prospectus, as amended or supplemented, as such Holder may reasonably request;
(l) in the case of a Shelf Registration, a reasonable time prior to the
filing of any Registration Statement, any Prospectus, any amendment to a
Registration
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Statement or amendment or supplement to a Prospectus or any document which is to
be incorporated by reference into a Registration Statement or a Prospectus after
initial filing of a Registration Statement, provide copies of such document to
the Initial Purchasers on behalf of such Holders; and make representatives of
the Company and the Guarantors as shall be reasonably requested by the Holders
of Registrable Securities, or the Initial Purchasers on behalf of such Holders,
available for discussion of such document;
(m) obtain a CUSIP number for all Exchange Securities or Registrable
Securities, as the case may be, not later than the effective date of a
Registration Statement, and provide the Trustee with printed certificates for
the Exchange Securities or the Registrable Securities, as the case may be, in a
form eligible for deposit with the Depositary;
(n) (i) cause the Indenture to be qualified under the TIA in
connection with the registration of the Exchange Securities or Registrable
Securities, as the case may be, (ii) cooperate with the Trustee and the Holders
to effect such changes to the Indenture as may be required for the Indenture to
be so qualified in accordance with the terms of the TIA and (iii) execute, and
use their best efforts to cause the Trustee to execute, all documents as may be
required to effect such changes, and all other forms and documents required to
be filed with the SEC to enable the Indenture to be so qualified in a timely
manner;
(o) in the case of a Shelf Registration, enter into agreements
(including underwriting agreements) and take all other customary and appropriate
actions in order to expedite or facilitate the disposition of such Registrable
Securities and in such connection whether or not an underwriting agreement is
entered into and whether or not the registration is an underwritten
registration:
(i) make such representations and warranties to the Holders of
such Registrable Securities and the underwriters, if any, in form,
substance and scope as are customarily made by issuers to underwriters
in similar underwritten offerings as may be reasonably requested by
them;
(ii) obtain opinions of counsel to the Company and the Guarantors
and updates thereof (which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the managing
underwriters, if any, and the holders of a majority in principal amount
of the Registrable Securities being sold) addressed to each selling
Holder and the underwriters, if any, covering the matters customarily
covered in opinions requested in sales of securities or underwritten
offerings and such other matters as may be reasonably requested by such
Holders and underwriters;
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(iii) obtain "cold comfort" letters and updates thereof from the
Company's and the Guarantors' independent certified public accountants
addressed to the underwriters, if any, and use reasonable efforts to
have such letter addressed to the selling Holders of Registrable
Securities (to the extent consistent with Statement on Auditing
Standards No. 72 of the American Institute of Certified Public
Accounts), such letters to be in customary form and covering matters of
the type customarily covered in "cold comfort" letters to underwriters
in connection with similar underwritten offerings;
(iv) enter into a securities sales agreement with the Holders and
an agent of the Holders providing for, among other things, the
appointment of such agent for the selling Holders for the purpose of
soliciting purchases of Registrable Securities, which agreement shall
be in form, substance and scope customary for similar offerings;
(v) if an underwriting agreement is entered into, cause the same
to set forth indemnification provisions and procedures substantially
equivalent to the indemnification provisions and procedures set forth
in Section 4 hereof with respect to the underwriters and all other
parties to be indemnified pursuant to said Section or, at the request
of any underwriters, in the form customarily provided to such
underwriters in similar types of transactions; and
(vi) deliver such documents and certificates as may be reasonably
requested and as are customarily delivered in similar offerings to the
Holders of a majority in principal amount of the Registrable Securities
being sold and the managing underwriters, if any.
The above shall be done at (i) the effectiveness of such Registration Statement
(and each post-effective amendment thereto) and (ii) each closing under any
underwriting or similar agreement as and to the extent required thereunder. In
the case of any underwritten offering, the Company and the Guarantors shall
provide written notice to the Holders of all Registrable Securities of such
underwritten offering at least 30 days prior to the filing of a prospectus
supplement for such underwritten offering. Such notice shall (x) offer each such
Holder the right to participate in such underwritten offering, (y) specify a
date, which shall be no earlier than 10 days following the date of such notice,
by which such Holder must inform the Company of its intent to participate in
such underwritten offering and (z) include the instructions such Holder must
follow in order to participate in such underwritten offering;
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(p) in the case of a Shelf Registration or if a Prospectus is required
to be delivered by any Participating Broker-Dealer, make available for
inspection by representatives of the Holders of the Registrable Securities, any
underwriters participating in any disposition pursuant to a Shelf Registration
Statement, any Participating Broker-Dealer and any counsel or accountant
retained by any of the foregoing, upon reasonable notice, at reasonable terms
and in a reasonable manner, all relevant financial and other records, pertinent
corporate documents and properties of the Company and the Guarantors reasonably
requested by any such persons, and cause the respective officers, directors,
employees, and any other agents of the Company and the Guarantors to supply all
information reasonably requested by any such representative, underwriter,
special counsel or accountant in connection with a Registration Statement, and
make such representatives of the Company and the Guarantors available for
discussion of such documents as shall be reasonably requested by the Initial
Purchasers; provided, however, that such Persons shall first agree in writing
with the Company and the Guarantors that any information that is reasonably and
in good faith designated by the Company and the Guarantors in writing as
confidential at the time of delivery of such information shall be kept
confidential by such persons, unless (i) disclosure of such information is
required by court or administrative order or is necessary to respond to
inquiries of regulatory authorities, (ii) disclosure of such information is
required by law (including any disclosure requirements pursuant to Federal
securities laws in connection with the filing of such Shelf Registration
Statement or use of any Prospectus) or legal process, (iii) such information
becomes generally available to the public other than as a result of a disclosure
or failure to safeguard such information by such Person or (iv) such information
becomes available to such Person from a source other than the Company and its
subsidiaries and such source is not bound by a confidentiality agreement;
(q) (i) in the case of an Exchange Offer Registration Statement, a
reasonable time prior to the filing of any Exchange Offer Registration
Statement, any Prospectus forming a part thereof, any amendment to an Exchange
Offer Registration Statement or amendment or supplement to such Prospectus,
provide copies of such document to the Initial Purchasers and to counsel to the
Holders of Registrable Securities and make such changes in any such document
prior to the filing thereof as the Initial Purchasers or counsel to the Holders
of Registrable Securities may reasonably request and, except as otherwise
required by applicable law, not file any such document in a form to which the
Initial Purchasers on behalf of the Holders of Registrable Securities and
counsel to the Holders of Registrable Securities shall not have previously been
advised and furnished a copy of or to which the Initial Purchasers on behalf of
the Holders of Registrable Securities or counsel to the Holders of Registrable
Securities shall reasonably object on or prior to the later of five business
days after receipt thereof or three business days prior to filing thereof, and
make the representatives of the Company and the Guarantors available for
discussion of such documents as shall be
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reasonably requested by the Initial Purchasers; the Holders shall be deemed to
have reasonably objected to such filing only if such Exchange Offer Registration
Statement or amendment thereto or Prospectus or supplement thereto, as
applicable, as proposed to be filed, contains a material misstatement or
omission; and
(ii) in the case of a Shelf Registration, a reasonable time prior to
filing any Shelf Registration Statement, any Prospectus forming a part thereof,
any amendment to such Shelf Registration Statement or amendment or supplement to
such Prospectus, provide copies of such document to the Holders of Registrable
Securities, to the Initial Purchasers, to counsel to the Holders of Registrable
Securities and to the underwriter or underwriters of an underwritten offering of
Registrable Securities, if any, make such changes in any such document prior to
the filing thereof as the Initial Purchasers, the counsel to the Holders of
Registrable Securities or the underwriter or underwriters reasonably request and
not file any such document in a form to which the Majority Holders, the Initial
Purchasers on behalf of the Holders of Registrable Securities, counsel to the
Holders of Registrable Securities or any underwriter shall not have previously
been advised and furnished a copy of or to which the Majority Holder, the
Initial Purchasers on behalf of the Holders of Registrable Securities, counsel
to the Holders of Registrable Securities or any underwriter shall reasonably
object on or prior to the later of five business days after receipt thereof or
three business days prior to filing thereof, and make the representatives of the
Company and the Guarantors available for discussion of such documents as shall
be reasonably requested by the Majority Holder, the Initial Purchasers on behalf
of the Holders of Registrable Securities, counsel to the Holders of Registrable
Securities or any underwriter.
(r) in the case of a Shelf Registration, use their best efforts to
cause all Registrable Securities to be listed on any securities exchange on
which similar debt securities issued by the Company are then listed if requested
by the Majority Holders, or if requested by the underwriter or underwriters of
an underwritten offering of Registrable Securities, if any;
(s) in the case of a Shelf Registration, use their best efforts to
cause the Registrable Securities to be rated by the appropriate rating agencies,
if so requested by the Majority Holders, or if requested by the underwriter or
underwriters of an underwritten offering of Registrable Securities, if any;
(t) otherwise use their best efforts to comply with all applicable
rules and regulations of the SEC and make available to their security holders,
as soon as reasonably practicable, an earnings statement covering at least 12
months which shall satisfy the provisions of Section 11(a) of the 1933 Act and
Rule 158 thereunder;
20
<PAGE>
(u) cooperate and assist in any filings required to be made with the
NASD and, in the case of a Shelf Registration, in the performance of any due
diligence investigation by any underwriter and its counsel (including any
"qualified independent underwriter" that is required to be retained in
accordance with the rules and regulations of the NASD); and
(v) upon consummation of an Exchange Offer, obtain (i) a customary
opinion of counsel to the Company and the Guarantors addressed to the Trustee
for the benefit of all Holders of Registrable Securities participating in the
Exchange Offer or a Private Exchange, and which includes an opinion that (A)
each of the Company and the Guarantors has duly authorized, executed and
delivered the applicable Exchange Securities, Private Exchange Securities and
the related indenture and (B) each of the applicable Exchange Securities,
Private Exchange Securities and related indenture constitute legal, valid and
binding obligations of each of the Company and the Guarantors, enforceable
against each of the Company and the Guarantors in accordance with its respective
terms (with customary exceptions) and (ii) an officers' certificate containing
certifications substantially similar to those set forth in Section 5(c) of the
Purchase Agreement.
In the case of a Shelf Registration Statement, the Company and the
Guarantors may (as a condition to such Holder's participation in the Shelf
Registration) require each Holder of Registrable Securities to furnish to the
Company and the Guarantors such information regarding the Holder and the
proposed distribution by such Holder of such Registrable Securities as the
Company and the Guarantors may from time to time reasonably request in writing.
The Company may exclude from such registration the Registrable Securities of any
Holder who unreasonably fails to furnish such information within a reasonable
time after receiving such request. Each Holder as to which any Shelf
Registration Statement is being effected agrees to furnish promptly to the
Company all information required to be disclosed in order to make the
information previously furnished to the Company by such Holder not materially
misleading.
In the case of a Shelf Registration Statement, each Holder agrees that,
upon receipt of any notice from the Company and the Guarantors of the happening
of any event or the discovery of any facts, each of the kind described in
Section 3(e)(ii)-(vii) hereof, such Holder will forthwith discontinue
disposition of Registrable Securities pursuant to a Registration Statement until
such Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 3(k) hereof, and, if so directed by the Company and the
Guarantors, such Holder will deliver to the Company and the Guarantors (at their
expense) all copies in such Holder's possession, other than permanent file
copies then in such Holder's possession, of the Prospectus covering such
Registrable Securities current at the time of receipt of such notice. If the
Company and
21
<PAGE>
the Guarantors shall give any such notice to suspend the disposition of
Registrable Securities pursuant to a Shelf Registration Statement as a result of
the happening of any event or the discovery of any facts, each of the kind
described in Section 3(e)(ii)-(vii) hereof, the Company and the Guarantors shall
be deemed to have used their best efforts to keep the Shelf Registration
Statement effective during such period of suspension provided that the Company
and the Guarantors shall use their best efforts to file and have declared
effective (if an amendment) as soon as practicable an amendment or supplement to
the Shelf Registration Statement and shall extend the period during which the
Shelf Registration Statement shall be maintained effective pursuant to this
Agreement 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 the Holders shall have
received copies of the supplemented or amended Prospectus necessary to resume
such dispositions.
In the event that the Company and the Guarantors fail to effect the
Exchange Offer or file any Shelf Registration Statement and maintain the
effectiveness of any Shelf Registration Statement as provided herein, the
Company and the Guarantors shall not file any Registration Statement with
respect to any securities (within the meaning of Section 2(1) of the 1933 Act)
of the Company and the Guarantors other than Registrable Securities.
If any of the Registrable Securities covered by any Shelf Registration
Statement are to be sold in an underwritten offering, the underwriter or
underwriters and manager or managers that will manage such offering will be
selected by the Majority Holders of such Registrable Securities included in such
offering and shall be acceptable to the Company and the Guarantors. No Holder
of Registrable Securities may participate in any underwritten registration
hereunder unless such Holder (a) agrees to sell such Holder's Registrable
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.
4. Indemnification; Contribution.
-----------------------------
(a) The Company and the Guarantors, jointly and severally, agree to
indemnify and hold harmless the Initial Purchasers, each Holder, each
Participating Broker-Dealer, each Person who participates as an underwriter (any
such Person being an "Underwriter") and each Person, if any, who controls any
Holder or Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act as follows:
22
<PAGE>
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement (or any amendment or supplement thereto) pursuant to which
Exchange Securities or Registrable Securities were registered under the 1933
Act, including all documents incorporated therein by reference, or the
omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not misleading,
or arising out of any untrue statement or alleged untrue statement of a
material fact contained in any Prospectus (or any amendment or supplement
thereto) or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount paid
in settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section 4(d)
below) any such settlement is effected with the written consent of the
Company and the Guarantors; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by any indemnified
party), reasonably incurred in investigating, preparing or defending against
any litigation, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue statement
or omission, to the extent that any such expense is not paid under
subparagraph (i) or (ii) above; provided, however, that this indemnity
agreement shall not apply to any loss, liability, claim, damage or expense
to the extent arising out of any untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
written information furnished to the Company and the Guarantors by the
Initial Purchasers, such Holder, such Participating Broker-Dealer or
Underwriter expressly for use in a Registration Statement (or any amendment
thereto) or any Prospectus (or any amendment or supplement thereto);
provided, further, that the Company will not be liable to any Initial
Purchaser, Holder (in its capacity as Holder), Participating Broker-Dealer
or Underwriter (or any person who controls such party within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act) with respect to
any such untrue statement or alleged untrue statement or omission or alleged
omission made in any preliminary Prospectus to the extent that the Company
shall sustain the burden of proving that any such loss, liability, claim,
damage or expense resulted from the fact that such
23
<PAGE>
Initial Purchaser, Holder (in its capacity as Holder), Participating Broker-
Dealer or Underwriter, as the case may be, sold Securities to a Person to
whom such Initial Purchaser, Holder (in its capacity as Holder),
Participating Broker-Dealer or Underwriter, as the case may be, failed to
send or give, at or prior to the written confirmation of the sale of such
Securities a copy of the final Prospectus (as amended or supplemented) if
the Company has previously furnished copies thereof (sufficiently in advance
of the closing of such sale to allow for distribution of the final
Prospectus in a timely manner) to such Initial Purchaser, Holder (in its
capacity as Holder), Participating Broker-Dealer or Underwriter, as the case
may be, and the loss, liability, claim, damage or expense of such Initial
Purchaser, Holder (in its capacity as a Holder), Participating Broker-Dealer
or Underwriter, as the case may be, resulted solely from an untrue statement
or omission or alleged untrue statement or omission of a material fact
contained in or omitted from such preliminary Prospectus which was corrected
in the final Prospectus.
(b) Each Holder severally, but not jointly, agrees to indemnify and
hold harmless the Company, the Guarantors, the Initial Purchasers, each
Underwriter and the other selling Holders, and each of their respective
directors and officers, and each Person, if any, who controls the Company, the
Guarantors, the Initial Purchasers, any Underwriter or any other selling Holder
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act,
against any and all loss, liability, claim, damage and expense described in the
indemnity contained in Section 4(a) hereof, as incurred, but only with respect
to untrue statements or omissions, or alleged untrue statements or omissions,
made in the Shelf Registration Statement (or any amendment thereto) or any
Prospectus included therein (or any amendment or supplement thereto) in reliance
upon and in conformity with written information furnished to the Company and the
Guarantors expressly for use in the Shelf Registration Statement (or any
amendment thereto) or such Prospectus (or any amendment or supplement thereto);
provided, however, that no such Holder shall be liable for any claims hereunder
in excess of the amount of net proceeds received by such Holder from the sale of
Registrable Securities pursuant to such Shelf Registration Statement.
(c) Each indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action or proceeding commenced
against it in respect of which indemnity may be sought hereunder, but failure so
to notify an indemnifying party shall not relieve such indemnifying party from
any liability hereunder to the extent it is not materially prejudiced as a
result thereof and in any event shall not relieve it from any liability which it
may have otherwise than on account of this indemnity agreement. An indemnifying
party may participate at its own expense in the defense of such action;
provided, however, that counsel to the indemnifying party shall not (except with
the consent of the indemnified party) also be counsel to the indemnified party.
In no event shall the indemnifying party or parties be liable for the
24
<PAGE>
fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances. No
indemnifying party shall, without the prior written consent of the indemnified
parties, settle or compromise or consent to the entry of any judgment with
respect to any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever in
respect of which indemnification or contribution could be sought under this
Section 4 (whether or not the indemnified parties are actual or potential
parties thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 4(a)(ii) effected without its
written consent if (i) such settlement is entered into more than 45 days after
receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall have received notice of the terms of such settlement at
least 30 days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement.
(e) If the indemnification provided for in this Section 4 is for any
reason unavailable to or insufficient to hold harmless an indemnified party in
respect of any losses, liabilities, claims, damages or expenses referred to
therein, then each indemnifying party shall contribute to the aggregate amount
of such losses, liabilities, claims, damages and expenses incurred by such
indemnified party, as incurred, in such proportion as is appropriate to reflect
the relative fault of the Company and the Guarantors on the one hand and the
Holders and the Initial Purchasers each on the other hand in connection with the
statements or omissions which resulted in such losses, liabilities, claims,
damages or expenses, as well as any other relevant equitable considerations.
The relative fault of the Company and the Guarantors on the one hand and
the Holders and the Initial Purchasers each on the other hand shall be
determined by reference to, among other things, whether any such untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Company and the
Guarantors, the Holders or the Initial Purchasers and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
25
<PAGE>
The Company, the Guarantors, the Holders and the Initial Purchasers agree
that it would not be just and equitable if contribution pursuant to this
Section 4 were determined by pro rata allocation (even if the Initial Purchasers
were treated as one entity and the Holders were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 4. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 4 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 4, no Initial Purchaser
shall be required to contribute any amount in excess of the amount by which the
total price at which the Securities sold by it were offered exceeds the amount
of any damages which such Initial Purchaser 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 1933 Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 4, each Person, if any, who controls an
Initial Purchaser or Holder within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as such
Initial Purchaser or Holder, and each director of the Company, and each Person,
if any, who controls the Company and each Guarantor, as the case may be, within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall
have the same rights to contribution as the Company and such Guarantor, as the
case may be. The Initial Purchasers' respective obligations to contribute
pursuant to this Section 4 are several in proportion to the principal amount of
Securities set forth opposite their respective names in Schedule A to the
Purchase Agreement and not joint.
5. Miscellaneous.
-------------
5.1 Rule 144 and Rule 144A. For so long as the Company is subject to
----------------------
the reporting requirements of Section 13 or 15 of the 1934 Act, the Company and
the Guarantors covenant that they will file the reports required to be filed by
them under the 1933 Act and Section 13(a) or 15(d) of the 1934 Act and the rules
and regulations adopted by the SEC thereunder. If the Company ceases to be so
required to file such reports, the Company and the Guarantors covenant that they
will upon the request of any Holder of Registrable Securities (a) make publicly
available such information as is necessary to permit sales pursuant to Rule 144
26
<PAGE>
under the 1933 Act, (b) deliver such information to a prospective purchaser as
is necessary to permit sales pursuant to Rule 144A under the 1933 Act and it
will take such further action as any Holder of Registrable Securities may
reasonably request in writing, and (c) take such further action that is
reasonable in the circumstances, in each case, to the extent required from time
to time to enable such Holder to sell its Registrable Securities without
registration under the 1933 Act within the limitation of the exemptions provided
by (i) Rule 144 under the 1933 Act, as such Rule may be amended from time to
time, (ii) Rule 144A under the 1933 Act, as such Rule may be amended from time
to time, or (iii) any similar rules or regulations hereafter adopted by the SEC.
Upon the request of any Holder of Registrable Securities, the Company and the
Guarantors will deliver to such Holder a written statement as to whether it has
complied with such requirements.
5.2 No Inconsistent Agreements. The Company and the Guarantors have
--------------------------
not entered into and the Company and the Guarantors will not after the date of
this Agreement enter into any agreement which is inconsistent with the rights
granted to the Holders of Registrable Securities in this Agreement or otherwise
conflicts with the provisions hereof. The rights granted to the Holders
hereunder do not in any way conflict with the rights granted to the holders of
the Company's and any Guarantor's other issued and outstanding securities under
any such agreements.
5.3 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 departures from the provisions hereof
may not be given unless the Company and the Guarantors have obtained the written
consent of Holders of at least a majority in aggregate principal amount of the
outstanding Registrable Securities affected by such amendment, modification,
supplement, waiver or departure.
5.4 Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand delivery, registered first-
class mail, telex, telecopier, or any courier guaranteeing overnight delivery
(a) if to a Holder, at the most current address set forth on the records of the
Registrar under the Indenture or given by such Holder to the Company and the
Guarantors by means of a notice given in accordance with the provisions of this
Section 5.4, (b) if to an Initial Purchaser, at the most current addresses given
by such Initial Purchaser to the Company and the Guarantors by means of a notice
given in accordance with the provisions of this Section 5.4, which address
initially is the address set forth in the Purchase Agreement with respect to the
Initial Purchasers; and (c) if to the Company and the Guarantors, initially at
the Company's address set forth in the Purchase Agreement, and thereafter at
such other address of which notice is given in accordance with the provisions of
this Section 5.4.
27
<PAGE>
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; two business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is acknowledged, if telecopied; and on
the next business day if timely delivered to an air courier guaranteeing
overnight delivery.
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.
5.5 Successor and Assigns. This Agreement shall inure to the benefit
---------------------
of and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders; provided that nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Registrable Securities
in violation of the terms of the Purchase Agreement or the Indenture. If any
transferee of any Holder shall acquire Registrable Securities, in any manner,
whether by operation of law or otherwise, such Registrable Securities shall be
held subject to all of the terms of this Agreement, and by taking and holding
such Registrable Securities such person shall be conclusively deemed to have
agreed to be bound by and to perform all of the terms and provisions of this
Agreement, including the restrictions on resale set forth in this Agreement and,
if applicable, the Purchase Agreement, and such person shall be entitled to
receive the benefits hereof.
5.6 Third Party Beneficiaries. The Initial Purchasers (even if the
-------------------------
Initial Purchasers are not Holders of Registrable Securities) shall be third
party beneficiaries to the agreements made hereunder between the Company and the
Guarantors, on the one hand, and the Holders, on the other hand, and shall have
the right to enforce such agreements directly to the extent they deem such
enforcement necessary or advisable to protect their rights or the rights of
Holders hereunder. Each Holder of Registrable Securities shall be a third party
beneficiary to the agreements made hereunder between the Company and the
Guarantors, on the one hand, and the Initial Purchasers, on the other hand, and
shall have the right to enforce such agreements directly to the extent it deems
such enforcement necessary or advisable to protect its rights hereunder.
5.7 Specific Enforcement. Without limiting the remedies available to
--------------------
the Initial Purchasers and the Holders, the Company and the Guarantors
acknowledge that any failure by the Company and Guarantors to comply with their
obligations under Sections 2.1 through 2.4 hereof may result in material
irreparable injury to the Initial Purchasers or the Holders for which there is
no adequate remedy at law, that it would not be possible to measure damages for
such injuries precisely and that, in the event of
28
<PAGE>
any such failure, the Initial Purchasers or any Holder may obtain such relief as
may be required to specifically enforce the Company's and the Guarantor's
obligations under Sections 2.1 through 2.4 hereof; provided, however, with
respect to any failures by the Company and the Guarantors to comply with Section
2.1 or Section 2.2 hereof, such relief shall not be available to any Holder who
fails to make the required representations in Section 2.1 or 3(f) hereof, as
applicable.
5.8 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.
5.9 Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
5.10 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICT OF LAWS THEREOF.
5.11 Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
29
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
THE MAXIM GROUP, INC.
By: /s/ A.J. Nassar
----------------------------------------
Name: A.J. Nassar
Title: President and Chief Executive
Officer
IMAGE INDUSTRIES, INC.
By: /s/ H. Stanley Padgett
----------------------------------------
Name: H. Stanley Padgett
Title: President
KINNAIRD & FRANCKE INTERIORS, INC.
KINNAIRD & FRANCKE DRAPERY CO., INC.
FIRST QUALITY, INC.
STEVE PETERSON INTERIORS & ASSOCIATES, INC.
BAY AREA CARPETS, INC.
CARPET WORLD, INC.
RNA ENTERPRISES, INC.
DUBOSE CARPETS & FLOORS, INC.
RUGS N REMNANTS, INC.
CARPET GALLERY, INC. (GEORGIA)
LOSANTVILLE CARPET OUTLET, INC.
AMERICAN CARPETS & INTERIORS, INC.
CARPET COUNTRY, INC.
CARPETMAX OF NEW MEXICO, INC.
CARPETMAX ALABAMA CONTRACT, INC.
By: /s/ Herbert A. Biggers
----------------------------------------
Name: Herbert A. Biggers
Title: President
30
<PAGE>
MAXIM RETAIL GROUP, INC.
By: /s/ Paul Renn
----------------------------------------
Name: Paul Renn
Title: President
INVESTOR MANAGEMENT, INC.
TRI-R OF ORLANDO, INC.
CARPETMAX OF PALM BEACH, INC.
CREDITMAX CORP.
CARPETMAX OF CHARLOTTE, INC.
CLOUD CARPETS, INC.
MAXIM EQUIPMENT LEASING
COMPANY, INC.
By: /s/ A.J. Nassar
----------------------------------------
Name: A.J. Nassar
Title: President
GCO, INC.
GCO CARPET OUTLET, INC.
BAILEY & ROBERTS CARPETMAX
OF TENNESSEE, INC.
By: /s/ A.J. Nassar
----------------------------------------
Name: A.J. Nassar
Title: Chief Executive Officer
31
<PAGE>
CARPETMAX, L.P.
By: The Maxim Group, Inc., as General Partner
By: /s/ A.J. Nassar
----------------------------------------
Name: A.J. Nassar
Title: President and Chief Executive
Officer
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
FIRST UNION CAPITAL MARKETS CORP.
WHEAT, FIRST SECURITIES, INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By /s/ Bennett Rosenthal
---------------------------------------
Authorized Signatory
32
<PAGE>
RICHARD G. GREENSTEIN
(404) 264-2623
E-MAIL: [email protected]
_______________, 1997
Merrill Lynch, Pierce, Fenner & Smith Incorporated
First Union Capital Markets Corp.
Wheat, First Securities, Inc.
c/o Merrill Lynch Pierce Fenner & Smith Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
We have acted as counsel for The Maxim Group, Inc. (the "Company"), a
Delaware corporation, and its subsidiaries (as "Guarantors" as defined in the
Registration Rights Agreement) in connection with the issuance and sale by the
Company of $100,000,000 principal amount of its 9 1/4% Senior Subordinated
Notes, due 2007, pursuant to and in accordance with the terms of a Purchase
Agreement dated as of October 9, 1997 (the "Purchase Agreement") entered into
among the Company, the Guarantors and the Initial Purchasers named therein and
the filing by the Company and the Guarantors of an Exchange Offer Registration
Statement (the "Registration Statement") in connection with an exchange offer to
be effected pursuant to the Registration Rights Agreement dated as of October
16, 1997 (the "Registration Rights Agreement") entered into among the Company,
the Guarantors and the Initial Purchasers. The opinions which follow are
rendered to you at the request of the Company and the Guarantors and in
accordance with Section 3(f)(B) of the Registration Rights Agreement. Terms
used herein and not otherwise defined shall have the meanings ascribed to them
in the Registration Rights Agreement.
We have examined such documents, records and matters of law as we have
deemed necessary for purposes of this opinion. In rendering this opinion, as to
all matters of fact relevant to this opinion, we have assumed the completeness
and accuracy of, and are relying solely upon, the representations and warranties
of the Company and the Guarantors set forth in the Purchase Agreement and the
statements set forth in certificates of public officials and officers of the
Company and the Guarantors, without making any independent investigation or
inquiry with respect to the completeness or accuracy of such representations,
warranties or statements, other than a review of the certificate of
incorporation, by-laws and relevant minute books of the Company and the
Guarantors.
Our opinions herein are limited to the federal laws of the United States of
America, the laws of the State of Georgia and the Corporation Law of the State
of Delaware, as currently in effect, and we express no opinion with respect to
the laws of any other jurisdiction.
33
<PAGE>
Merrill Lynch, Pierce, Fenner & Smith Incorporated
First Union Capital Markets Corp.
Wheat, First Securities, Inc.
___________________, 1997
Page 2
Based on and subject to the foregoing, we are of the opinion that the
Exchange Offer Registration Statement and the Prospectus (other than the
financial statements, notes or schedules thereto and such other financial and
statistical data and supplemental schedules as are included or incorporated by
reference therein, and the Form T-1, as to all of which we express no opinion),
comply as to form in all material respects with the requirements of the 1933 Act
and the applicable rules and regulations promulgated under the 1933 Act.
The limitations inherent in the independent verification of factual matters
and the character of determinations involved in the offering process are such
that we have not verified and are not passing upon and do not assume any
responsibility for, the accuracy, completeness or fairness of the statements
contained in the Registration Statement and the Prospectus.
However, we advise you that we have participated in conferences with
officers and other representatives of the Company, representatives of the
Company's independent certified public accountants, and your representatives, at
which conferences the contents of the Registration Statement and the Prospectus
and related matters were discussed. Although we do not pass upon and do not
assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement and the Prospectus, we
confirm that, on the basis of the foregoing, no facts have come to our attention
which lead us to believe that the Registration Statement or any amendment
thereto (as of the time it became effective under the 1933 Act) or the
Prospectus or any supplement thereto (as of the time of issuance) contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
or that the Prospectus, as amended or supplemented at the Closing Time,
contained or contains an untrue statement of material fact or omitted or omits
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading, provided that in each case, we make no statement herein
with respect to the financial statements and notes and supporting schedules
thereto, or other statistical data derived from the financial statements and
notes and supporting schedules thereto, contained or required to be contained in
the Registration Statement and Prospectus.
The opinions set forth herein are delivered to you solely for your benefit
and for the benefit of your counsel in connection with the transactions
contemplated by the Registration Rights Agreement, and may not be relied upon by
any other persons or utilized in connection with any other transaction or
transactions, other than those contemplated by the Registration Rights
Agreement, except with the express permission of this firm.
Very truly yours,
SMITH, GAMBRELL & RUSSELL, LLP
34
<PAGE>
Merrill Lynch, Pierce, Fenner & Smith Incorporated
First Union Capital Markets Corp.
Wheat, First Securities, Inc.
___________________, 1997
Page 3
Richard G. Greenstein
RGG:tlj[corpbh 108588]
35
<PAGE>
EXHIBIT 5.1
[SMITH, GAMBRELL, RUSSELL, LLP LETTERHEAD]
November 6, 1997
The Maxim Group, Inc.
210 TownPark Drive
Kennesaw, Georgia 30144
Re: Registration Statement on Form S-4
Gentlemen:
We have acted as counsel to The Maxim Group, Inc., a Delaware corporation
(the "Company") and its subsidiaries, in connection with the Registration
Statement on Form S-4 (the "Registration Statement") filed by the Company with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to $100,000,000 aggregate principal
amount of the Company's 9 1/4% Senior Subordinated Notes due 2007, Series B (the
"Exchange Notes") and the related guarantees (the "Guarantees") of the Company's
subsidiaries named in the Registration Statement (the "Guarantors"). The
Exchange Notes and the Guarantees will be offered in exchange (the "Exchange
Offer") for the Company's issued and outstanding 9 1/4% Senior Subordinated
Notes due 2007 (the "144A Notes") and related guarantees, all as described in
the Registration Statement.
The Exchange Notes are to be issued pursuant to an indenture (the
"Indenture") dated as of October 16, 1997 between the Company, the Guarantors
and State Street Bank and Trust Company, as Trustee (the "Trustee").
We have examined the Registration Statement and the Indenture which is an
Exhibit to the Registration Statement. In addition, we have examined, and have
relied as to matters of fact upon, the originals or copies, certified or
otherwise identified to our satisfaction, of such corporate records, agreements,
documents and other instruments and such certificates or comparable documents of
public officials and of officers and representatives of the Company and the
Guarantors, and have made such other and further investigations, as we have
deemed relevant and necessary as a basis for the opinion hereinafter set forth.
In such examination, we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to us as originals and the conformity to original documents of all documents
submitted to us as certified or photostatic copies, and the authenticity of the
originals of such latter documents.
<PAGE>
The Maxim Group, Inc.
November 6, 1997
Page 2
Based upon the foregoing, and subject to the qualifications and limitations
stated herein, we are of the opinion that:
1. Assuming the Indenture has been duly authorized and validly
executed and delivered by the parties thereto, when (i) the Indenture has
been duly qualified under the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"), (ii) the Board of Directors of the Company, a duly
constituted and acting committee thereof or duly authorized officers
thereof has taken all necessary corporate action to approve the issuance
and terms of the Exchange Notes, the terms of the Exchange Offer and
related matters, and (iii) the Exchange Notes have been duly executed,
authenticated, issued and delivered in accordance with the provisions of
the Indenture and the terms of the Exchange Offer as set forth in the
Registration Statement, the Exchange Notes will constitute valid and
legally binding obligations of the Company, enforceable against the Company
in accordance with their terms.
2. Assuming the Indenture has been duly authorized and validly
executed and delivered by the parties thereto, when the Indenture has been
duly qualified under the Trust Indenture Act, upon due execution, issuance,
authentication and delivery of the Exchange Notes in accordance with the
provisions of the Indenture and the terms of the Exchange Offer as set
forth in the Registration Statement, the Guarantees will constitute valid
and legally binding obligations of the Guarantors, which are parties
thereto, enforceable against each such Guarantor in accordance with the
terms of such Guarantor's respective Guarantee.
Our opinions set forth in paragraphs 1 and 2 are subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, fraudulent transfer,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally and general principles of equity (including, without
limitation, concepts of materiality, reasonableness, good faith and fair dealing
and the possible unavailability of specific performance, injunctive relief or
other equitable remedies), regardless of whether considered in a proceeding at
law or in equity.
We are members of the Bar of the State of Georgia and we do not express any
opinion herein concerning any law other than the law of the State of Georgia and
the federal law of the United States.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to this firm under the caption "Legal Matters" in
the Prospectus contained in said Registration Statement. In giving this
consent, we do not thereby admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act, or the rules
and regulations of the Securities and Exchange Commission thereunder.
Sincerely,
/s/ Richard G. Greenstein
Richard G. Greenstein
<PAGE>
EXHIBIT 10.13.1
---------------
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
This Amendment ("Amendment No. 1") to the Employment Agreement (the
"Agreement") by and between A.J. Nassar ("Executive") and The Maxim Group, Inc.
(the "Company") dated June 4, 1997, is entered into as of the 25th day of
September 1997.
WHEREAS, Executive has executed that certain Promissory Note dated as of
September 24, 1997 in favor of the Company (the "Note"), which provides for the
repayment by Executive of $1.0 million owed to the Company in five annual
installments of $200,000 (plus accrued interest);
WHEREAS, in order to provide the Company with sufficient assurances with
regards to the repayment of the Note, Executive has agreed to grant to the
Company the right to set off the Executive's obligations under the Note with
amounts payable by the Company pursuant to the Agreement;
NOW, THEREFORE, for and in consideration of the mutual premises and
representations contained herein, and other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
to amend the Agreement as follows:
1. Capitalized terms used but not otherwise defined herein shall have the
meaning as set forth in the Agreement.
2. Notwithstanding anything to the contrary in the Agreement, in the
event of a default by Executive in the payment of the principal of the Note, and
any accrued interest thereon, when such payments become due and payable
(referred to collectively herein as the "Default Obligations") and such default
shall continue for a period of 30 days after giving notice of same to Executive,
the Company without notice or demand of any kind, may hold and set off against
such of the Default Obligations as the Company may elect, any and all payments
due to Executive from the Company pursuant to the terms of the Agreement,
including without limitation, any payments in respect of Executive's Base Salary
and bonus (if any). Any action taken by the Company pursuant to this Section 2
shall be approved in advance by the Board of Directors of the Company.
3. Except as expressly amended herein, the Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 as of
the date first written above.
"COMPANY"
THE MAXIM GROUP, INC.
By:/s/ Thomas P. Leahey
---------------------------------------
Thomas P. Leahey
Title: Executive Vice President, Finance
"EXECUTIVE"
By:/s/ A.J. Nassar
---------------------------------------
A.J. Nassar
<PAGE>
Exhibit 12.1
THE MAXIM GROUP, INC.
---------------------
Computation of Ratio of Earnings to Fixed Charges
-------------------------------------------------
(in thousands)
--------------
<TABLE>
<CAPTION>
YEAR ENDED Ten Months Year Six Months Six Months
------------------------------- Ended Ended Ended Ended
March 31, March 31, March 31, January 31, January 31, July 31, July 31,
1993 1994 1995 1996 1997 1996 1997
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS:
Income (Loss) before provision
for income taxes per
statement of operations............ $ 5,942 $845 $15,429 $(4,140) $ 4,074 $1,790 $12,724
ADD:
Portion of rents
representative of the
interest factor.................... 185 420 1,066 1,396 1,796 810 906
Interest on indebtedness........... 3,846 1,886 1,839 4,695 7,006 3,213 2,663
------ ------ ------- ------- ------- ------ -------
Income as adjusted................. $9,973 $3,151 $18,334 $ 1,951 $12,876 $5,813 $16,293
====== ====== ======= ======= ======= ====== =======
FIXED CHARGES:
Portion of rents
representative of the
interest factor.................... 185 420 1,066 1,396 1,796 810 906
Interest on indebtedness........... 3,846 1,886 1,839 4,695 7,006 3,213 2,663
------ ------ ------- ------- ------- ------ -------
Fixed charges...................... $4,031 $2,306 $ 2,905 $ 6,091 $ 8,802 $4,023 $ 3,569
====== ====== ======= ======= ======= ====== =======
Ratio of earnings to fixed
charges............................ 2.5 1.4 6.3 0.3 1.5 1.4 4.6
</TABLE>
<PAGE>
EXHIBIT 21.1
------------
SUBSIDIARIES OF THE REGISTRANT
1. Maxim Retail Group, Inc., a corporation organized under the laws of the
State of Georgia.
2. Kinnaird & Francke Interiors, Inc., a corporation organized under the laws
of the State of Delaware and operating under the names Stevens Floor
Covering, Inc. and Louisville Floor Covering, Inc.
3. Kinnaird & Francke Drapery Company, Inc., a corporation organized under the
laws of the State of Kentucky and operating in the States of Kentucky and
Indiana under the name The Workroom.
4. Losantville Carpet Outlet, Inc., a corporation organized under the laws of
the State of Indiana.
5. First Quality, Inc., a corporation organized under the laws of the State of
Delaware.
6. Steve Peterson Interiors & Associates, Inc., a corporation organized under
the laws of the State of Utah.
7. RNA Enterprises, Inc., a corporation organized under the laws of the State
of Delaware and operating under the names Carpet World, Carpet & Tile
World, Royal Carpet World, and Carpet World - Dalton, Georgia Factory
Outlet.
8. Bay Area Carpets, Inc., a corporation organized under the laws of the State
of Delaware.
9. Carpet World, Inc., a corporation organized under the laws of the State of
Delaware.
10. GCO Carpet Outlet, Inc., a corporation organized under the laws of the
State of Alabama.
11. Investor Management, Inc., a corporation organized under the laws of the
State of Alabama.
12. Dubose Carpets & Floors, Inc., a corporation organized under the laws of
the State of Delaware and operating in the State of Texas under the names
Carpet Wholesalers, Inc. and Carpetmax.
13. Rugs N Remnants, Inc., a corporation organized under the laws of the State
of Texas and operating under the names Tons O Carpet and The Rug Factory,
Inc.
14. Carpet Gallery, Inc., a corporation organized under the laws of the State
of Georgia and operating under the name Authorized Carpet Mill Store, Inc.
15. American Carpets & Interiors, a corporation organized under the laws of the
State of Georgia.
16. Carpet Country, Inc., a corporation organized under the laws of the State
of Georgia.
17. Carpetmax, L.P., a limited partnership organized under the laws of the
State of Georgia.
18. GCO, Inc., a corporation organized under the laws of the State of Nevada.
<PAGE>
EXHIBIT 21.1
------------
19. Bailey & Roberts Carpetmax of Tennessee, Inc., a corporation organized
under the laws of the State of Tennessee and operating in the State of
Tennessee under the names Bailey & Roberts, Bailey & Roberts Flooring, and
Carpetmax and operating in the State of Colorado under the names Bailey &
Roberts and Bailey & Roberts Flooring.
20. Carpetmax of New Mexico, Inc., a corporation organized under the laws of
the State of Georgia.
21. Maxim Equipment Leasing Company, Inc., a corporation organized under the
laws of the State of Georgia.
22. Image Industries, Inc., a corporation organized under the laws of the State
of Delaware.
23. Carpetmax Alabama Contract, Inc., a corporation organized under the laws of
the State of Alabama.
24. Creditmax Corp., a corporation organized under the laws of the State of
Georgia.
25. Cloud Carpets, Inc., a corporation organized under the laws of the State of
Georgia.
26. Tri-R of Orlando, Inc., a corporation organized under the laws of the State
of Georgia and operating in the State of Florida under the name The
Flooring Center.
27. Carpetmax of Charlotte, Inc., a corporation organized under the laws of the
State of Georgia.
28. Carpetmax of Palm Beach, Inc., a corporation organized under the laws of
the State of Georgia.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Atlanta, Georgia
November 3, 1997
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
The Maxim Group, Inc.
We consent to the use of our reports included herein or incorporated herein by
reference and to the reference to our firm under the headings "Experts" and
"Selected Consolidated Financial and Operating Data" in the Registration
Statement of The Maxim Group, Inc.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Atlanta, Georgia
November 4, 1997
<PAGE>
EXHIBIT 25.1
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
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2)__
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
John R. Towers, Esq. Executive Assistant Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
---------------------
The Maxim Group, Inc.
(Exact name of obligor as specified in its charter)
Delaware 58-2060334
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
210 TownPark Drive
Kennesaw, GA 30144
(Address of principal executive offices) (Zip Code)
---------------------
9-1/4 Senior Subordinated Notes due 2007
(Title of indenture securities)
<PAGE>
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory authority to
which it is subject.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington,
D.C., Federal Deposit Insurance Corporation, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with Obligor.
If the Obligor is an affiliate of the trustee, describe each such
affiliation.
The obligor is not an affiliate of the trustee or of its
parent, State Street Boston Corporation.
(See note on page 2.)
Item 3. through Item 15. Not applicable.
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement of
eligibility.
1. A copy of the articles of association of the trustee as now in
effect.
A copy of the Articles of Association of the trustee, as now
in effect, is on file with the Securities and Exchange
Commission as Exhibit 1 to Amendment No. 1 to the Statement
of Eligibility and Qualification of Trustee (Form T-1) filed
with the Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
2. A copy of the certificate of authority of the trustee to commence
business, if not contained in the articles of association.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the
trustee to commence business was necessary or issued is on
file with the Securities and Exchange Commission as Exhibit 2
to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No. 22-
17940) and is incorporated herein by reference thereto.
3. A copy of the authorization of the trustee to exercise corporate
trust powers, if such authorization is not contained in the
documents specified in paragraph (1) or (2), above.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities and
Exchange Commission as Exhibit 3 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee (Form
T-1) filed with the Registration Statement of Morse Shoe,
Inc. (File No. 22-17940) and is incorporated herein by
reference thereto.
4. A copy of the existing by-laws of the trustee, or instruments
corresponding thereto.
A copy of the by-laws of the trustee, as now in effect, is on
file with the Securities and Exchange Commission as Exhibit 4
to the Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of Eastern
Edison Company (File No. 33-37823) and is incorporated herein
by reference thereto.
1
<PAGE>
5. A copy of each indenture referred to in Item 4. if the obligor is
in default.
Not applicable.
6. The consents of United States institutional trustees required by
Section 321(b) of the Act.
The consent of the trustee required by Section 321(b) of the
Act is annexed hereto as Exhibit 6 and made a part hereof.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or
examining authority.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority is annexed hereto as
Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates
to matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the 31st day of October, 1997.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Susan T. Keller
---------------------------------------
Susan T. Keller
Vice President
2
<PAGE>
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by The Maxim
Group, Inc. of its 9-1/4% Senior Subordinated Notes due 2007, we hereby consent
that reports of examination by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Susan T. Keller
------------------------------------
Susan T. Keller
Vice President
Dated: October 31, 1997
3
<PAGE>
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business June 30, 1997, published
-------------
in accordance with a call made by the Federal Reserve Bank of this District
pursuant to the provisions of the Federal Reserve Act and in accordance with a
call made by the Commissioner of Banks under General Laws, Chapter 172, Section
22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin........................... 1,842,337
Interest-bearing balances.................................................... 8,771,397
Securities............................................................................. 10,596,119
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary.......................................... 5,953,036
Loans and lease financing receivables:
Loans and leases, net of
unearned income................................. 5,769,090
Allowance for loan and lease losses............... 74,031
Allocated transfer risk reserve..................... 0
Loans and leases, net of unearned income and allowances...................... 5,695,059
Assets held in trading accounts........................................................ 916,608
Premises and fixed assets.............................................................. 374,999
Other real estate owned................................................................ 755
Investments in unconsolidated subsidiaries............................................. 28,992
Customers' liability to this bank on acceptances outstanding........................... 99,209
Intangible assets...................................................................... 229,412
Other assets........................................................................... 1,589,526
----------
Total assets........................................................................... 36,097,449
==========
LIABILITIES
Deposits:
In domestic offices.......................................................... 11,082,135
Noninterest-bearing..................... 8,932,019
Interest-bearing........................ 2,150,116
In foreign offices and Edge subsidiary....................................... 13,811,677
Noninterest-bearing..................... 112,281
Interest-bearing........................ 13,699,396
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary.......................................... 6,785,263
Demand notes issued to the U.S. Treasury and Trading Liabilities....................... 755,676
Other borrowed money................................................................... 716,013
Subordinated notes and debentures...................................................... 0
Bank's liability on acceptances executed and outstanding............................... 99,605
Other liabilities...................................................................... 841,566
Total liabilities...................................................................... 34,091,935
----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus.......................................... 0
Common stock........................................................................... 29,931
Surplus................................................................................ 437,183
Undivided profits and capital reserves/Net unrealized holding
gains (losses)........................................................................ 1,542,695
Cumulative foreign currency translation adjustments.................................... (4,295)
Total equity capital................................................................... 2,005,514
----------
Total liabilities and equity capital................................................... 36,097,449
</TABLE>
4
<PAGE>
I, Rex S. Schuette, Senior Assistant Vice President and Comptroller of the above
named bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
5
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
THE MAXIM GROUP, INC.
OFFER TO EXCHANGE
9 1/4% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B FOR ANY AND ALL OF THE
OUTSTANDING 9 1/4% SENIOR SUBORDINATED NOTES DUE 2007
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,NEW YORK
CITY TIME, ON , 1997, UNLESS THE OFFER IS EXTENDED
STATE STREET BANK AND TRUST COMPANY
(THE "EXCHANGE AGENT")
By Mail By Facsimile Transmission: By Hand or Overnight
(registered or certified Courier:
mail recommended)
(617) 664-5395
State Street Bank and Trust State Street Bank and Trust
Company Corporate Trust Company Corporate Trust
Department P.O. Box Department 4th floor Two
778 Boston, MA 02102-0078 International Place Boston,
MA 02110
Confirm by Telephone or for Information Call:
(617) 664-5587
Delivery of this instrument to an address other than as set forth above or
transmission of instructions via a facsimile number other than the ones listed
above will not constitute a valid delivery. The instructions accompanying this
Letter of Transmittal should be read carefully before this Letter of
Transmittal is completed.
The undersigned hereby acknowledges receipt of the Prospectus dated November
, 1997 (the "Prospectus") of The Maxim Group, Inc. (the "Company") and this
Letter of Transmittal, which together constitute the Company's offer (the
"Exchange Offer") to exchange $1,000 principal amount of its 9 1/4% Senior
Subordinated Notes due 2007, Series B (the "Exchange Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to a Registration Statement of which the Prospectus is a part,
for each $1,000 principal amount of its outstanding 9 1/4% Senior Subordinated
Notes due 2007 (the "144A Notes"). The term "Expiration Date" shall mean 5:00
p.m., New York City time, on , 1997, 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. Capitalized terms used but not
defined herein have the meaning given to them in the Prospectus.
YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE INSTRUCTIONS
INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED. QUESTIONS AND
REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS AND THIS
LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
List on the next page the 144A Notes to which this Letter of Transmittal
relates. If the space indicated is inadequate, the Certificate or Registration
Numbers and the Principal Amounts should be listed on a separately signed
schedule affixed hereto.
1
<PAGE>
DESCRIPTION OF 144A NOTES TENDERED HEREBY
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL PRINCIPAL
NAME(S) AND ADDRESS(ES) OF REGISTERED OWNER(S) CERTIFICATE OR AMOUNT REPRESENTED AMOUNT
(PLEASE FILL IN) REGISTRATION NUMBERS* BY 144A NOTES TENDERED**
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
TOTAL
</TABLE>
- -------------------------------------------------------------------------------
* Need not be completed by Book-Entry Holders.
** Unless otherwise indicated, the Holder will be deemed to have tendered
the full aggregate principal amount represented by such 144A Notes. All
tenders must be in integral multiples of $1,000.
This Letter of Transmittal is to be used (i) if certificates of 144A Notes
are to be forwarded herewith (unless delivery of 144A Notes is to be made by
book-entry transfer to an account maintained by the Exchange Agent at The
Depository Trust Company (the "Depository" or "DTC"), pursuant to the
procedures set forth in the "The Exchange Offer--Procedures for Tendering" in
the Prospectus), or (ii) if tender of the 144A Notes is to be made according
to the guaranteed delivery procedures described in the Prospectus under the
caption "The Exchange Offer--Guaranteed Delivery Procedures." See Instruction
2. Delivery of documents to a book-entry transfer facility does not constitute
delivery to the Exchange Agent.
The term "Holder" with respect to the Exchange Offer means any person in
whose name 144A Notes are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the registered
holder. The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with
respect to the Exchange Offer. Holders who wish to tender their 144A Notes
must complete this letter in its entirety.
[_]CHECK HERE IF TENDERED 144A NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
DEPOSITORY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ______________________________________________
Account Number _____________________________________________________________
Transaction Code Number ____________________________________________________
Holders whose 144A Notes are not immediately available or who cannot deliver
their 144A Notes and all other documents required hereby to the Exchange Agent
on or prior to the Expiration Date must tender their 144A Notes according to
the guaranteed delivery procedure set forth in the Prospectus under the
caption "The Exchange Offer--Guaranteed Delivery Procedures." See Instruction
2.
[_]CHECK HERE IF TENDERED 144A NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s) _______________________________________________
Name of Eligible Institution that Guaranteed Delivery ______________________
____________________________________________________________________________
If delivery by book-entry transfer:
Account Number ___________________________________________________________
Transfer Code Number _____________________________________________________
[_]CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name _______________________________________________________________________
Address ____________________________________________________________________
2
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the principal amount of the 144A
Notes indicated above. Subject to, and effective upon, the acceptance for
exchange of such 144A Notes tendered hereby, the undersigned hereby exchanges,
assigns and transfers to, or upon the order of, the Company all right, title
and interest in and to such 144A Notes as are being tendered hereby, including
all rights to accrued and unpaid interest thereon as of the Expiration Date.
The undersigned hereby irrevocably constitutes and appoints the Exchange Agent
the true and lawful agent and attorney-in-fact of the undersigned (with full
knowledge that said Exchange Agent acts as the agent of the Company in
connection with the Exchange Offer) to cause the 144A Notes to be assigned,
transferred and exchanged. The undersigned represents and warrants that it has
full power and authority to tender, exchange, assign and transfer the 144A
Notes and to acquire Exchange Notes issuable upon the exchange of such
tendered 144A Notes, and that when the same are accepted for exchange, the
Company will acquire good and unencumbered title to the tendered 144A Notes,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim.
The undersigned represents to the Company that (i) the Exchange Notes
acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
such person is the undersigned; (ii) neither the undersigned nor any such
other person has an arrangement or understanding with any person to
participate in a distribution of such Exchange Notes; and (iii) the
undersigned and any such other person acknowledge that, if they are
participating in the Exchange Offer for the purpose of distributing the
Exchange Notes, (a) they cannot rely on the position of the staff of the
Securities and Exchange Commission enunciated in Exxon Capital Holdings
Corporation (available April 13, 1989), 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 delivery
requirements of the Securities Act in connection with the resale transaction
and (b) failure to comply with such requirements in such instance could result
in the undersigned or any such other person incurring liability under the
Securities Act for which such persons are not indemnified by the Company. If
the undersigned or the person receiving the Exchange Notes covered by this
letter is an affiliate (as defined under Rule 405 of the Securities Act) of
the Company, the Exchange Notes may not be offered for resale, resold or
otherwise transferred by the undersigned or such other person without
registration under the Securities Act or an exemption therefrom. If the
exchange offeree is not a broker-dealer, it represents that it is not engaged
in, and does not intend to engage in, a distribution of the Exchange Notes. If
the exchange offeree is a broker-dealer holding 144A Notes acquired for its
own account as a result of market-making activities or other trading
activities, it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of Exchange Notes received in
respect of such 144A Notes pursuant to the Exchange Offer; however, by so
acknowledging and by delivering a prospectus, the undersigned will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
The undersigned also warrants that it will, upon request, execute and
deliver any additional documents deemed by the Exchange Agent or the Company
to be necessary or desirable to complete the exchange, assignment and transfer
of tendered 144A Notes or transfer ownership of such 144A Notes on the account
books maintained by a book-entry transfer facility. The undersigned further
agrees that acceptance of any tendered 144A Notes by the Company and the
issuance of Exchange Notes in exchange therefor shall constitute performance
in full by the Company of its obligations under the Registration Rights
Agreement and that the Company shall have no further obligations or
liabilities thereunder for the registration of the 144A Notes or the Exchange
Notes.
The Exchange Offer is subject to certain conditions set forth in the
Prospectus under the caption "The Exchange Offer--Conditions." The undersigned
recognizes that as a result of these conditions (which may be waived, in whole
or in part, by the Company), as more particularly set forth in the Prospectus,
the Company may not be required to exchange any of the 144A Notes tendered
hereby and, in such event, the 144A Notes not exchanged will be returned to
the undersigned at the address shown below the signature of the undersigned.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned. Tendered 144A Notes may be
withdrawn at any time prior to the Expiration Date.
3
<PAGE>
Unless otherwise indicated in the box entitled "Special Registration
Instructions" or the box entitled "Special Delivery Instructions" in this
Letter of Transmittal, certificates for all Exchange Notes delivered in
exchange for tendered 144A Notes, and any 144A Notes delivered herewith but
not exchanged, will be registered in the name of the undersigned and shall be
delivered to the undersigned at the address shown below the signature of the
undersigned. If an Exchange Note is to be issued to a person other than the
person(s) signing this Letter of Transmittal, or if the Exchange Note is to be
mailed to someone other than the person(s) signing this Letter of Transmittal
or to the person(s) signing this Letter of Transmittal at an address different
than the address shown on this Letter of Transmittal, the appropriate boxes of
this Letter of Transmittal should be completed. If 144A Notes are surrendered
by Holder(s) that have completed either the box entitled "Special Registration
Instructions" or the box entitled "Special Delivery Instructions" in this
Letter of Transmittal, signature(s) on this Letter of Transmittal must be
guaranteed by an Eligible Institution (as defined in Instruction 2).
SPECIAL REGISTRATION INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
To be completed ONLY if the Ex- To be completed ONLY if the Ex-
change Notes are to be issued in change Notes are to be sent to
the name of someone other than someone other than the under-
the undersigned. signed, or to the undersigned at
Name _____________________________ an address other than that shown
Address __________________________ above under "Description of 144A
__________________________________ Notes Tendered Hereby."
Book-Entry Transfer Facility Ac- Name _____________________________
count: Address __________________________
__________________________________
__________________________________
Employer Identification or Social (Please print or type)
Security Number:
__________________________________
(Please print or type)
4
<PAGE>
REGISTERED HOLDER(S) OF 144A NOTES SIGN HERE
(In addition, complete Substitute Form W-9 Below)
X __________________________________________________________________________
X __________________________________________________________________________
(Signature(s) of Registered Holder(s))
Must be signed by registered holder(s) exactly as name(s) appear(s) on
the 144A Notes or on a security position listing as the owner of the 144A
Notes or by person(s) authorized to become registered holder(s) by properly
completed bond powers transmitted herewith. If signature is by attorney-in-
fact, trustee, executor, administrator, guardian, officer of a corporation
or other person acting in a fiduciary capacity, please provide the
following information. (Please print or type):
Name and Capacity (full title): ____________________________________________
Address (including zip code): ______________________________________________
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Area Code and Telephone Number: ____________________________________________
Taxpayer Identification or Social Security Number: _________________________
Dated: _______________________________
SIGNATURE GUARANTEE
(If Required--See Instruction 4)
Authorized Signature: ______________________________________________________
(Signature of Representative of Signature Guarantor)
Name and Title: ____________________________________________________________
Name of Plan: ______________________________________________________________
Area Code and Telephone Number: ____________________________________________
(Please print or type)
Dated: _______________________________
5
<PAGE>
PAYER'S NAME: THE MAXIM GROUP, INC.
THIS SUBSTITUTE FORM W-9 MUST BE COMPLETED AND SIGNED
PLEASE PROVIDE YOUR SOCIAL SECURITY NUMBER OR OTHER TAXPAYER IDENTIFICATION
NUMBER ON THE FOLLOWINGSUBSTITUTE FORM W-9 AND CERTIFY THEREIN THAT YOU ARE
SUBJECT TO BACKUP WITHHOLDING.
PART 1--PLEASE PROVIDE YOUR
SUBSTITUTE TIN IN THE BOX AT RIGHT AND ----------------------
CERTIFY BY SIGNING AND
DATING BELOW.
FORM W-9 SOCIAL SECURITY
NUMBER OR EMPLOYER IDENTIFICATION NUMBER
--------------------------------------------------------
PART 2--CHECK THE BOX IF YOU ARE NOT SUBJECT TO
BACKUP WITHHOLDING UNDER THE PROVISIONS OF SECTION
DEPARTMENT OF THE 3406(A) (1) (C) OF THE INTERNAL REVENUE CODE BECAUSE
TREASURY INTERNAL (1) YOU ARE EXEMPT FROM BACKUP WITHHOLDING, (2) YOU
REVENUE SERVICE HAVE NOT BEEN NOTIFIED THAT YOU ARE SUBJECT TO BACKUP
WITHHOLDING AS A RESULT OF FAILURE TO REPORT ALL
INTEREST OR DIVIDENDS OR (3) THE INTERNAL REVENUE
SERVICE HAS NOTIFIED YOU THAT YOU ARE NO LONGER
SUBJECT TO BACKUP WITHHOLDING. [_]
PART 3--
Awaiting
PAYER'S REQUEST FOR CERTIFICATION: UNDER PENALTIES OF TIN [_]
TAXPAYER IDENTIFI- PERJURY, I CERTIFY THAT THE INFORMA-
CATION NUMBER ("TIN") TION PROVIDED ON THIS FORM IS TRUE,
CORRECT AND COMPLETE.
--------------------------------------------------------
THE INTERNAL REVENUE SERVICE DOES NOT
REQUIRE YOUR CONSENT TO ANY PROVISION
OF THIS DOCUMENT OTHER THAN THE CER-
TIFICATIONS REQUIRED TO AVOID BACKUP
WITHHOLDING.
Signature: _____________ Date: ______
- --------------------------------------------------------------------------------
NOTE: ANY FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY CASH PAYMENTS IN EXCESS OF $10.00 MADE TO YOU.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 3 OF SUBSTITUTE FORM W-9.
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAX IDENTIFICATION NUMBER
I CERTIFY UNDER PENALTIES OF PERJURY THAT A TAXPAYER IDENTIFICATION NUMBER
HAS NOT BEEN ISSUED TO ME, AND EITHER (A) 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 (B) I INTEND TO MAIL OR DELIVER AN APPLICATION IN THE NEAR FUTURE. I
UNDERSTAND THAT IF I DO NOT PROVIDE A TAXPAYER IDENTIFICATION NUMBER WITHIN
60 DAYS, 31% OF ALL REPORTABLE PAYMENTS MADE TO ME THEREAFTER WILL BE
WITHHELD, UNTIL I PROVIDE A NUMBER.
------------------------------------------- ----------------------------
SIGNATURE DATE
- --------------------------------------------------------------------------------
6
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES.
All physically delivered 144A Notes, as well as a properly completed and
duly executed copy of this Letter of Transmittal or facsimile thereof (or
confirmation of any book-entry transfer to the Exchange Agent's account at a
book-entry transfer facility of 144A Notes tendered by book-entry transfer),
and any other documents required by this Letter of Transmittal, must be
received by the Exchange Agent at any of its addresses set forth herein on or
prior to the Expiration Date. The method of delivery of this Letter of
Transmittal, the 144A Notes and all other required documents is at the
election and risk of the Holder. Instead of delivery by mail, it is
recommended that Holders use an overnight or hand delivery service. Except as
otherwise provided below, the delivery will be deemed made only when actually
received by the Exchange Agent.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering Holders, by execution of this Letter of Transmittal
(or facsimile thereof), shall waive any right to receive notice of the
acceptance of the 144A Notes for exchange.
Delivery to an address other than as set forth herein, or instructions via a
facsimile number other than the ones set forth herein, will not constitute a
valid delivery.
2. GUARANTEED DELIVERY PROCEDURES.
Holders who wish to tender their 144A Notes, and (i) whose Notes are not
immediately available, or (ii) who cannot deliver their 144A Notes, the Letter
of Transmittal or any other required documents to the Exchange Agent (or
comply with the procedures for book-entry transfer) prior to the Expiration
Date, may effect a tender if:
(a) the tender is made through a member firm of the Securities Transfer
Agents Medallion Program, the New York Stock Exchange or the Stock Exchange
Medallion Program (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 of the 144A Notes, the
certificate or registration number(s) of such 144A Notes and the principal
amount of 144A Notes tendered, stating that the tender is being made
thereby and guaranteeing that, within five (5) business days after the
Expiration Date, the Letter of Transmittal (or facsimile thereof), together
with the certificate(s) representing the 144A Notes to be tendered in
proper form for transfer (or a confirmation of book-entry transfer of such
144A Notes into the Exchange Agent's account at the Depository) 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 all tendered 144A Notes in proper form for
transfer (or a confirmation of book-entry transfer of such 144A Notes into
the Exchange Agent's account at the Depository) and all other documents
required by the Letter of Transmittal, are received by the Exchange Agent
within five business days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their 144A Notes according to the
guaranteed delivery procedures set forth above. Any Holder who wishes to
tender 144A Notes pursuant to the guaranteed delivery procedures described
above must ensure that the Exchange Agent receives the Notice of Guaranteed
Delivery relating to such 144A Notes prior to the Expiration Date. Failure to
complete the guaranteed delivery procedures outlined above will not, of
itself, affect the validity or effect a revocation of any Letter of
Transmittal form properly completed and executed by a Holder who attempted to
use the guaranteed delivery procedures.
3. PARTIAL TENDERS; WITHDRAWALS.
If less than the entire principal amount of 144A Notes evidenced by a
submitted certificate is tendered, the tendering Holder should fill in the
principal amount tendered in the column entitled "Principal Amount Tendered"
of the box entitled
7
<PAGE>
"Description of 144A Notes Tendered Hereby." A newly issued 144A Note for the
principal amount of 144A Notes submitted but not tendered will be sent to such
Holder as soon as practicable after the Expiration Date. All 144A Notes
delivered to the Exchange Agent will be deemed to have been tendered in full
unless otherwise indicated.
Any 144A Notes tendered pursuant to the Exchange Offer may be withdrawn at
any time prior to the Expiration Date, after which tenders of 144A Notes are
irrevocable. To withdraw a tender of 144A Notes in the Exchange Offer, a
written or facsimile transmission notice of withdrawal must be received by the
Exchange Agent by 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 144A Notes to be withdrawn (the "Depositor"), (ii) identify the
144A Notes to be withdrawn (including the certificate or registration
number(s) and principal amount of such 144A Notes, or, in the case of 144A
Notes transferred by book-entry transfer, the name and number of the account
at the DTC to be credited), (iii) be signed by the Depositor in the same
manner as the original signature on this Letter of Transmittal (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee with respect to the 144A Notes register the
transfer of such 144A Notes into the name of the Depositor withdrawing the
tender, (iv) specify the name in which such 144A Notes are to be registered,
if different from that of the Depositor and (v) include a statement that such
holder is withdrawing his election to have such 144A Notes exchanged. All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company, whose determination shall
be final and binding on all parties. Any 144A Notes so withdrawn will be
deemed not to have been validly tendered for purposes of the Exchange Offer
and no Exchange Notes will be issued with respect thereto unless the 144A
Notes so withdrawn are validly retendered. Any 144A 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 Exchange Offer.
4. SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES.
If this Letter of Transmittal is signed by the registered Holder(s) of the
144A Notes tendered hereby, the signature must correspond with the name(s) as
written on the face of the certificates without alteration or enlargement or
any change whatsoever.
If any of the 144A Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If a number of 144A Notes registered in different names are tendered, it
will be necessary to complete, sign and submit as many separate copies of this
Letter of Transmittal as there are different registrations of 144A Notes.
Signatures on this Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution unless the 144A
Notes tendered hereby 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.
If this Letter of Transmittal is signed by the registered Holder or Holders
of 144A Notes listed and tendered hereby, no endorsements of the tendered 144A
Notes or separate written instruments of transfer or exchange are required. In
any other case, the registered Holder must either properly endorse the 144A
Notes or transmit properly completed bond powers with this Letter of
Transmittal (in either case, executed exactly as the name(s) of the registered
Holder(s) appear(s) on the 144A Notes), with the signature on the 144A Notes
or bond power guaranteed by an Eligible Institution (except where the 144A
Notes are tendered for the account of an Eligible Institution).
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange 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, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
8
<PAGE>
5. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS.
Tendering Holders should indicate, in the applicable box, the name and
address (or account at the Depository) in which the Exchange Notes or
substitute 144A Notes for principal amounts not tendered or not accepted for
exchange are to be issued (or deposited), if different from the names and
addresses or accounts of the person signing this Letter of Transmittal. In the
case of issuance in a different name, the employer identification number or
social security number of the person named must also be indicated and the
tendering Holder should complete the applicable box.
If no instructions are given, the Exchange Notes (and any 144A Notes not
tendered or not accepted) will be issued in the name of and sent to the acting
Holder of the 144A Notes or deposited at such Holder's account at the
Depository.
6. TRANSFER TAXES.
The Company shall pay all transfer taxes, if any, applicable to the exchange
of 144A Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or 144A Notes for principal amounts not tendered
or accepted for exchange are to be delivered to, or are to be registered or
issued in the name of, any person other than the registered Holder of the 144A
Notes tendered, or if tendered 144A 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 144A 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. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted herewith, the amount of such transfer
taxes will be billed directly to such tendering Holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer stamps to be affixed to the 144A Notes listed in the Letter of
Transmittal.
7. WAIVER OF CONDITIONS.
The Company reserves the right, in its reasonable judgment, to waive, in
whole or in part, any of the conditions to the Exchange Offer set forth in the
Prospectus.
8. MUTILATED, LOST, STOLEN OR DESTROYED NOTES.
Any Holder whose 144A Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter of Transmittal may be
directed to the Exchange Agent at the address and telephone number set forth
above. In addition, all questions relating to the Exchange Offer, as well as
requests for assistance or additional copies of the Prospectus and this Letter
of Transmittal, may be directed to Thomas P. Leahey, The Maxim Group, Inc.,
210 TownPark Drive, Kennesaw, Georgia 30144; telephone: (770) 590-9369
(collect).
10. VALIDITY AND FORM.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered 144A Notes and withdrawal of tendered 144A
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 144A Notes not properly tendered or any 144A 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
irregularities or conditions of tender as to particular 144A Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in this Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of 144A Notes must be cured within such time as the
Company shall determine. Neither the Company, the Exchange Agent nor any other
person shall be under any duty to give notification of defects or
irregularities with respect to tenders of 144A Notes, nor shall any of them
incur any liability for failure to give such notification. Tenders of 144A
Notes will not be deemed to have been made until such irregularities have been
cured or waived. Any 144A 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 without cost to such holder by the Exchange
Agent to the tendering Holders of 144A Notes, unless otherwise provided
herein, as soon as practicable following the Expiration Date.
9
<PAGE>
IMPORTANT TAX INFORMATION
Under federal income tax law, a Holder tendering 144A Notes is required to
provide the Exchange Agent with such Holder's correct TIN on Substitute Form
W-9 above. If such Holder is an individual, the TIN is the Holder's social
security number. The Certificate of Awaiting Taxpayer Identification Number
should be completed if the tendering Holder has not been issued a TIN and has
applied for a number or intends to apply for a number in the near future. If
the Exchange Agent is not provided with the correct TIN, the Holder may be
subject to a $50 penalty imposed by the Internal Revenue Service. In addition,
payments that are made to such Holder with respect to tendered 144A Notes may
be subject to backup withholding.
Certain Holders (including, among others, all domestic corporations and
certain foreign individuals and foreign entities) are not subject to these
backup withholding and reporting requirements. Such a Holder, who satisfies
one or more of the conditions set forth in Part 2 of the Substitute Form W-9,
should execute the certification following such Part 2. In order for a foreign
Holder to qualify as an exempt recipient, that Holder must submit to the
Exchange Agent a properly completed Internal Revenue Service Form W-9, signed
under penalties of perjury, attesting to that Holder's exempt status. Such
forms can be obtained from the Exchange Agent.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any amounts otherwise payable to the Holder. Backup withholding is not
an additional tax. Rather, the tax liability of persons 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 from the Internal
Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a Holder with
respect to 144A Notes tendered for exchange, the Holder is required to notify
the Exchange Agent of his or her correct TIN by completing the form herein
certifying that the TIN provided on Substitute Form W-9 is correct (or that
such Holder is awaiting a TIN) and that (i) such Holder is exempt, (ii) such
Holder has not been notified by the Internal Revenue Service that he or she is
subject to backup withholding as a result of failure to report all interest or
dividends or (iii) the Internal Revenue Service has notified such Holder that
he or she is no longer subject to backup withholding.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
Each Holder is required to give the Exchange Agent the social security
number or employer identification number of the record Holder(s) of the 144A
Notes. If 144A Notes are in more than one name or are not in the name of the
actual Holder, consult the instructions on Internal Revenue Service Form W-9,
which may be obtained from the Exchange Agent, for additional guidance on
which number to report.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
If the tendering Holder has not been issued a TIN and has applied for a
number or intends to apply for a number in the near future, write "Applied
For" in the space for the TIN on Substitute Form W-9, sign and date the form
and the Certificate of Awaiting Taxpayer Identification Number and return them
to the Exchange Agent. If such certificate is completed and the Exchange Agent
is not provided with the TIN within 60 days, the Exchange Agent will withhold
31% of all payments made thereafter until a TIN is provided to the Exchange
Agent.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE THEREOF (TOGETHER WITH
144A NOTES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED
DOCUMENTS) OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE
AGENT ON OR PRIOR TO THE EXPIRATION DATE.
10
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY FOR TENDER OF 9 1/4% SENIOR SUBORDINATED NOTES
DUE 2007 (INCLUDING THOSE IN BOOK-ENTRY FORM) OF
THE MAXIM GROUP, INC.
This form or one substantially equivalent hereto must be used to accept the
Exchange Offer of The Maxim Group, Inc. (the "Company") made pursuant to the
Prospectus, dated November , 1997 (the "Prospectus"), if certificates for the
outstanding 9 1/4% Senior Subordinated Notes due 2007 of the Company (the
"144A Notes") are not immediately available or if the procedure for book-entry
transfer cannot be completed on a timely basis or time will not permit all
required documents to reach the Exchange Agent prior to 5:00 p.m., New York
time, on the Expiration Date of the Exchange Offer. Such form may be delivered
or transmitted by telegram, telex, facsimile transmission, mail or hand
delivery to State Street Bank and Trust Company (the "Exchange Agent") as set
forth below. In addition, unless delivery of the 144A Notes is to be made by
book-entry transfer to an account maintained by the Exchange Agent at the DTC,
in order to utilize the guaranteed delivery procedure to tender 144A Notes
pursuant to the Exchange Offer, a completed, signed and dated Letter of
Transmittal (or facsimile thereof) must also be received by the Exchange Agent
prior to 5:00 p.m., New York City time, on the Expiration Date. Capitalized
terms not defined herein are defined in the Prospectus.
STATE STREET BANK AND TRUST COMPANY, EXCHANGE AGENT
By Mail By Facsimile Transmission: By Hand or Overnight
(registered or certified mail Courier:
recommended):
(617) 664-5395
State Street Bank and Trust
State Street Bank and Trust Company Corporate Trust
Company Corporate Trust Department 4th floor Two
Department P.O. Box International Place Boston,
778 Boston, MA 02102-0078 MA 02110
Confirm by Telephone or for Information Call:
(617) 664-5587
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
1
<PAGE>
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the principal amount of 144A Notes set forth below, pursuant to the
guaranteed delivery procedure described in "The Exchange Offer--Guaranteed
Delivery Procedures" section of the Prospectus.
Principal Amount of 144A Notes tendered:*
$ ________________________
Certificate No(s). (if available):
__________________________
Total Principal Amount Represented by Certificate(s):
$ ________________________
* Must be in denominations of principal amount of $1,000 and any integral
multiple thereof.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned.
PLEASE SIGN HERE
X ________________________________ __________________________________
X ________________________________ __________________________________
Signature(s) of Owner(s) or Date
Authorized Signatory
Area Code and Telephone Number: _____________________
Must be signed by the holder(s) of 144A Notes as their name(s) appear(s) on
certificates for 144A Notes or on a security position listing, or by person(s)
authorized to become registered holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must set
forth his or her full title below. If 144A Notes will be delivered by book-
entry transfer to The Depository Trust Company, provide account number.
Please print name(s) and address(es)
Name (s): ------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
Capacity: ------------------------------------------------------------------
Address(es): ------------------------------------------------------------------
Account Number:
------------------------------------------------------------------
2
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a financial institution (including most banks, savings
and loan associations and brokerage houses) that is a participant in the
Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program or the Stock Exchange Medallion Program, hereby
guarantees that the undersigned will deliver to the Exchange Agent the
certificates representing the 144A Notes being tendered hereby or
confirmation of book-entry transfer of such 144A Notes into the Exchange
Agent's account at The Depository Trust Company, in proper form for
transfer, together with any other documents required by the Letter of
Transmittal within five business days after the Expiration Date.
Name of Firm: ______________________________________________________________
Address: ___________________________________________________________________
____________________________________________________________________________
Area Code and Telephone No.: _______________________________________________
Authorized Signature: ______________________________________________________
Name: ______________________________________________________________________
(PLEASE TYPE OR PRINT)
Title: _____________________________________________________________________
Dated: _____________________
NOTE: DO NOT SEND CERTIFICATES OF 144A NOTES WITH THIS FORM. CERTIFICATES
OF 144A NOTES SHOULD BE SENT ONLY WITH A COPY OF THE PREVIOUSLY
EXECUTED LETTER OF TRANSMITTAL.
3
<PAGE>
EXHIBIT 99.3
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.-- Social Security numbers have nine digits separated by two hyphens:
i.e. 000-00-0000. Employer identification numbers have nine digits separated
by only one hyphen: i.e. 00-0000000. The table below will help determine the
number to give the payer.
- ------------------------------------- -------------------------------------
<TABLE>
<CAPTION>
GIVE THE
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- --------------------------------------------
<S> <C>
1. An individual's account The individual
2. Two or more individuals The actual owner
(joint account) of the account
or, if combined
funds, the first
individual on
the account(1)
3. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
4.a. The usual revocable The grantor-
savings trust (grantor trustee(1)
is also trustee)
b. So-called trust account The actual
that is not a legal or owner(1)
valid trust under state
law
5. Sole proprietorship The owner(3)
account
</TABLE>
<TABLE>
<CAPTION>
GIVE THE EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
----
<S> <C>
6. Sole proprietorship The owner(3)
account
7. A valid trust, estate Legal entity
or pension trust (Do not furnish
the identifying
number of the
personal
representative
or trustee
unless the legal
entity itself is
not designated
in the account
title)(4)
8. Corporate account The corporation
9. Partnership account The partnership
held in the name of the
business
10. Association, club, The organization
religious, charitable,
educational or other
tax exempt organization
11. A broker or registered The broker or
nominee nominee
12. Account with the The public
Department of entity
Agriculture in the name
of a public entity
(such as a State or
local government,
school district or
prison) that receives
agricultural program
payments
----
</TABLE>
- -------------------------------------
(1) List first and circle the name of the person whose number you furnish. If
only one person on a joint account has a social security number, that
person's number must be furnished.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Show the name of the owner. The name of the business or the "doing
business as" name may also be entered. Either the social security number
or the employer identification number may be used.
(4) List first and circle the name of the legal trust, estate or pension
trust.
NOTE: If no name is circled when there is more than one name listed, the
number will be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number ("TIN") or you don't know
your number obtain Form SS-5, Application for a Social Security Number Card,
or Form SS-4, Application for Employer Identification Number, at the local
office of the Social Security Administration or the Internal Revenue Service
and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on all interest,
dividends and broker transactions payments include the following:
. A corporation.
. A financial institution.
. An organization exempt from tax under section 501(a), or an individual
retirement plan, or a custodial account under section 403(b)(7) if the
account satisfies the requirements of section 401(f)(2).
. The United States or any agency or instrumentality thereof.
. A State, the District of Columbia, a possession of the United States or
any subdivision or instrumentality thereof.
. A foreign government, a political subdivision of a foreign government or
any agency or instrumentality thereof.
. An international organization or any agency or instrumentality thereof.
. A registered dealer in securities or commodities registered in the U.S.,
the District of Columbia or a possession of the U.S.
. A real estate investment trust.
. A common trust fund operated by a bank under section 584(a).
. A trust exempt from tax under section 664 or described in Section 4947.
. An entity registered at all times under the Investment Company Act of
1940.
. A foreign central bank of issue.
. A middleman known in the investment community as a nominee or who is
listed in the most recent publication of the American Society of Corporate
Secretaries, Inc., Nominee List.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
. Section 404(k) payments made by an ESOP.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals. NOTE: You may
be subject to backup withholding if this interest is $600 or more and is
paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
. Payments described in section 6049(b)(5) to nonresident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
. Mortgage interest paid to you.
EXEMPT PAYEES DESCRIBED ABOVE SHOULD FILE FORM W-9 TO AVOID POSSIBLE ERRONEOUS
BACKUP WITHHOLDING. COMPLETE THIS SUBSTITUTE FORM W-9 AS FOLLOWS:
ENTER YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE
FORM, SIGN, DATE AND RETURN THE FORM TO THE PAYER.
Certain payments other than interest, dividends and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see the sections 6041, 6041A, 6042, 6044, 6045,
6049, 6050A and 6050N and the regulations thereunder.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give correct taxpayer identification numbers to
payers who must report the payments to the IRS. The IRS uses the numbers for
identification purposes and to help verify the accuracy of tax returns. The
IRS may also provide this information to the Department of Justice for civil
and criminal litigation and to cities, states, and the District of Columbia to
carry out their tax laws. Payers must be given the numbers whether or not
recipients are required to file tax returns. Payers must generally withhold
31% of taxable interest, dividend, and certain other payments to a payee who
does not furnish a taxpayer identification number to a payer. Certain
penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. If you fail
to furnish your correct taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due
to reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE STATEMENTS WITH RESPECT TO WITHHOLDING. If you
make a false statement with no reasonable basis that results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
(4) MISUSE OF TAXPAYER IDENTIFICATION NUMBERS. If the payer discloses or uses
taxpayer identification numbers in violation of Federal law, the payer may be
subject to civil and criminal penalties.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
