As filed with the Securities and Exchange Commission on September 11, 1997
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
-------------------
HOLLYWOOD ENTERTAINMENT CORPORATION
(Exact name of registrant as specified in its charter)
-------------------
Oregon 7841 93-0981138
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification
organization) Code Number)
25600 SW Parkway Center Drive
Wilsonville, Oregon 97070
(503) 570-1600
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-------------------
DONALD J. EKMAN
Senior Vice President and General Counsel
25600 SW Parkway Center Drive
Wilsonville, Oregon 97070
(503) 570-1600
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-------------------
It is respectfully requested that the Commission send copies of all
notices, orders and communications to:
ROBERT J. MOORMAN GREGORY K. MILLER
Stoel Rives LLP Latham & Watkins
900 SW Fifth Avenue, Suite 2300 505 Montgomery Street, Suite 1900
Portland, Oregon 97204 San Francisco, California 94111
(503) 224-3380 (415) 391-0600
-------------------
Approximate date of commencement of proposed sale to the public: As
promptly 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. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=======================================================================================================================
Proposed Proposed
maximum maximum
Title of each class of Amount to be offering price aggregate Amount of
securities to be registered registered(1) per unit(1) offering price(1) registration fee
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10 5/8% Series B Senior
Subordinated Notes due 2004...... $200,000,000 100% $200,000,000 $60,607
=======================================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended (the
"Securities Act").
</TABLE>
-------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such a date as the Commission, acting pursuant to said
Section 8(a), may determine.
================================================================================
<PAGE>
- --------------------------------------------------------------------------------
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there 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 SEPTEMBER 10, 1997
[LOGO]
Offer for all Outstanding
10 5/8% Senior Subordinated Notes due 2004
in Exchange for
10 5/8% Series B Senior Subordinated Notes due 2004
of
HOLLYWOOD ENTERTAINMENT CORPORATION
The Exchange Offer will expire at 5:00 p.m.
New York City time, on , 1997, unless extended.
Hollywood Entertainment Corporation, an Oregon corporation (the "Company"),
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (which together constitute
the "Exchange Offer"), to exchange an aggregate principal amount of up to
$200,000,000 of 10 5/8% Series B Senior Subordinated Notes due 2004 of the
Company (the "New Notes") for a like principal amount of the issued and
outstanding 105/8% Senior Subordinated Notes due 2004 of the Company (the "Old
Notes" and, together with the New Notes, the "Notes") with the holders thereof.
The terms of the New Notes are identical in all respects to the terms of the Old
Notes, except that the terms of the New Notes do not include certain transfer
restrictions and registration rights included in the terms of the Old Notes.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. The New Notes will bear interest from the most recent date to which
interest has been paid on the Old Notes or, if no interest has been paid on the
Old Notes, from August 13, 1997. Accordingly, if the relevant record date for
interest payment occurs after the consummation of the Exchange Offer, registered
holders of New Notes on such record date will receive interest accruing from the
most recent date to which interest has been paid or, if no interest has been
paid, from August 13, 1997. If, however, the relevant record date for interest
payment occurs prior to the completion of the Exchange Offer, registered holders
of Old Notes on such record date will receive interest accruing from the most
recent date to which interest has been paid or, if no interest has been paid,
from August 13, 1997. Old Notes accepted for exchange will cease to accrue
interest from and after the date of completion of the Exchange Offer, except as
set forth in the immediately preceding sentence. Holders of Old Notes whose Old
Notes are accepted for exchange will not receive any payment in respect of
interest on such Old Notes otherwise payable on any interest payment date, the
record date for which occurs on or after consummation of the Exchange Offer.
The Old Notes were issued on August 13, 1997 (the "Old Note Offering") in a
transaction not registered under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance upon the exemption provided in Section 4(2) of
the Securities Act. Accordingly, the Old Notes may not be reoffered, resold,
pledged, hypothecated or otherwise transferred in the United States unless so
registered or unless an applicable exemption from the registration requirements
of the Securities Act is available. The Old Notes are, and the New Notes will
be, general unsecured obligations of the Company, subordinated in right of
payment to all existing and future Senior Indebtedness (as defined herein),
including borrowings under the New Credit Facility (as defined herein). The
Indenture (as defined herein) permits the Company to incur additional
indebtedness, including Senior Indebtedness, subject to certain limitations. As
of June 30, 1997, on a pro forma basis after giving effect to the sale of the
Old Notes and the application of the net proceeds therefrom, the Company would
have had $9.6 million of Senior Indebtedness outstanding.
The New Notes are being offered hereby to satisfy certain obligations of
the Company contained in the Registration Rights Agreement, dated August 13,
1997 (the "Registration Rights Agreement"), among the Company and the initial
purchasers of the Old Notes. The Company is making the Exchange Offer in
reliance upon interpretations of the staff of the Securities and Exchange
Commission (the "Commission") by which the New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by holders thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that the New Notes are acquired in the ordinary
course of the holder's business and the holder has no arrangement or
understanding with any person to participate in the distribution of the New
Notes. If any holder of Old Notes is an affiliate of the Company, is engaged in
or intends to engage in or has any arrangement with any person to participate in
the distribution of the New Notes to be acquired pursuant to the Exchange Offer,
the holder (i) could not rely on the applicable
<PAGE>
interpretations of the staff of the Commission and (ii) must comply with the
registration and prospectus requirements of the Securities Act in connection
with any resale transaction. Each broker-dealer that receives New Notes for its
own account pursuant to the Exchange Offer must acknowledge that it will deliver
a prospectus in connection with any resale of the New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" withing
the meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where the Old Notes
were acquired by the broker-dealer as a result of market-making activities or
other trading activities. The Company has agreed that, for a period ending on
the earlier of (i) 180 days after the date of this Prospectus and (ii) the date
on which a broker-dealer is no longer required to deliver a prospectus in
connection with market-making or other trading activities, it will make this
Prospectus (as amended and supplemented) available to any broker-dealer for use
in connection with any such resale. See "Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all the expenses incident to the Exchange Offer. Tenders of Old
Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date (as defined herein). If the Company terminates the Exchange
Offer and does not accept for exchange any Old Notes, the Company will promptly
return the Old Notes to the holders thereof. See "The Exchange Offer."
The Old Notes are eligible for trading in the Private Offerings, Resales
and Trading through Automatic Linkages market (the "PORTAL Market") of the
National Association of Securities Dealers, Inc. Prior to this Exchange Offer,
there has been no public market for the New Notes. If a market for the New Notes
develops, the New Notes could trade at a discount from their principal amount.
The Company does not intend to list the New Notes on any securities exchange or
to seek approval for quotation on any automated quotation system. There is no
assurance that an active public market for the New Notes will develop.
See "Risk Factors" beginning on page 10 for a discussion of certain factors
that should be considered in connection with an investment in the New Notes
offered hereby.
-------------------
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.
-------------------
The date of this Prospectus is , 1997.
<PAGE>
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. These documents are available upon request from
Hollywood Entertainment Corporation, 25600 SW Parkway Center Drive, Wilsonville,
Oregon 97070, Attention: Mr. Donald J. Ekman, Senior Vice President and General
Counsel (telephone number (503) 570-1600). To ensure timely delivery of the
documents, any request should be made no later than , 1997.
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors," and financial statements and unaudited
financial data appearing elsewhere or incorporated in this Prospectus.
The Company
Hollywood Entertainment owns and operates 661 video retail superstores in
33 states as of June 30, 1997 and is the second largest video retailer in the
United States, with revenue of $328.3 million for the twelve months ended June
30, 1997. According to video industry analyst Paul Kagan Associates, Inc. ("Paul
Kagan"), the Company operates the highest volume video stores in the country.
Hollywood Entertainment's goal is to be a dominant national video retailer and
to build a strong national brand which consumers will identify with the
entertainment industry. As part of its strategy to achieve this goal, the
Company has developed a store format and design that captures the bright lights,
energy and excitement of the motion picture industry and enables the public to
easily identify and recognize Hollywood Video superstores.
The Company opened its first video superstore in October 1988 and operated
16 stores at the time of its initial public offering in July 1993. The Company
operated 551 stores as of December 31, 1996, opened 110 new stores in the six
months ended June 30, 1997, and plans to open approximately 240 new stores in
the second half of 1997 and approximately 400 new stores in 1998. The Company's
revenue increased from $11.0 million in 1992 to $328.3 million for the twelve
months ended June 30, 1997, and its Adjusted EBITDA (as defined herein)
increased from $2.2 million to $73.2 million over the same period. Comparable
store revenue increased 7% for the year ended December 31, 1996 and 5% for each
of the first and second quarters of 1997.
Hollywood Video superstores average approximately 7,500 square feet and
typically carry approximately 10,000 titles and 16,000 videocassettes and video
games, consisting of many copies of popular new releases and an extensive
selection of older or "catalog" movies. Hollywood Entertainment is a category
killer in its industry, offering more copies of popular new videocassette
releases and more titles than its competitors to achieve greater customer
satisfaction and encourage repeat visits. Hollywood Video stores are primarily
located in high traffic locations, in stand-alone buildings, at the end of
shopping strips or in other highly visible locations.
According to Paul Kagan, the U.S. videocassette rental and sales industry
has grown from $9.8 billion in revenue in 1990 to $15.6 billion in 1996, and is
expected to reach $18.6 billion in 2001. The video rental industry is highly
fragmented and in recent years has been characterized by increased consolidation
as larger "superstore" chains (video stores with at least 7,500 videocassettes)
have continued to increase market share by opening new stores and acquiring
smaller, local operators.
The video retail industry is the largest single source of revenue to movie
studios and represented approximately $4.5 billion, or 45%, of the $9.9 billion
of estimated domestic studio revenue in 1996 according to Paul Kagan. According
to the Motion Picture Association of America (the "MPAA"), between 1990 and 1996
only 7% of all movies released generated in excess of $20 million in U.S.
theater revenue for studios. Over the same period, members of the MPAA reported
that the average production, advertising and distribution cost per movie
increased from $38.8 million to $59.7 million. Video retail stores, including
those operated by the Company, purchase movies on videocassette regardless of
whether the movies were successful at the box office, thus providing the major
movie studios a reliable and substantial source of revenue for almost all of the
hundreds of movies produced each year. Consequently, the Company believes movie
studios are highly motivated to continue to protect the video retail industry as
a unique and significant source of revenue.
<PAGE>
The Company was incorporated in Oregon in June 1988; its executive offices
are located at 25600 SW Parkway Center Drive, Wilsonville, Oregon 97070, and its
telephone number is (503) 570-1600. References in this Offering Memorandum to
the "Company" or "Hollywood Entertainment" are to Hollywood Entertainment
Corporation and its wholly owned subsidiary.
The New Credit Facility
In connection with the offering of the Old Notes, the Company (i) repaid in
full all of the outstanding indebtedness under its existing $150 million
revolving bank credit agreement (the "Existing Credit Facility"), (ii) has
terminated the Existing Credit Facility and (iii) has entered into a credit
agreement with Societe Generale, DLJ Capital Funding, Inc. and Goldman Sachs
Credit Partners L.P. (collectively, the "Arrangers") on behalf of themselves and
as agents for a syndicate of lenders to be determined (the "New Credit
Facility"), pursuant to which up to $300 million will be available for borrowing
on a revolving basis. The obligations under the New Credit Facility are secured
by substantially all of the assets of the Company. See "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources" and "Description of Certain Other
Indebtedness."
The Exchange Offer
Securities Offered.................. $200,000,000 principal amount of 10 5/8%
Series B Subordinated Notes due 2004. The
terms of the New Notes and the Old Notes
are identical in all respects, except
certain transfer restrictions and
registration rights relating to the Old
Notes will not be applicable with respect
to the New Notes.
Issuance of Old Notes;
Registration Rights................. The Old Notes were issued on August 13,
1997 to Montgomery Securities, Donaldson,
Lufkin & Jenrette Securities Corporation,
Goldman, Sachs & Co. and Societe Generale
Securities Corporation (collectively, the
"Initial Purchasers"), which placed the
Old Notes with "qualified institutional
buyers" (as that term is defined in Rule
144A promulgated under the Securities
Act), certain foreign purchasers pursuant
to Regulation S under the Securities Act
and a limited number of institutional
"accredited investors" (as defined in
Rule 501(a)(1),(2), (3) or (7) under the
Securities Act). In connection therewith,
the Company executed and delivered for
the benefit of the holders of Old Notes
the Registration Rights Agreement,
pursuant to which the Company agreed (i)
to file a registration statement (the
"Registration Statement") no later than
30 days after August 13, 1997 with
respect to the Exchange Offer and (ii) to
use its best efforts to cause the
Registration Statement to be declared
effective by the Commission no later than
90 days after August 13, 1997. In certain
circumstances, the Company will be
required to file a shelf registration
statement (the "Shelf Registration
Statement") to cover resales of the Old
Notes by the holders thereof. If the
Company does not comply with certain of
its obligations under the Registration
Rights Agreement, it will be required to
pay Additional Interest (as defined
herein) to holders of the Old Notes. See
"The Exchange Offer -- Registration
Rights; Additional Interest." Holders of
the Old Notes do not have any appraisal
rights in connection with the Exchange
Offer.
The Exchange Offer.................. The New Notes are being offered in
exchange of a like principal amount of
Old Notes. The issuance of the New Notes
is intended to satisfy the
2
<PAGE>
obligations of the Company contained in
the Registration Rights Agreement. Based
upon the position of the staff of the
Commission set forth in no-action letters
issued in connection with other
transactions substantially similar to the
Exchange Offer, the Company believes the
New Notes issued pursuant to the Exchange
Offer may be offered for resale, resold
and otherwise transferred by holders
thereof (other than (i) any holder that
is an "affiliate" of the Company within
the meaning of Rule 405 under the
Securities Act, (ii) an Initial Purchaser
that acquired the Old Notes directly from
the Company solely in order to resell
pursuant to Rule 144A under the
Securities Act or any other available
exemption under the Securities Act or
(iii) a broker-dealer that acquired the
Old Notes as a result of market-making or
other trading activities) without further
compliance with the registration and
prospectus delivery requirements of the
Securities Act, provided that the New
Notes are acquired in the ordinary course
of the holder's business and the holder
is not participating and has no
arrangement with any person to
participate in a distribution (within the
meaning of the Securities Act) of the New
Notes. Each broker-dealer that receives
New Notes for its own account pursuant to
the Exchange Offer must acknowledge that
it will deliver a prospectus in
connection with any resale of the New
Notes. Although there has been no
indication of any change in the staff's
position, there is no assurance that the
staff of the Commission would make a
similar determination with respect to the
resale of the New Notes. See "Risk
Factors."
Procedures for Tendering............ Tendering holders of Old Notes must
complete and sign the Letter of
Transmittal in accordance with the
instructions contained therein and
forward the same by mail, facsimile or
hand delivery, together with any other
required documents, to the Exchange
Agent, either with the Old Notes to be
tendered or in compliance with the
specified procedures for guaranteed
delivery of Old Notes. Holders of the Old
Notes desiring to tender the Old Notes in
exchange for New Notes should allow
sufficient time to ensure timely
delivery. Certain brokers, dealers,
commercial banks, trust companies and
other nominees may also effect tenders by
book-entry transfer. Holders of Old Notes
registered in the name of a broker,
dealer, commercial bank, trust company or
other nominee are urged to contact such
person promptly if they wish to tender
Old Notes pursuant to the Exchange Offer.
Letters of Transmittal and certificates
representing the Old Notes should not be
sent to the Company. These documents
should only be sent to the Exchange
Agent. Questions regarding how to tender
and requests for information should also
be directed to the Exchange Agent. See
"The Exchange Offer -- Procedures for
Tendering the Old Notes."
Tenders, Expiration Date;
Withdrawal.......................... The Exchange Offer will expire the
earlier of 5:00 p.m., New York City time,
on , 1997 or (ii) the date
when all Old Notes have been tendered, or
such later date and time to which it is
extended, provided it may not be extended
beyond , 1997. The Company
will accept for exchange any and all Old
Notes that are validly tendered in the
Exchange Offer prior to 5:00 p.m., New
York City time, on the Expiration Date.
The tender of Old Notes pursuant to the
Exchange Offer
3
<PAGE>
may be withdrawn at any time prior to the
Expiration Date. Any Old Note not
accepted for exchange for any reason will
be returned without expense to the
tendering holder thereof as promptly as
practicable after the expiration or
termination of the Exchange Offer. See
"The Exchange Offer -- Terms of the
Exchange Offer; Period for Tendering Old
Notes" and " -- Withdrawal Rights."
Federal Income Tax
Consequences........................ For federal income tax purposes, the
exchange pursuant to the Exchange Offer
will not result in any income, gain or
loss to the holders of Notes or the
Company. See "Certain United States
Federal Income Tax Considerations."
Use of Proceeds..................... There will be no proceeds to the Company
from the exchange pursuant to the
Exchange Offer.
Appraisal Rights.................... Holders of Old Notes will not have
dissenters' rights or appraisal rights in
connection with the Exchange Offer.
Exchange Agent...................... Continental Stock Transfer & Trust
Company is serving as Exchange Agent in
connection with the Exchange Offer.
Consequences of Not Exchanging the Old Notes
Holders of Old Notes who do not exchange Old Notes for New Notes pursuant
to the Exchange Offer will continue to be subject to the restrictions on
transfer of the Old Notes as set forth in the legend thereon as a consequence of
the issuance of the Old Notes pursuant to exemptions from, or in transactions
not subject to, the registration requirements of the Securities Act and
applicable state securities laws. In general, the Old Notes may not be offered
or sold, unless registered under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not anticipate that it will
register the Old Notes for resale under the Securities Act. See "Risk Factors
- --Consequences of Failure to Exchange Old Notes" and "The Exchange Offer --
Consequences of Failure to Exchange Old Notes."
Summary Description of the New Notes
The terms of the New Notes and the Old Notes are identical in all respects,
except that the terms of the New Notes do not include certain transfer
restrictions and registration rights relating to the Old Notes.
The New Notes will bear interest from the most recent date to which
interest has been paid on the Old Notes or, if no interest has been paid on the
Old Notes, from August 13, 1997. Accordingly, registered Holders of New Notes on
the relevant record date for the first interest payment date following the
completion of the Exchange Offer will receive interest accruing from the most
recent date to which interest has been paid or, if no interest has been paid,
from August 13, 1997. Old Notes accepted for exchange will cease to accrue
interest from and after the date of completion of the Exchange Offer. Holders of
Old Notes whose Old Notes are accepted for exchange will not receive any payment
in respect of interest on the Old Notes otherwise payable on any interest
payment date that occurs on or after completion of the Exchange Offer.
Issuer ........................... Hollywood Entertainment Corporation.
4
<PAGE>
Notes ........................... $200,000,000 principal amount of 10 5/8%
Series B Senior Subordinated Notes due
2004.
Maturity Date....................... August 15, 2004.
Interest Payment Dates.............. Each February 15 and August 15,
commencing on February 15, 1998.
Optional Redemption................. The Notes may be redeemed at the option
of the Company, in whole or in part, on
or after August 15, 2001 at the
redemption prices set forth herein, plus
accrued and unpaid interest, if any, to
the date of redemption. In addition, at
any time prior to August 15, 2000, the
Company may redeem up to 35% of the
initial principal amount of the Notes
originally issued with the net proceeds
of one or more Public Equity Offerings,
at a redemption price equal to 110.625%
of the principal amount of such Notes,
plus accrued and unpaid interest, if any,
to the date of redemption; provided that
at least 65% of the principal amount of
Notes originally issued remains
outstanding immediately after the
occurrence of each such redemption and
that each such redemption occurs within
60 days following the closing of each
such Public Equity Offering. See
"Description of Notes-Optional
Redemption."
Mandatory Redemption................ Except as set forth herein, the Company
is not required to make mandatory
redemption or sinking fund payments with
respect to the Notes.
Ranking ........................... The Notes will be general unsecured
obligations of the Company, subordinated
in right of payment to all existing and
future Senior Indebtedness of the
Company, including borrowings under the
$300 million New Credit Facility. As of
June 30, 1997, on a pro forma basis after
giving effect to the sale of the Old
Notes and the application of the net
proceeds therefrom, the Company would
have had $9.6 million of Senior
Indebtedness outstanding. The Indenture
will permit the incurrence of additional
Senior Indebtedness by the Company,
subject to certain limitations. See
"Description of Notes-Subordination" and
"-Certain Covenants-Limitation on
Indebtedness."
Change of Control................... Upon a Change of Control, each Holder of
Notes shall have the right to require the
Company to repurchase all or any part of
such Holder's Notes at a purchase price
equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid
interest, if any, to the date of
purchase. The Company's ability to
repurchase Notes upon a Change of
Control, however, may be restricted by
the terms of the New Credit Facility. See
"Description of Notes-Change of Control."
Certain Covenants................... The Indenture will contain covenants
including, but not limited to, covenants
limiting the Company and its Restricted
Subsidiaries (as defined herein) with
respect to the following: restricted
payments, incurrence of additional
indebtedness, liens, payment restrictions
affecting subsidiaries, mergers and
consolidations, asset sales, transactions
with Affiliates (as defined herein), and
issuances of capital stock of
subsidiaries. See "Description of
Notes-Certain Covenants."
5
<PAGE>
Risk Factors
Holders of Old Notes should carefully consider the information set forth
under the caption "Risk Factors" and all other information set forth in this
Prospectus before tendering their Old Notes in the Exchange Offer. The risk
factors set forth (other than "Risk Factors -- Consequences of Failure to
Exchange Old Notes") are generally applicable to the Old Notes as well as the
New Notes.
6
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<TABLE>
<CAPTION>
Summary Financial Information and Certain Operating Data
(In thousands, except selected store and ratio data)
Six Months
Ended
Year Ended December 31, June 30,
--------------------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1996 1997
------ ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue:
Rental........................ $9,762 $15,267 $61,941 $123,894 $252,625 $109,059 $184,715
Product sales................. 1,282 2,072 11,347 25,536 49,717 19,963 35,762
Total.................... 11,044 17,339 73,288 149,430 302,342 129,022 220,477
Operating income................. 2,270 3,643 12,610 17,537 38,418 12,616 25,506
Interest expense................. 333 322 795 490 4,339 1,625 3,617
Net income (2)(3)................ 1,177 2,146 8,143 9,226 20,630 6,732 1,874
Cash flow from
operations.................... 5,478 9,395 42,699 68,739 125,429 37,722 60,734
Cash used in investing
activities.................... 4,089 9,093 102,339 168,861 198,716 61,623 135,408
Cash (used) provided by
financing activities.......... (793) 8,291 89,052 91,085 56,156 (1,382) 67,607
Pro Forma Statement of
Operations and Other Data
(4):
Pro Forma operating income....... $1,796 $2,795 $9,745 $17,537 $38,418 $12,616 $ 25,506
Pro Forma net income (2)(3)...... 892 1,647 6,277 11,786 20,630 6,732 13,198
EBITDAR (5)...................... 6,195 9,686 41,736 90,129 179,633 74,961 127,807
Rent expense..................... 1,469 2,107 9,300 25,300 54,100 22,934 40,490
EBITDA (6)....................... 4,726 7,579 32,436 64,829 125,533 52,027 87,317
Adjusted EBITDA (7).............. 2,201 4,474 17,875 31,516 57,740 22,612 38,023
Capital expenditures (net) (8)... 3,886 7,912 44,652 139,971 188,291 66,092 136,058
Ratio of Adjusted EBITDA to
interest expense (9)..........
Ratio of total debt to Adjusted
EBITDA........................
Ratio of net debt to Adjusted
EBITDA........................
Selected Store Data:
Number of stores at beginning of
period........................ 10 15 25 113 305 305 551
Number of stores opened during
period........................ 5 10 33 122 250 77 110
Number of stores acquired during
period........................ 0 0 55 70 0 0 0
Number of stores closed during
period........................ 0 0 0 0 (4) 0 0
------ ------- ------- -------- -------- -------- --------
Number of stores at end of period
................................. 15 25 113 305 551 382 661
Comparable store revenue 27% 16% 7% 1% 7% 6% 5%
increase (10).................
7
<PAGE>
As of June 30, 1997
-----------------------------
Actual As Adjusted (1)
-------- ---------------
Balance Sheet Data:
Adjusted working capital (including rental inventory) (11)........................... $191,189 $254,689
Total assets......................................................................... 521,389 591,389
Long-term debt (including current portion) (12)...................................... 139,607 209,607
Shareholders' equity................................................................. 296,070 296,070
- -----------
(1) Adjusted to reflect the sale of $200 million principal amount of Old Notes
(at an interest rate of 10.625% per annum), the receipt of the net proceeds
therefrom and the repayment of $130.0 million of outstanding indebtedness
under the Existing Credit Facility at June 30, 1997. See "Use of Proceeds"
and "Description of Certain Other Indebtedness."
(2) For 1992 and 1993, includes a pro forma income tax provision (benefit)
adjustment of $830,000 and ($140,000), respectively, to reflect the Company
as a C corporation rather than an S corporation for federal and state
income tax purposes for 1992 and for the period which commenced January 1,
1993 and ended July 18, 1993.
(3) Net income for the six months ended June 30, 1997 includes, and Pro Forma
net income for the six months ended June 30, 1997 eliminates, a pre-tax
charge of $18.9 million relating to the settlement of a securities class
action lawsuit. See "Business-Legal Proceedings."
(4) Effective January 1, 1995, the Company changed its method of amortizing the
cost of videocassette rental inventory. See Note 2 of Notes to Consolidated
Financial Statements. The change in amortization method resulted in a
charge to earnings in 1995 totaling $2.6 million, representing the
cumulative effect as of January 1, 1995 if the new method had been applied
retroactively to all videocassettes in service at that date. The Pro Forma
amounts shown herein reflect the effect on operating income and net income
had the new amortization method been in effect as of the beginning of each
of the periods presented. As a result, Pro Forma results for 1995 do not
include the charge of $2.6 million.
(5) EBITDAR represents EBITDA before rent expense. Such data are not a measure
of financial performance under generally accepted accounting principles and
should not be considered as an alternative to net income as an indicator of
the Company's operating performance or as an alternative to cash flows as a
measure of liquidity.
(6) EBITDA represents operating income before depreciation and amortization.
Such data are not a measure of financial performance under generally
accepted accounting principles and should not be considered as an
alternative to net income as an indicator of the Company's operating
performance or as an alternative to cash flows as a measure of liquidity.
(7) Adjusted EBITDA represents EBITDA plus non-cash expenses that reduced
EBITDA, minus 30% of rental revenue for such period after deducting from
such 30% of rental revenue any cash charges associated with the acquisition
of new release videocassettes. The non-cash expenses represent the cost of
goods sold on previously viewed videocassettes (as derived from the
Company's internal point of sale systems) and losses on inventory shrink.
The Company believes 30% of rental revenue approximates amounts spent on
purchase of new release videocassettes, which are capitalized. Adjusted
EBITDA can be calculated from EBITDA as follows:
Year Ended
December 31, 1996
-----------------
(in millions)
EBITDA $ 125.5
Non-cash expenses 8.0
30% of rental revenue (75.8)
Associated cash charges 0.0
---------
Adjusted EBITDA $ 57.7
=========
8
<PAGE>
This measure of Adjusted EBITDA is used under the Indenture and the New
Credit Facility. See "Description of Notes." Adjusted EBITDA is not a
measure of financial performance under generally accepted accounting
principles and should not be considered as an alternative to income from
operations, net income or cash flows from operating activities as an
indicator of the Company's operating performance or as an alternative to
cash flows as a measure of liquidity.
(8) Includes capital expenditures related to growth in new stores, purchases of
new release videocassettes for existing stores, expenditures to refurbish
existing stores and other items. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations-Liquidity and Capital
Resources."
(9) For purposes of computing this ratio, interest expense excludes
amortization of deferred financing costs.
(10) A store becomes comparable after it has been open and owned by the Company
for one year. An acquired store converted to the Hollywood Video name and
store design is removed from the comparable store base when the conversion
process is initiated and returned one year after reopening.
(11) Videocassette rental inventories are accounted for as noncurrent assets
under generally accepted accounting principles because they are not assets
which are reasonably expected to be completely realized in cash or sold in
the normal business cycle. The classification of these assets as noncurrent
typically excludes them from the computation of working capital. The
Company believes the inclusion of rental inventory in the computation of
working capital is meaningful to an understanding of the Company because
this inventory generates a substantial portion of the Company's revenue.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Liquidity and Capital Resources."
(12) Long-term debt includes borrowings under the Existing Credit Facility.
</TABLE>
9
<PAGE>
Forward-Looking Statements
The information, including information concerning the Company's planned
expansion and financial resources, set forth in "Summary" under the caption "The
Company," in "Risk Factors" under the caption "Uncertain Ability To Achieve and
Manage Planned Expansion," in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" under the caption "Liquidity and Capital
Resources" and in "Business" under the captions "General," "Industry
Overview-Video Retail Industry," "Expansion Strategy," "Decentralization and
Creation of Zone Offices" and "Competition" includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
is subject to the safe harbor created by that section. Certain factors that
could cause results to differ materially from those projected in the
forward-looking statements are set forth in "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" under
the captions "Liquidity and Capital Resources" and "General Economic Trends,
Quarterly Results and Seasonality" and in "Business" under the caption
"Competition."
RISK FACTORS
Holders of Old Notes should carefully consider the following risk factors,
as well as all other information set forth in this Prospectus, before tendering
their Old Notes in the Exchange Offer. The risk factors set forth below (other
than "Consequences of Failure to Exchange Old Notes") are generally applicable
to the Old Notes as well as the New Notes.
Consequences of Failure to Exchange Old Notes
Issuance of the New Notes in exchange for the Old Notes pursuant to the
Exchange Offer will be made only after timely receipt by the Exchange Agent of
the Old Notes, a properly completed and duly executed Letter of Transmittal and
all other required documents. Holders of the Old Notes desiring to tender the
Old Notes in exchange for New Notes, therefore, should allow sufficient time to
ensure timely delivery. The Company is under no duty to give notification of
defects or irregularities with respect to tenders of Old Notes for exchange.
Holders of Old Notes who do not exchange their Old Notes for New Notes pursuant
to the Exchange Offer will continue to be subject to the restrictions on
transfer of the Old Notes as set forth in the legend thereon. In general, the
Old 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 and applicable state securities laws. The Company does not
anticipate that it will register the Old Notes under the Securities Act. To the
extent that Old Notes are tendered and accepted in the Exchange Offer, a
holder's ability to sell untendered, or tendered but unaccepted, Old Notes could
be adversely affected. See "The Exchange Offer -- Consequences of Failure to
Exchange Old Notes."
Based on interpretations of the staff of the Commission, the Company
believes the New Notes issued pursuant to the Exchange Offer in exchange for Old
Notes may be offered for resale, resold and otherwise transferred by a holder
thereof (other than (i) an "affiliate" of the Company within the meaning of Rule
405 of the Securities Act, (ii) an Initial Purchaser who acquired the Old Notes
directly from the Company solely in order to resell pursuant to Rule 144A of the
Securities Act or any other available exemption under the Securities Act, or
(iii) a broker-dealer who acquired the Old Notes as a result of market-making or
other trading activities) without further compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that the New
Notes are acquired in the ordinary course of the holder's business and that the
holder is not participating,
10
<PAGE>
and has no arrangement or understanding with any person to participate, in a
distribution (within the meaning of the Securities Act) of the New Notes. The
Company has not, however, sought its own no-action letter from the staff of the
Commission. Although there has been no indication of any change in the staff's
position, there is no assurance that the staff of the Commission would make a
similar determination with respect to the resale of the New Notes. Any holder
that cannot rely upon these prior staff interpretations must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction, unless the sale is made pursuant
to an exemption from these requirements. See "The Exchange Offer -- Consequences
of Failure to Exchange Old Notes."
Leverage; Incurrence of Additional Senior Indebtedness
Upon completion of the offering of the Old Notes, the Company had
significant amounts of outstanding indebtedness and interest cost. The Company's
level of indebtedness presents risks to investors, including the possibility
that the Company may be unable to generate cash sufficient to pay the principal
of and interest on the indebtedness when due. At June 30, 1997, on a pro forma
basis after giving effect to the offering of Old Notes and the repayment of
amounts outstanding under the Existing Credit Facility, the Company would have
had total indebtedness of $209.6 million. In addition, under the New Credit
Facility, the Company is able to borrow up to an additional $300 million.
The Company's ability to make principal and interest payments on the Notes
will be dependent on the Company's future operating performance, which is itself
dependent on a number of factors, many of which are out of the Company's
control. These factors include prevailing economic conditions and financial,
competitive, regulatory and other factors affecting the Company's business and
operations, and may be dependent on the availability of borrowings under the New
Credit Facility or other borrowings. Although the Company believes, based on
current levels of operations, its cash flow from operations, together with other
sources of liquidity, will be adequate to make required payments of principal
and interest on its debt (including the Notes), whether at or prior to maturity,
finance anticipated capital expenditures and fund working capital requirements,
there is no assurance in this regard. If the Company does not have sufficient
available resources to repay any indebtedness under the New Credit Facility (or
other indebtedness the Company may incur) when it becomes due and payable, the
Company may find it necessary to refinance such indebtedness, and there is no
assurance that refinancing will be available, or available on reasonable terms.
Additionally, the Company's level of indebtedness could have a material
adverse effect on the Company's future operating performance, including, but not
limited to, the following: (i) a significant portion of the Company's cash flow
from operations will be dedicated to debt service payments, thereby reducing the
funds available to the Company for other purposes; (ii) the Company's ability to
obtain additional financing in the future for working capital, capital
expenditures, acquisitions or general corporate purposes or other purposes may
be impaired; (iii) the Company's leverage may place the Company at a competitive
disadvantage; (iv) the Company's leverage may limit its ability to expand and
otherwise meet its growth objectives; and (v) the Company's leverage may hinder
its ability to adjust rapidly to changing market conditions and could make it
more vulnerable in the event of a downturn in general economic conditions or its
business. See "Description of Notes."
11
<PAGE>
Subordination
The Notes are general unsecured obligations of the Company and will be
subordinate in right of payment to all Senior Indebtedness, including all
indebtedness under the New Credit Facility. As of June 30, 1997, on a pro forma
basis after giving effect to the sale of the Old Notes and the application of
the net proceeds therefrom, the Company would have had $9.6 million of Senior
Indebtedness outstanding. In addition, any borrowings under the $300 million New
Credit Facility will be Senior Indebtedness. The Indenture permits the Company
and (under limited circumstances) its subsidiaries to incur additional Senior
Indebtedness, subject to certain limitations, and the Company expects from time
to time to incur additional indebtedness, including Senior Indebtedness, subject
to such limitations. By reason of the subordination provisions of the Indenture,
in the event of the insolvency, liquidation, reorganization, dissolution or
other winding-up of the Company, the lenders under the New Credit Facility and
other creditors who are holders of Senior Indebtedness, as well as creditors
with secured obligations that are not defined as Indebtedness under the
Indenture, must be paid in full before payment of amounts due on the Notes.
Accordingly, there may be insufficient assets remaining after such payments to
pay amounts due on the Notes.
In addition, the Company may not pay principal of, premium, if any, or
interest on, or any other amounts owing in respect of, the Notes, or purchase,
redeem or otherwise retire the Notes, or make any deposit pursuant to defeasance
provisions for the Notes, if Designated Senior Indebtedness (as such term is
defined in the Indenture) is not paid when due, unless such default is cured or
waived or has ceased to exist or such Designated Senior Indebtedness has been
repaid in full. Under certain circumstances, no payments may be made for a
specified period with respect to the principal of, premium, if any, and interest
on, and any other amounts owing in respect of, the Notes if a default, other
than a payment default, exists with respect to Designated Senior Indebtedness,
including indebtedness under the New Credit Facility, unless such default is
cured, waived or has ceased to exist or such indebtedness has been repaid in
full. See "Description of Notes-Subordination." If any Event of Default occurs
and is continuing, the Trustee (as defined herein) or the Holders of at least
25% in principal amount of the then outstanding Notes may declare all the Notes
to be due and payable immediately. Such a continuing Event of Default, however,
also would permit the acceleration of all outstanding obligations under the New
Credit Facility. In such an event, the subordination provisions of the Indenture
would prohibit any payments to Holders of the Notes unless and until such
obligations (and any other accelerated Senior Indebtedness) have been repaid in
full. See "Description of Notes-Subordination" and "-Defaults."
Obligations in the Event of a Change of Control; Restrictions on Repurchase of
Notes
Upon the occurrence of a Change of Control, the Company may be required to
purchase all or a portion of the Notes then outstanding at a purchase price
equal to 101% of the principal amount thereof, plus accrued and unpaid interest,
if any, to the date of purchase. Prior to commencing such an offer to purchase,
the Company may be required to (i) repay in full all indebtedness of the Company
that would prohibit the repurchase of the Notes, including under the New Credit
Facility, or (ii) obtain any consent required to make the repurchase. If the
Company is unable to repay all of such indebtedness or is unable to obtain the
necessary consents, the Company will be unable to offer to purchase the Notes
and that failure will constitute an Event of Default under the Indenture. There
is no assurance that the Company will have sufficient funds available at the
time of any Change of Control to repurchase the Notes. The events that require a
repurchase upon a Change of Control
12
<PAGE>
under the Indenture may also constitute events of default under the New Credit
Facility or subsequently incurred indebtedness of the Company. See "Description
of Notes-Change of Control."
Uncertain Ability To Achieve and Manage Planned Expansion
The Company's future performance will depend on its ability to open new
stores and to operate these stores profitably. The Company has grown from 25
stores in two states at the end of 1993 to 661 stores in 33 states at June 30,
1997. The Company opened 110 new stores in the six months ended June 30, 1997
and plans to open approximately 240 new stores in the second half of 1997 and
approximately 400 new stores in 1998. Although the Company has identified all
sites for the balance of the 350 planned store openings in 1997 and has signed
leases for most of these locations, it has not yet specifically identified most
sites for the 1998 openings. The Company will continue to open stores in markets
where it has limited or no operating history. Additionally, the Company has been
decreasing the size of its acceptable trade areas primarily through the
increased opening of stores in small markets with populations under 40,000
people. The Company has a limited operating history in these smaller markets and
may experience lower than anticipated revenue and operating results. The
Company's expansion is dependent on a number of factors, including its ability
to hire, train and assimilate management and store-level employees, the adequacy
of the Company's financial resources and the Company's ability to identify and
successfully compete in new markets, to locate suitable store sites and
negotiate acceptable lease terms and to adapt its purchasing, management
information and other systems to accommodate expanded operations.
The Company believes the amounts available for borrowing under the New
Credit Facility and the proceeds from the sale of the Old Notes will be
sufficient to fund its expansion through at least 1999. The Company's expansion,
however, is also dependent on the timely fulfillment by landlords and others of
their contractual obligations to the Company, the maintenance of construction
schedules and the speed at which local zoning and construction permits can be
obtained. There is no assurance that the Company will be able to achieve its
planned expansion or that expansion will be profitable. There is also no
assurance that the Company's new stores will achieve sales and profitability
comparable to the Company's existing stores.
The size of the Company's store base and the geographic scope of its
operations have expanded significantly over the last several years. This
expansion has placed and is expected to continue to place increasing pressure on
the Company's operating and management controls. The Company has hired a
significant number of additional senior management and other personnel to manage
this larger store base and has reorganized its operations into four geographic
zones, each of which is managed by a senior officer with responsibility for
store operations and new store development in the zone. This operating structure
is in the early stages of implementation, and there is no assurance it will be
effective for managing the Company's expanding operations. In addition, to
manage its larger store base and planned expansion, the Company will need to
continually evaluate the adequacy of its financial controls, management
information systems and distribution facilities. There is no assurance that the
Company will adequately anticipate or respond to all of the changing demands
that its planned expansion will impose on its infrastructure. See
"Business-Expansion Strategy" and "-Decentralization and Creation of Zone
Offices."
13
<PAGE>
Dependence on Key Personnel; Recent Management Additions
The Company's future performance depends on the continued contributions of
certain key management personnel, including Mark J. Wattles, its founder, Chief
Executive Officer and principal shareholder. To support its planned expansion,
the Company has added a substantial number of senior management personnel. There
is no assurance that the Company will retain these new members of management or
that they will be able to successfully manage the Company's existing operations
or achieve its expansion plans. The Company's continued growth and profitability
also depend on its ability to attract and retain other management personnel,
including additional senior management and qualified store managers. See
"Management."
Competition and Technological Obsolescence
The video retail industry is highly competitive. The Company competes with
other local, regional and national video retail stores, including the
Blockbuster Entertainment division of Viacom, Inc. ("Blockbuster"), the dominant
video retailer in the U.S., and with supermarkets, pharmacies, convenience
stores, bookstores, mass merchants, mail order operations and other retailers,
as well as with noncommercial sources such as libraries. According to the Video
Software Dealers Association, in 1996 there were approximately 27,000 video
specialty stores in the U.S. The Company believes approximately 7,200 of these
stores were video retail superstores. Some of the Company's competitors have
significantly greater financial and marketing resources, market share and name
recognition than the Company. Substantially all of the Company's stores compete
with stores operated by Blockbuster, most in very close proximity. As a result
of direct competition with Blockbuster, rental pricing of videocassettes may
become a more significant competitive factor in the Company's business, which
could have an adverse impact on the results of operations of the Company.
The Company also competes with cable, satellite and pay-per-view cable
television systems, in which subscribers pay a fee to see a movie selected by
the subscriber. Existing pay-per-view services offer a limited number of
channels and movies and are available only to households with a direct broadcast
satellite receiver or a cable converter to unscramble incoming signals. Digital
compression technology and other developing technologies are expected eventually
to permit cable companies, direct broadcast satellite companies, telephone
companies and other telecommunications companies to transmit a much greater
number of movies to homes at more frequently scheduled intervals throughout the
day on demand. Certain cable and other telecommunications companies have tested
and are continuing to test movie on demand services in some markets.
Technological advances or changes in the manner in which movies are marketed,
including in particular the earlier release of movie titles to pay-per-view,
including direct broadcast satellite, cable television or other distribution
channels, could make these technologies more attractive and economical, which
could have a material adverse effect on the business of the Company. See
"Business-Industry Overview-Video Retail Industry" and "-Competition."
Fluctuations in Future Operating Results
Future operating results may be affected by many factors, including
variations in the number and timing of store openings, the performance of new or
acquired stores, the quality and number of new release titles available for
rental and sale and the expense associated with the acquisition of new release
titles, acquisition by the Company of existing video stores, changes in
comparable store revenue, additional and existing competition, marketing
programs, weather, special or unusual events,
14
<PAGE>
seasonality and other factors that may affect retailers in general. In addition,
any concentration of new store openings and the related new store pre-opening
costs near the end of a fiscal quarter could have an adverse effect on the
financial results for that quarter and could, in certain circumstances, lead to
fluctuations in quarterly financial results. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-General" and "-General
Economic Trends, Quarterly Results and Seasonality."
Control by Principal Shareholder
The Company's founder, Mark J. Wattles, at June 30, 1997 beneficially owned
approximately 30% of the outstanding Common Stock. As a result, he may be able
effectively to control all matters requiring approval by the shareholders of the
Company, including the election of directors.
Lack of Public Market for the Notes; Volatility
The Old Notes are eligible for trading in the Private Offerings, Resales
and Trading through Automated Linkages ("PORTAL") Market. The New Notes will be
new securities, and there is no existing trading market for the New Notes.
Accordingly, there is no assurance regarding the future development of a trading
market for the New Notes or the ability of the holders, or the price at which
such holders may be able, to sell their New Notes. If such a market were to
develop, the New Notes could trade at prices that may be higher or lower than
the exchange tender price of the Old Notes. Prevailing market prices from time
to time will depend on many factors, including then existing interest rates, the
Company's operating results and cash flow and the market for similar securities.
Consequently, even if a trading market for the New Notes does develop, there is
no assurance as to the liquidity of that market. The Company does not intend to
apply for listing or quotation of the New Notes on any securities exchange or in
the over-the-counter market.
In addition, the liquidity of, and trading markets for, the New Notes may
be adversely affected by declines in the market for high-yield securities
generally. Such a decline may adversely affect liquidity and trading markets
independent of the financial performance of, and prospects for, the Company.
USE OF PROCEEDS
The Company will not receive any proceeds from the issuance of the New
Notes offered pursuant to the Exchange Offer. In consideration for issuing the
New Notes as contemplated in this Prospectus, the Company will receive in
exchange Old Notes in like principal amount, the terms of which are identical in
all respects to the New Notes except for certain transfer restrictions and
registration rights. The Old Notes surrendered in exchange for New Notes will be
retired and canceled and cannot be reissued. Accordingly, issuance of the New
Notes will not result in any increase in the indebtedness of the Company.
The net proceeds to the Company from the sale of the Old Notes were
approximately $193.5 million, after deduction of discounts, commissions and
offering expenses. The Company used the net proceeds in part to repay the
amounts outstanding under the Existing Credit Facility and the remainder will be
used to fund expansion and for working capital and other general corporate
purposes.
15
<PAGE>
SELECTED FINANCIAL DATA
The selected statement of operations, cash flow and balance sheet data
presented below for each of the years in the three-year period ended December
31, 1996 and as of December 31, 1995 and 1996 have been derived from the audited
financial statements of the Company incorporated by reference into this
Prospectus. The selected statement of operations, cash flow and balance sheet
data presented below as of December 31, 1992, 1993 and 1994 and for each of the
years in the two-year period ended December 31, 1993 have been derived from the
audited financial statements of the Company not incorporated by reference into
this Prospectus. The selected statement of operations, cash flow and balance
sheet data for the six months ended June 30, 1996 and 1997 and as of June 30,
1997 have been derived from the unaudited financial statements of the Company
incorporated by reference into this Prospectus. In the opinion of management of
the Company, the unaudited financial statements have been prepared on the same
basis as the audited financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations for those
periods. Operating results for the six months ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997 or for any future period. This data should be read in
conjunction with the financial statements, pro forma financial statements,
related notes and other financial information included elsewhere in this
Prospectus or incorporated by reference herein.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
---------------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- -------- -------- -------- --------
(In thousands, except per share, other operating and ratio data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue:
Rental.............................. $9,762 $15,267 $61,941 $123,894 $252,625 $109,059 $184,715
Product sales....................... 1,282 2,072 11,347 25,536 49,717 19,963 35,762
Total............................. $11,044 $17,339 $73,288 $149,430 $302,342 $129,022 $220,477
Operating income....................... $2,270 $3,643 $12,610 $17,537 $38,418 $12,616 $25,506
Income before cumulative effect of a
change in accounting principle (1)(2) $1,177 $2,146 $8,143 $11,786 $20,630 $6,732 $1,874
Cumulative effect of a change in
accounting principle (3)............ - - - (2,560) - - -
Net income (1)(2)...................... $1,177 $2,146 $8,143 $9,226 $20,630 $6,732 $1,874
Net income per share (1)(2):
Net income per share before
cumulative effect of a change in
accounting principle.............. $0.09 $0.14 $0.32 $0.36 $0.59 $0.19 $0.05
Cumulative effect per share of a
change in accounting principle.... - - - (0.08) - - -
Net income (loss) per share......... $0.09 $0.14 $0.32 $0.28 $0.59 $0.19 $0.05
Shares used in per share calculations.. 12,936 15,357 25,578 32,962 35,159 34,916 37,465
16
<PAGE>
Pro forma earnings per share (4):
Basic.................................. $0.09 $0.14 $0.33 $0.28 $0.60 $0.20 $0.05
Diluted................................ 0.09 0.14 0.32 0.28 0.59 0.19 0.05
Cash Flow Data:
Cash provided by operating
activities.......................... $5,478 $9,395 $42,699 $68,739 $125,429 $37,722 $60,734
Cash used in investing activities...... 4,089 9,093 102,339 168,861 198,716 61,623 135,408
Cash (used) provided by
financing activities................ (793) 8,291 89,052 91,085 56,156 (1,382) 67,607
Pro Forma Statement of Operations Data:
Pro forma operating income (3)......... $1,796 $2,795 $9,745 $17,537 $38,418 $12,616 $25,506
Pro forma net income (1)(2)(3)......... 892 1,647 6,277 11,786 20,630 6,732 13,198
Pro forma net income per share (1)(2)(3) $0.07 $0.11 $0.25 $0.36 $0.59 $0.19 $0.05
Shares used in per share calculations.. 12,936 15,357 25,578 32,962 35,159 34,916 37,465
Other Operating Data:
Number of stores at end of period...... 15 25 113 305 551 382 661
Comparable store revenue increase (5).. 27% 16% 7% 1% 7% 6% 5%
Other Financial Data:
EBITDAR (6)............................ $6,195 $9,686 $41,736 $90,129 $179,633 $74,961 $127,807
Rent expense........................... 1,469 2,107 9,300 25,300 54,100 22,934 40,490
EBITDA (as defined) (7)................ 4,726 7,579 32,436 64,829 125,533 52,027 87,317
Adjusted EBITDA (8).................... 2,201 4,474 17,875 31,516 57,740 22,612 38,023
Capital expenditures, net.............. 3,886 7,912 44,652 139,971 188,291 66,092 136,058
Ratio of earnings to fixed charges (9). 3.38x 4.33x 4.21x 3.09x 2.48x 2.18x 1.17x
Ratio of earnings to fixed charges as
adjusted (10)....................... 1.43x (10)
</TABLE>
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------
1992 1993 1994 1995 1996 June 30, 1997
------ ------ ------- ------- ------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.................. $1,013 $9,606 $39,017 $29,980 $12,849 $ 5,782
Total assets............................... 7,475 22,791 142,861 334,660 449,783 521,389
Long-term debt (including current portion). 1,873 2,399 3,505 7,971 82,361 139,607
Mandatorily redeemable common stock........ - - - 54,250 - -
Shareholders' equity....................... 2,282 13,303 110,765 217,783 274,703 296,070
- -----------
(1) For 1992 and 1993, includes a pro forma income tax provision (benefit)
adjustment of $830,000 and ($140,000), respectively, to reflect the Company
as a C corporation rather than an S corporation for federal and state
income tax purposes for 1992 and for the period which commenced January 1,
1993 and ended July 18, 1993.
(2) Net income for the six months ended June 30, 1997 includes, and Pro Forma
net income for the six months ended June 30, 1997 eliminates, a pre-tax
charge of $18.9 million relating to the settlement of a securities class
action lawsuit. See "Business-Legal Proceedings."
(3) Effective January 1, 1995, the Company changed its method of amortizing the
cost of videocassette rental inventory. See Note 2 of Notes to Consolidated
Financial Statements of Hollywood Entertainment Corporation. The change in
amortization method resulted in a charge to earnings in 1995 totaling $2.6
million, representing the cumulative effect as of January 1, 1995 if the
new method had been applied retroactively to all videocassettes in service
at that date. The Pro Forma amounts shown herein reflect the effect on
operating income, net income and net income
17
<PAGE>
per share had the new amortization method been in effect as of the
beginning of each of the periods presented. As a result, Pro Forma results
for 1995 do not include the charge of $2.6 million.
(4) In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS
128"). Accordingly, Pro Forma earnings per share have been presented in
accordance with SFAS 128 with regard to net income.
(5) A store becomes comparable after it has been open and owned by the Company
for one year. An acquired store converted to the Hollywood Video name and
store design is removed from the comparable store base when the conversion
process is initiated and returned one year after reopening.
(6) EBITDAR represents EBITDA before rent expense. Such data are not a measure
of financial performance under generally accepted accounting principles and
should not be considered as an alternative to net income as an indicator of
the Company's operating performance or as an alternative to cash flows as a
measure of liquidity.
(7) EBITDA represents operating income before depreciation and amortization.
Such data are not a measure of financial performance under generally
accepted accounting principles and should not be considered as an
alternative to net income as an indicator of the Company's operating
performance or as an alternative to cash flows as a measure of liquidity.
(8) Adjusted EBITDA represents EBITDA plus non-cash expenses that reduced
EBITDA, minus 30% of rental revenue for such period after deducting from
such 30% of rental revenue any cash charges associated with the acquisition
of new release videocassettes. The non-cash expenses represent the cost of
goods sold on previously viewed videocassettes (as derived from the
Company's internal point of sale systems) and losses on inventory shrink.
The Company believes 30% of rental revenue approximates amounts spent on
purchase of new release videocassettes, which are capitalized. Adjusted
EBITDA can be calculated from EBITDA as follows:
Year Ended
December 31, 1996
-----------------
(in millions)
EBITDA $ 125.5
Non-cash expenses 8.0
30% of rental revenue (75.8)
Associated cash charges 0.0
------------
Adjusted EBITDA $ 57.7
============
This measure of Adjusted EBITDA is used under the Indenture and the New
Credit Facility. See "Description of Notes." Adjusted EBITDA is not a
measure of financial performance under generally accepted accounting
principles and should not be considered as an alternative to income from
operations, net income or cash flows from operating activities as an
indicator of the Company's operating performance or as an alternative to
cash flows as a measure of liquidity.
(9) For purposes of computing this ratio, fixed charges consist of interest
expense, including amounts capitalized and the amortization of deferred
financing fees, and that portion of rental expense that management deems to
be a reasonable approximation of interest costs. For the six months ended
June 30, 1997, the ratio of earnings to fixed charges for such period would
have been 2.2x, excluding the effect of a pre-tax charge of $18.9 million
relating to the settlement of a securities class action lawsuit.
(10) The ratio of earnings to fixed charges as adjusted reflects adjustments to
interest expense to eliminate historical interest expense due to the
partial use of the proceeds of the Notes to extinguish outstanding
borrowings and to reflect interest expense related to the Notes as if the
Notes had been issued at the beginning of the respective period presented.
For the six months ended June 30, 1997, earnings as adjusted were
inadequate to cover fixed charges by $4.2 million; however, the ratio of
earnings to fixed charges for such period would have been 1.6x, excluding
the effect of a pre-tax charge of $18.9 million relating to the settlement
of a securities class action lawsuit.
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Hollywood Entertainment opened its first video superstore in October 1988
and had expanded to 551 stores in 29 states at the end of 1996 and to 661 stores
in 33 states at June 30, 1997. The Company's revenue growth has been
accomplished through a combination of new store openings, strategic acquisitions
and, to a lesser extent, comparable store revenue increases. Store activity for
the last three and one-half years is summarized as follows:
<TABLE>
<CAPTION>
Open Open
at Beginning at End
of Period Opened Closed Acquired of Period
------------ ------ ------ -------- ---------
<S> <C> <C> <C> <C> <C>
1994......................................... 25 33 0 55 113
1995......................................... 113 122 0 70 305
1996......................................... 305 250 4 0 551
1997 (through June 30)....................... 551 110 0 0 661
</TABLE>
The Company plans to open approximately 240 stores in the second half of
1997 and approximately 400 new stores in 1998. The Company's results are
impacted by the timing of, and costs incurred in connection with, new store
openings. New Hollywood Video stores typically experience lower revenue volume
in the first year of operation than do mature stores. Because a portion of
store-level operating expenses is fixed, new stores generally have lower
operating margins in their first year of operation. In addition, pre-opening
expenses are charged to earnings in the first full month of a store's operation.
Therefore, the addition of a significant number of new stores to the Company's
existing store base has had, and is expected to continue to have, at least in
the near term, an adverse impact on the Company's operating margins.
Results of Operations
The following table sets forth, for the periods indicated, (i) selected
statement of operations data expressed as a percentage of total revenue and (ii)
the number of stores open at the end of each such period.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenue:
Rental.................................................. 84.5% 82.9% 83.6% 84.5% 83.8%
Product sales........................................... 15.5 17.1 16.4 15.5 16.2
----- ----- ----- ----- -----
100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Operating costs and expenses:
Cost of product sales................................... 9.9 9.9 10.2 9.4 10.2
Operating and selling................................... 64.6 70.6 69.1 71.9 71.3
General and administrative.............................. 6.0 5.3 6.0 6.6 5.5
Amortization of intangibles............................. 2.3 2.5 2.0 2.3 1.4
19
<PAGE>
----- ----- ----- ----- -----
82.8 88.3 87.3 90.2 88.4
----- ----- ----- ----- -----
Operating income........................................... 17.2 11.7 12.7 9.8 11.6
Interest (expense) income, net............................. (0.2) 0.8 (1.4) (1.2) (1.6)
Litigation settlement (1).................................. - - - - (8.6)
----- ----- ----- ----- -----
Income before income taxes and cumulative effect of a
change in accounting principle........................... 17.0 12.5 11.3 8.6 1.4
Provision (benefit) for income tax......................... 5.9 4.6 4.5 3.4 0.6
----- ----- ----- ----- -----
Income before cumulative effect of a change in
accounting principle..................................... 11.1 7.9 6.8 5.2 0.8
Cumulative effect of a change in accounting principle (2).. - (1.7) - - -
----- ----- ----- ----- -----
Net income................................................. 11.1% 6.2% 6.8% 5.2% 0.8%
===== ===== ===== ===== =====
Pro forma net income assuming new accounting principle
is applied retroactively and excluding litigation
settlement (1)(2)....................................... 8.6% 7.9% 6.8% 5.2% 6.0%
----- ----- ----- ----- -----
Number of stores at end of period.......................... 113 305 551 382 661
===== ===== ===== ===== =====
- -----------
(1) Pro forma net income for the six months ended June 30, 1997 excludes the
effect of a pre-tax charge of $18.9 million relating to the settlement of a
securities class action lawsuit. See "Business-Legal Proceedings."
(2) Effective January 1, 1995, the Company changed its method of amortizing the
cost of videocassette rental inventory as discussed in Note 2 of Notes to
Consolidated Financial Statements. The change in amortization method
resulted in a charge to earnings in 1995 totaling $2.6 million,
representing the cumulative effect as of January 1, 1995 as if the new
method had been applied retroactively to all videocassettes in service as
of that date. The pro forma amounts shown herein reflect the impact to net
income had the new amortization method been in effect as of the beginning
of each of the periods presented. As a result, pro forma results for 1995
do not include the charge of $2.6 million.
</TABLE>
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Revenue
Revenue increased $91.5 million, or 71%, in the six months ended June 30,
1997 compared to six months ended June 30, 1996 primarily due to the increase in
the number of stores operated by the Company. During the six months ended June
30, 1997, the Company added 110 new stores, ending the period with 661 stores in
33 states compared to 382 stores in 25 states at the end of the corresponding
period in 1996. Revenues were also favorably impacted by a 5% increase in
comparable store revenue. The Company's pricing of videocassette rentals and
merchandise for sale has not changed significantly compared to the six months
ended June 30, 1996.
Operating Costs and Expenses:
Cost of Product Sales
The cost of product sales as a percentage of product sales increased from
61.0% in the six months ended June 30, 1996 quarters to 62.7% in the six months
ended June 30, 1997. The Company's gross margin on product sales is affected by
the proportion of hit sell-through titles since the hit titles generally have a
lower gross margin markup. The Company's gross margin was negatively impacted
due to the Company selling more of the hit sell-through titles in the six months
ended June 30, 1997 as compared to the corresponding period of the prior year.
20
<PAGE>
Operating and Selling
Operating expenses, which principally consist of all store expenses
including payroll, occupancy, advertising, depreciation and rental revenue
sharing, decreased as a percentage of total revenue to 71.3% for the six months
ended June 30, 1997, compared to 71.9% for the same period last year. The
decrease in operating expenses was primarily due to the emphasis by the Company
on reducing operating costs incurred at the stores.
Depreciation expense combined with rental revenue sharing costs was 26.8%
of total revenue for the six months ended June 30, 1997 compared to 28.6% for
the same period in 1996. The combined decrease was primarily due to the
Company's decision to lease, rather than purchase, certain furniture, fixtures
and equipment during 1996. (The costs related to the leasing of furniture,
fixtures and equipment is contained in other operating expenses.) Also, improved
budget procedures in the purchase of new release videocassettes for existing
stores and lower revenue sharing expense caused a decrease in the combined cost
for the current period. All other operating and selling expenses accounted for
the remaining change in costs as a percentage of total revenue in the six months
ended June 30, 1997 compared to the same period last year.
General and Administrative
General and administrative expenses increased from $8.5 million or 6.6% of
total revenue for the six months ended June 30, 1996 to $12.2 million, or 5.5%
of total revenue for the six months ended June 30, 1997. The dollar increase was
primarily due to the cost of managing additional stores and the ongoing staffing
of the Company's corporate and regional zone offices. The Company continues to
expect general and administrative expenses to decrease as a percentage of sales.
Amortization of Intangibles
Amortization of intangibles increased slightly from $3.0 million, or 2.3%
of total revenue, for the six months ended June 30, 1996 to $3.1 million, or
1.4% of total revenue, for the six months ended June 30, 1997.
Interest Expense
Interest expense increased from $1.6 million for the six months ended June
30, 1996 to $3.6 million for the six months ended June 30, 1997. This increase
was primarily attributable to the Company's higher level of borrowing under its
revolving line of credit in the current year first two quarters compared to the
corresponding period of the prior year.
Litigation Settlement
The Company recorded a $18.9 million charge in the six months ended June
30, 1997 relating to the settlement of class action litigation. The charge
consists of $15.0 million in damages and $3.9 million in expenses relating to
the settlement.
21
<PAGE>
Income Taxes
The effective tax rate for the Company was 40% for both the six months
ended June 30, 1997 and the six months ended June 30, 1996.
1996 Compared to 1995
Revenue
Revenue for 1996 increased $152.9 million, or 102%, to $302.3 million
compared to $149.4 million for 1995. The increase in revenue was primarily the
result of new store expansion. During 1996, the Company increased the number of
superstores operated by 246, ending the period with 551 superstores, compared to
305 superstores at the end of 1995. Comparable store revenue increased 7% for
1996.
Product sales as a percentage of total revenue decreased to 16.4% for 1996
from 17.1% for 1995. Product sales have decreased as the Company has
de-emphasized the sale of certain movie accessories.
Operating Costs and Expenses:
Cost of Product Sales
The cost of product sales as a percentage of product sales increased from
57.8% for 1995 to 61.8% for 1996. The gross margin on product sales has
decreased as the Company has de-emphasized the sale of certain high gross margin
movie accessories. The Company believes the operating costs associated with
maintaining those products offset the higher gross margins that they generated.
Operating and Selling
Operating expenses, which principally consist of all store expenses,
including payroll, occupancy, advertising and depreciation decreased as a
percentage of total revenue to 69.1% for 1996, compared to 70.6% for 1995. The
decrease was due to the implementation of improved budgeting procedures in the
purchase of new releases for existing stores. Depreciation expense was 27.0% of
total revenue for 1996, compared to 29.6% for 1995. Other operating and selling
expenses increased as a percentage of total revenue primarily due to lower
average revenue per store, resulting from the addition during 1995 and 1996 of a
large number of new stores, which have lower revenue per store than mature
Hollywood Video stores.
General and Administrative
General and administrative expenses increased from $7.9 million, or 5.3% of
total revenue, for 1995 to $18.3 million, or 6.0% of total revenue, for 1996.
The percentage increase is primarily attributable to the cost associated with
establishing and staffing the Company's new regional zone offices.
22
<PAGE>
Amortization of Intangibles
Amortization of intangibles increased from $3.8 million, or 2.5% of total
revenue, for 1995 to $6.0 million, or 2.0% of total revenue, for 1996. The
dollar increase in 1996 was attributable to the inclusion of the amortization of
intangible assets arising from the Title Wave and Video Watch acquisitions for
the year, while only partially included in 1995.
Interest (Expense) Income, Net
Net interest (expense) income decreased from $1.1 million for 1995 to ($4.1
million) for 1996. This change was primarily attributable to the Company's
higher level of borrowing under its revolving bank line of credit and a decrease
in interest earned on cash investments for 1996 compared to 1995.
Income Taxes
The Company's effective tax rate increased from 36.8% of income before
income taxes for 1995 to 39.8% for 1996 due to increased operations in states
with higher income tax rates in 1996 compared to 1995 and a decrease in
tax-exempt interest income.
1995 Compared to 1994
Revenue
Revenue for 1995 increased $76.1 million, or 104%, to $149.4 million from
$73.3 million for 1994. Comparable store revenue increased 1%. During the year,
the Company opened 122 new stores and acquired 70 stores, including 42 stores
purchased in August 1995 operating under the name "Video Watch" and 12 stores
purchased during March 1995 from Title Wave Stores, Inc.
The Company believes comparable store revenue was negatively impacted by
lower revenue from the rental and sale of video games, lower revenue at stores
acquired during 1994 prior to conversion to the Hollywood Video name and store
design and an uneven and therefore less favorable distribution of new release
"hit" movies during 1995 compared to 1994.
Product sales as a percentage of total revenue increased to 17.1% for 1995
compared to 15.5% during 1994. The increase in product sales as a percentage of
revenue was due to improved merchandising techniques and higher per store
product inventory levels.
The Company's pricing of videocassettes for rental and for sale merchandise
did not change significantly compared to 1994.
Operating Costs and Expenses:
Cost of Product Sales
The cost of product sales decreased as a percentage of product sales from
63.9% in 1994 to 57.8% for 1995. The gross margin on product sales increased in
1995 compared to 1994 due to expanded offerings of merchandise with higher gross
margins.
23
<PAGE>
Operating and Selling
Operating and selling expenses, which consist of all store expenses
including payroll, occupancy, advertising, depreciation and rental revenue
sharing expense, increased as a percentage of total revenue to 70.6% in 1995
compared to 64.6% in 1994. Operating and selling expenses increased as a
percentage of total revenue primarily due to lower average revenue per store,
resulting primarily from the addition during 1995 of a large number of new and
acquired stores which have lower revenue per store than mature Hollywood Video
stores.
Depreciation expense, including revenue sharing expense, was 29.6% of total
revenue in 1995 compared to 27.9% in 1994. The increase was primarily due to a
change in the Company's method of depreciating videocassette rental inventory
effective January 1, 1995.
General and Administrative
General and administrative expenses, which principally consist of corporate
overhead, decreased from 6.0% of total revenue for 1994 to 5.3% for 1995. The
decrease in expenses as a percentage of revenue was due to the Company's ability
to increase revenue without proportionally increasing corporate overhead
expenses.
Amortization of Intangibles
Amortization of intangibles increased from $1.7 million, or 2.3% of total
revenue, during 1994 to $3.8 million, or 2.5% of total revenue, during 1995. The
dollar increase was primarily attributable to the amortization of intangible
assets arising from the Title Wave, Video Watch and other store acquisitions in
1995.
Interest (Expense) Income, Net
Net interest expense was $0.1 million, or 0.2% of total revenue, in 1994
while net interest income was $1.1 million, or 0.8% of total revenue, in 1995.
The change in net interest was primarily due to the receipt of the net proceeds
of the Company's public stock offering completed in July 1995, resulting in a
decrease in average debt outstanding and an increase in interest earned on cash
investments.
Income Taxes
The Company's effective tax rate for 1995 was 36.8%, compared to 34.9% in
1994. The increase in 1995 was due to a higher federal statutory rate and a
higher aggregate state tax rate, partially offset by higher tax exempt interest
income.
Liquidity and Capital Resources
The Company's principal capital requirements are for opening new stores,
the purchase of new release rental inventory and the possible acquisition of
existing stores. The Company has funded its operations primarily through cash
from operations, the proceeds of five public equity offerings and one non-public
debt offering, loans under the Company's revolving bank line of credit, trade
credit and equipment leases.
24
<PAGE>
At June 30, 1997, the Company had cash and cash equivalents of
approximately $5.8 million and working capital of $8.4 million. Videocassette
rental inventories are accounted for as noncurrent assets under generally
accepted accounting principles because they are not assets which are reasonably
expected to be completely realized in cash or sold in the normal business cycle.
Although the rental of this inventory generates a substantial portion of the
Company's revenue, the classification of these assets as noncurrent excludes
them from the computation of working capital. The acquisition cost of
videocassette rental inventories, however, is reported as a current liability
until paid and, accordingly, included in the computation of working capital.
Consequently, the Company believes working capital is not as significant a
measure of financial condition for companies in the video retail industry as it
is for companies in other industries. Because of the accounting treatment of
videocassette rental inventory as a noncurrent asset, the Company may, from time
to time, operate with a working capital deficit.
Net cash provided by operating activities was $60.7 million during the six
months ended June 30, 1997 compared to $37.7 million for the same period last
year. The increase in cash provided by operations was primarily due to higher
depreciation and amortization expenses and the accrual of warrants and expenses
relating to the settlement of class action litigation. These increases were
offset by decreases in deferred income taxes, accounts payable and income taxes
payable.
Cash used in investing activities was $135.4 million for the six months
ended June 30, 1997 compared to $61.6 million for the same period last year.
During the six months ended June 30, 1997, cash used in investing activities
consisted primarily of purchases of videocassette rental inventory for new and
existing stores totaling $87.5 million, capital expenditures totaling $48.6
million offset by a reduction in construction and other receivables totaling
$2.0 million. Capital expenditures primarily included the costs to open new
stores, remodel certain existing stores and enhance information systems.
Cash provided by financing activities for the six months ended June 30,
1997 totaled $67.6 million and included additional proceeds of $4.7 million from
the exercise in January 1997 of the overallotment option for the Company's
equity offering in December 1996. In addition, the Company received $10.0
million under long-term capital lease agreements. Also included are tax benefit
and proceeds from the exercise of stock options totaling $2.3 million and $3.4
million, respectively. The Company repaid $0.8 million of long-term debt.
Additional borrowings under the Company's revolving bank line of credit were
$48.0 million during the period.
Net cash provided by operating activities was $125.4 million for 1996
compared to $68.7 million for 1995. The increase in cash provided by operations
was primarily due to higher net income from operations and higher depreciation
and amortization expenses, partially offset by an increase in merchandise
inventories.
Cash used in investing activities was $198.7 million for 1996 compared to
$168.9 million for 1995. For 1996, cash used in investing activities consisted
primarily of net purchases of videocassette rental inventory for new and
existing stores totaling $124.3 million and capital expenditures and related
increases in landlord receivables totaling $73.7 million.
The Company's capital expenditures include both those related to the growth
of its business and those related to maintenance. Growth capital expenditures
include primarily the costs to open new stores. Maintenance capital expenditures
relate to existing stores and include purchases of new release
25
<PAGE>
videocassettes and funds for refurbishment. The Company estimates that its
purchases of new release videocassettes approximate 30% of rental revenue, and,
for purposes of the data set forth in "Summary Financial Operating Data," such
purchases have been deducted from EBITDA to calculate Adjusted EBITDA.
Refurbishment expenditures for existing stores are generally low because most
store maintenance (such as cleaning, painting and repair) is included in
operating expenses as incurred and because of the young average age of the
company's stores (16 months at June 30, 1997). For 1996, capitalized
refurbishment expenditures for existing stores was approximately $2.3 million.
The Company anticipates such expenditures will be somewhat higher for 1997 as
the Company completes the conversion of certain acquired stores. Annual
capitalized refurbishment expenditures are expected to remain generally modest
in the near term.
Cash provided by financing activities for 1996 totaled $56.2 million and
included a cash reduction due to the repurchase of all of the shares issued in
connection with the Video Watch acquisition for aggregate consideration of $54.3
million, the repayment of $7.6 million of long-term debt, borrowings on the line
of credit of $82.0 million, and net proceeds from the Company's fifth equity
offering of $34.7 million.
At December 31, 1996, the Company had a $100 million revolving credit
agreement with a syndicate of banks. In February 1997, the Company amended and
restated its then existing revolving credit agreement as the $150 million
Existing Credit Facility. As of June 30, 1997, $130 million was outstanding
under the Existing Credit Facility. The Company subsequently repaid all amounts
outstanding under the Existing Credit Facility with a portion of the net
proceeds from the sale of the Old Notes and the Existing Credit Facility was
terminated on September 4, 1997 in connection with the establishment of the New
Credit Facility. See "Description of Certain Other Indebtedness-Existing Credit
Facility."
The Company established the New Credit Facility on September 5, 1997. The
New Credit Facility is a $300 million revolving credit facility collateralized
by substantially all of the Company's personal property, including accounts
receivable, videocassettes and other inventory and certain other assets. The New
Credit Facility contains financial and other restrictive covenants. Borrowings
under the New Credit Facility bear interest, at the Company's option, at the
lender's base rate plus up to 1.125% or a rate (the "IBOR Rate") consisting of
the lender's rate for offshore dollar deposits plus certain reserves plus up to
2.125%, depending on the Company's leverage ratio. See "Description of Certain
Other Indebtedness-New Credit Facility."
The Company believes the amounts available for borrowing under the New
Credit Facility and the proceeds from the offering of Old Notes, together with
projected cash flow from operations, cash on hand and equipment leases and trade
credit, will be sufficient to fund its expansion through at least 1999. See
"Risk Factors-Uncertain Ability To Achieve and Manage Planned Expansion."
General Economic Trends, Quarterly Results and Seasonality
The Company anticipates that its business will be affected by general
economic and other consumer trends. Future operating results may be affected by
various factors, including variations in the number and timing of new store
openings, the performance of new or acquired stores, the quality and number of
new release titles available for rental and sale, the expense associated with
the acquisition of new release titles, additional and existing competition,
marketing programs, weather, special or unusual events and other factors that
may affect retailers in general. In addition, any
26
<PAGE>
concentration of new store openings and the related new store pre-opening costs
and other expenses associated with the opening of new stores near the end of a
fiscal quarter could have an adverse effect on the financial results for that
quarter and could, in certain circumstances, lead to fluctuations in quarterly
financial results.
The video retail industry generally experiences relative revenue declines
in April and May, due in part to the change in Daylight Savings Time and
improved weather, and in September and October, due in part to the start of
school and the introduction of new television programs. The Company believes
these seasonality trends will continue.
27
<PAGE>
BUSINESS
General
Hollywood Entertainment owns and operates 661 video retail superstores in
33 states as of June 30, 1997 and is the second largest video retailer in the
United States, with revenue of $328.3 million for the twelve months ended June
30, 1997. According to video industry analyst, Paul Kagan, the Company operates
the highest volume video stores in the country. The Company opened its first
video superstore in October 1988 and had grown to 25 stores in two states at the
end of 1993, 113 stores in eight states at the end of 1994, 305 stores in 23
states at the end of 1995 and 551 stores in 29 states at the end of 1996. The
Company opened 110 new stores in the six months ended June 30, 1997 and plans to
open approximately 240 new stores in the second half of 1997 and approximately
400 new stores in 1998. Comparable store revenue increased 7% for the year ended
December 31, 1996 and 5% for each of the first and second quarters of 1997.
As part of its goal to build a strong national brand, Hollywood
Entertainment has developed a store format and design that captures the bright
lights, excitement and energy of the motion picture industry and enables the
public to easily identify and recognize Hollywood Video superstores. Hollywood
Video superstores average approximately 7,500 square feet and typically carry
approximately 10,000 titles and 16,000 videocassettes and video games,
consisting of many copies of popular new releases and an extensive selection of
older or "catalog" movies classified into 28 categories, such as "Adventure,"
"Comedy," "Drama," "Classics" and "Children," and displayed alphabetically
within those categories. Hollywood Entertainment's goal is to offer more copies
of popular new videocassette releases and more titles than its competitors to
achieve greater customer satisfaction and to encourage repeat visits. Each
Hollywood Video store rents videocassettes, video games and videocassette and
video game players and sells videocassettes, accessories and confectionary
items. Hollywood Video stores are primarily located in high traffic locations,
in stand-alone buildings, at the end of shopping strips or in other highly
visible locations.
Industry Overview
Video Retail Industry
According to Paul Kagan, the U.S. videocassette rental and sales industry
has grown from $9.8 billion in revenue in 1990 to $15.6 billion in 1996, and is
expected to reach $18.6 billion in 2001. The video rental industry is highly
fragmented and in recent years has been characterized by increased consolidation
as larger "superstore" chains, video stores with at least 7,500 videocassettes,
have continued to increase market share by opening new stores and acquiring
smaller, local operators. According to the Video Software Dealers Association, a
video retailing industry association, the number of video specialty stores has
decreased from 31,500 in 1990 to 27,000 in 1996. The Company believes
approximately 7,200 of these stores were "superstores," including approximately
3,700 Blockbuster stores. The Company believes this consolidation will continue
as the video retail industry evolves from "mom-and-pop" stores to regional and
national superstore chains.
Movie Studio Dependence on Video Retail Industry
According to Paul Kagan, the video retail industry is the largest single
source of revenue to movie studios and represented approximately $4.5 billion,
or 45%, of the $9.9 billion of estimated
28
<PAGE>
domestic studio revenue in 1996. Of the hundreds of movies produced by the major
studios each year in the U.S., relatively few are profitable for the movie
studio based on box office revenue alone. According to the MPAA, between 1990
and 1996 only 7% of all movies released generated in excess of $20 million in
U.S. theater revenue for studios. Over the same period, members of the MPAA
reported that the average production, advertising and distribution cost per
movie increased from $38.8 million to $59.7 million. The Company believes the
customer is more likely to view "non-hit" movies on rented videocassette than in
any other medium because video retail stores provide an inviting opportunity to
browse and make an impulse choice among a very broad selection of new releases.
As a result, video retail stores, including those operated by the Company,
purchase movies on videocassette regardless of whether the movies were
successful at the box office, thus providing the major movie studios a reliable
source of revenue for almost all of the hundreds of movies produced each year.
Consequently, the Company believes movie studios are highly motivated to protect
this unique and significant source of revenue.
Historically, movie studios have sought to generate incremental sources of
revenue through the addition of new distribution channels. To maximize revenue,
the studios have implemented a strategy of sequential release "windows," giving
each distribution channel the rights to its movies for a limited time before
making them available to the next sequential channel. The studios have
determined the sequential order in which they release movies to each
distribution channel based upon the order they believe will maximize their total
revenue from all distribution channels combined. These distribution channels
generally include, in release date order, movie theaters, video retail stores,
pay-per-view television, including direct broadcast satellite ("DBS"), pay cable
television, basic cable television and, finally, network and syndicated
television.
Order of Sequential Release Windows to Primary Channels of Distribution
First: Movie theaters
Second: Video retail stores
Third: Pay-per-view television (including DBS)
Fourth: Pay cable (HBO, Showtime, etc.)
Fifth: Basic cable television
Sixth: Network television
Seventh: Syndicated television
Trends in Video Rentals and Sales
The domestic video retail industry includes both rentals and sales. Movie
studios determine videocassette suggested retail prices to both consumers and
video rental stores and, through that pricing, influence the relative levels of
videocassette rentals and sales. Videocassettes released at a relatively high
price, typically $60 to $65 wholesale, are generally purchased by video retail
stores and promoted primarily as a rental title and then later re-released by
the studios at a lower price, typically $10 to $20 wholesale, to promote sales
directly to consumers ("sell-through"). Certain high-grossing box office films,
generally with box office revenue in excess of $100 million, are released on
videocassette at a relatively low initial price, typically $10 to $15 wholesale,
and are generally purchased by video retailers, mass merchants, grocery stores
and other retailers and promoted both as a rental title and for sell-through.
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The consumer market has historically been primarily a rental market.
According to Paul Kagan, video rental revenue has increased from $6.6 billion in
1990 to $7.7 billion in 1996 and is expected to increase to $8.2 billion in
2001. At the same time, consumers attracted by cross promotions and lower
videocassette prices have begun to spend more on purchasing videos. Video sales
have increased from $3.2 billion in 1990 to $7.9 billion in 1996 and are
expected to increase to $10.4 billion in 2001. As a result, video sales as a
percentage of total industry revenue have increased from approximately 32% in
1990 to approximately 50% in 1996.
The availability of "hit" sell-through movie titles, with their lower
initial prices, allows video retailers to stock more copies of these "hit"
movies for rental at a substantially lower aggregate cost. In addition, movie
studios typically spend substantial amounts to promote these "hit" sell-through
titles, which the Company believes creates extraordinarily high consumer
awareness. As a result, rental demand for these titles is much higher than for
comparable "hit" titles initially priced and promoted for rental. Because the
best selling sell-through titles are often among the leading rental titles, the
return on investment in rental inventory for those titles is typically much
higher than for comparable titles initially priced and promoted for rental.
Business Strategy
The Company's goal is to be a dominant national video retailer and to build
a strong national brand which consumers will identify with the entertainment
industry. The Company's business strategy includes the following key elements:
o Expansion Through Company-Built Stores. Of the Company's 661 video
superstores at June 30, 1997, 535 stores had been opened as new stores
by the Company, and since December 31, 1995, all of the Company's
expansion has been through the opening of new stores rather than
through acquisitions.
o Broad Selection and Superior Availability. The Company strives to
provide its customers with the broadest selection of videocassette
movies and video games. Hollywood Video superstores typically carry
approximately 10,000 titles and 16,000 videocassettes and video games.
The Company's goal is to offer more copies of popular new
videocassette releases and more titles than its competitors. The
Company typically purchases 35 to 95 copies of "hit" movies for each
Hollywood Video store.
o Exciting, Enjoyable and Convenient Shopping Experience. The Company's
superstores are designed to capture the bright lights, energy and
excitement of the motion picture industry. The Company focuses on
creating an atmosphere that invites consumers into the store,
encourages browsing and generates repeat customers. Hollywood Video
stores are typically located in high traffic, high-visibility
locations. The Company believes excellent customer service, a bright,
clean and friendly shopping environment and convenient store locations
are important to its success.
o Excellent Entertainment Value. The Company offers consumers the
opportunity to rent any of its approximately 10,000 catalog movie
titles for five days for only $1.50. All new release movies and video
games can be rented in most locations for only $3.00. The Company
believes movie rental in general, and its pricing structure and rental
terms in particular, provide consumers convenient entertainment and
excellent value.
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Expansion Strategy
The Company opened its first video superstore in October 1988 and had grown
to 25 stores in Oregon and Washington by the end of 1993. In 1994 the Company
significantly accelerated its store expansion program, adding 88 new stores (55
of which were acquired) and expanding into California, Texas, Nevada, New
Mexico, Virginia and Utah. In 1995 the Company opened 122 new stores, acquired
70 stores and entered major new markets in the midwest, southwest, east and
southeast regions of the United States. The Company's expansion strategy is to
continue to open stores in regions where it has existing operations and to
expand into new geographic regions where it believes it can become a dominant
video retailer. The Company opened 250 new stores and closed four stores in 1996
and opened 110 new stores in the six months ended June 30, 1997. The Company
plans to open approximately 240 new stores in the second half of 1997 and
approximately 400 new stores in 1998. At June 30, 1997, the Company had signed
leases for approximately 175 of the stores it expects to open in the balance of
1997.
The Company believes the selection of locations for its stores is critical
to the success of its operations. The Company has assembled a new store
development team with broad and significant experience in retail tenant
development. The majority of the Company's new store development personnel are
located in the geographic area for which they are responsible, but all final
site approval takes place at the corporate office, where new sites are approved
by a committee of senior management personnel. Final approval of all new sites
is the responsibility of the Company's Chief Executive Officer. Important
criteria for the location of a Hollywood Video superstore include density of
local residential population, traffic count on roads immediately adjacent to the
store location, visibility and accessibility of the store and availability of
ample parking. The Company generally seeks what it considers the most desirable
locations, typically locating its stores in high-visibility stand-alone
structures or in prominent locations in multi-tenant shopping developments. The
Company typically competes for these prime sites with other retailers, banks,
restaurants and gas stations. All of the Company's stores are in leased
premises; the Company does not own any real estate.
The Company's expansion is dependent on a number of different factors and
is subject to various risks. See "Risk Factors" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Liquidity and Capital
Resources," "-General Economic Trends, Quarterly Results and Seasonality" and
"Business-Competition."
Products
Videocassette Rental. The Company's primary source of revenue is the rental
of videocassettes. Hollywood Video superstores typically carry approximately
10,000 movie titles and 16,000 videocassettes and video games. Excluding new
releases, movie titles are classified into 28 categories, such as "Action,"
"Drama," "Family" and "Children," and are displayed alphabetically within those
categories. The Company does not rent or sell adult movies in Hollywood Video
superstores. The Company is committed to offering more copies of popular new
releases than its competitors.
Videocassette Sales. Hollywood Entertainment also offers new and previously
viewed videocassettes for sale. The Company believes it can profit from either
the rental or sale of videocassettes.
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Video Games. In addition to video rentals and sales, Hollywood Video also
rents video games licensed by Nintendo(TM), Sega(TM) and Sony(TM). Each mature
Hollywood Video store offers between 1,200 and 4,000 video games.
Other Products. The Company rents audio books, including abridged fiction
classics and religious, self-improvement and education materials such as foreign
language instruction. The Company also rents videocassette and video game
players for the convenience of its customers and sells blank videocassettes,
video cleaning equipment and confectionery and other items.
Marketing and Advertising
The Company primarily has used radio and direct mail advertising. The
Company frequently uses cooperative movie advertising funds made available by
studios and suppliers to promote certain videocassettes. The Company intends to
increase its advertising expenditures in the future.
Inventory and Information Management
Inventory Management. The Company maintains detailed information on
inventory utilization. Rental activity is tracked by individual videocassette to
determine appropriate buying, distribution and disposition of videocassettes.
The system provides information allowing the Company to determine the
appropriate time to move videocassettes from new releases to catalog, when to
sell through, and when to redistribute to new stores.
Management Information Systems. The Company utilizes a scalable
client-server system and maintains two distinct system areas: a point-of-sale
("POS") system and a corporate information system. The system maintains
information, updated daily, regarding revenue, current and historical rental and
sales activity, demographics of store membership, individual customer history,
and videocassette rental patterns. This system allows the Company to compare
current performance against historical performance and the current year's
budget, manage inventory, make purchasing decisions on new releases and manage
labor costs. The Company believes that its system has the ability to continue to
improve customer service, operational efficiency, and management's ability to
monitor critical performance factors.
Decentralization and Creation of Zone Offices
To support its larger superstore base and continued expansion, in the
second half of 1996 the Company reorganized its operations into four geographic
zones. At June 30, 1997, each zone included from 100 to 275 stores, and the
Company believes each zone will be capable of opening 75 to 100 stores annually
and of supporting the operations of 400 to 500 stores. Each zone is headed by a
senior officer, who has responsibility for new store development and store
operations in the zone, including recruiting, training, marketing and budgeting,
and is accountable for the profitability of all stores in the zone. When the
decentralization is fully implemented, the senior officers will be supported by
a complete team that will include a vice president of new store development, a
vice president of store operations, directors of construction, recruiting and
training, product and marketing, and a controller. As part of the Company's
decentralization strategy, the corporate office and warehouse will provide
central support to the zones, including systems, product purchasing,
distribution, accounting and national marketing programs. In addition, the
corporate office will continue to give final approval for all new store sites
and store design and oversee quality standards and other critical elements of
the
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Hollywood Video concept. The Company believes the creation of geographic zones
managed from zone offices that are accountable for the profitability of the
stores will allow the Company to more effectively manage its business, thereby
enhancing its ability to achieve its expansion plans without compromising
operating standards. See "Risk Factors-Uncertain Ability To Achieve and Manage
Planned Expansion."
Competition
The video retail industry is highly competitive. The Company competes with
other local, regional and national video retail stores, including Blockbuster,
and with supermarkets, pharmacies, convenience stores, bookstores, mass
merchants, mail order operations and other retailers, as well as with
noncommercial sources such as libraries. According to the Video Software Dealers
Association, in 1996 there were approximately 27,000 video specialty stores in
the U.S., of which the Company believes approximately 7,200 were video retail
superstores. Some of the Company's competitors have significantly greater
financial and marketing resources, market share and name recognition than the
Company.
The Company believes the principal competitive factors in the video retail
industry are title selection, the number of copies of popular titles available,
store location and visibility, customer service and employee friendliness,
convenience of store access and parking and, to a lesser extent, pricing.
Substantially all of the Company's stores compete with stores operated by
Blockbuster, most in very close proximity. As a result of direct competition
with Blockbuster, rental pricing of videocassettes may become a more significant
competitive factor in the Company's business, which could have an adverse impact
on the results of operations of the Company. The Company believes it generally
offers more titles and more copies of popular titles than the majority of its
competitors and generally for longer rental periods than any of its major
competitors. In addition to competing with other video retailers, the Company
competes with all leisure-time activities, especially entertainment activities
such as movies, sporting events and network and cable television programs.
The Company competes with cable, satellite and pay-per-view cable
television systems, in which subscribers pay a fee to see a movie selected by
the subscriber. Existing pay-per-view services offer a limited number of
channels and movies and are only available to households with a direct broadcast
satellite receiver or a cable converter to unscramble incoming signals. Digital
compression technology and other developing technologies are enabling cable
companies, direct broadcast satellite companies, telephone companies and other
telecommunications companies to transmit a much greater number of movies to
homes at more frequently scheduled intervals throughout the day on demand.
Certain cable and other telecommunications companies have tested "video on
demand" service in some markets. "Video on demand" service would allow a viewer
to pause, rewind and fast forward movies. Based on publicly available
information, the Company believes these tests have been unsuccessful. The
Company also believes movie studios have a significant interest in maintaining a
viable movie rental business because the sale of videocassettes to video retail
stores represents the largest source of revenue for the studios. In addition,
home video provides the only reliable source of revenue on "non-hit" or
"B-title" movies which make up the majority of movies produced by the major
studios each year. As a result, the Company believes movie studios will continue
to make movie titles available to cable television or other distribution
channels only after revenues have been derived from the sale of videocassettes
to video stores.
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In addition, the Company believes substantial technological developments
will be necessary to allow pay-per-view television to match the viewing
convenience and selection available through video rental, and substantial
capital expenditures will be necessary to implement these systems. In contrast,
according to Adams Media Research, 78.8 million, or 82%, of all U.S. television
households own a VCR. Although the Company does not believe cable television,
video on demand or other distribution channels represent a near-term competitive
threat to its business, technological advances or changes in the manner in which
movies are marketed, including in particular the earlier release of movie titles
to pay-per-view, including DBS, cable television or other distribution channels,
could make these technologies more attractive and economical, which could have a
material adverse effect on the business of the Company.
Legal Proceedings
In December 1995 three complaints were filed against the Company, certain
of the Company's directors and officers and certain other parties and
consolidated in a single action entitled Murphy v. Hollywood Entertainment
Corporation et al., District Court for the District of Oregon. The consolidated
case is a class action encompassing persons who purchased Common Stock of the
Company between June 20 through December 6, 1995. The plaintiffs alleged
violation of certain federal securities laws with respect to statements made to
the public and losses allegedly suffered by plaintiffs as a result of the
decline in the trading price of the Company's Common Stock. In May 1996 the
court certified the class but dismissed claims based on violations of sections
11, 12(2) and 15 of the Securities Act of 1933. The remaining claims dealt with
alleged violations of the Securities Exchange Act of 1934. Prior to trial, the
parties reached a settlement, which was approved by the court on July 31, 1997.
Pursuant to the settlement, the Company paid $14.8 million in cash to the
plaintiffs.
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MANAGEMENT
Directors, Executive Officers and Key Employees of the Company.
The following table sets forth information with respect to the Company's
directors, executive officers and certain other key employees as of the date of
this Prospectus.
<TABLE>
<CAPTION>
Name Age Positions with the Company
- ---- --- --------------------------
<S> <C> <C>
Mark J. Wattles(1).................. 37 Chairman of the Board, President and
Chief Executive Officer
F. Mark Wolfinger(1)................ 41 Chief Financial Officer
Donald J. Ekman(1).................. 45 Senior Vice President, General
Counsel, Secretary and Director
Max G. Fratto(1).................... 54 Executive Vice President of Store
Operations
F. Bruce Giesbrecht................. 37 Senior Vice President of Product
Management
Douglas A. Gordon................... 30 Senior Vice President of Finance
Glen E. Hahn........................ 45 Senior Vice President of Operations
John R. Hnanicek.................... 33 Senior Vice President of Information
Systems
Dale A. Naftzger.................... 52 Senior Vice President of Operations
(Western Zone)
William M. Spae..................... 45 Senior Vice President of Operations
(Southern Zone)
Scott Klein......................... 39 Senior Vice President of Operations
(Midwest and Eastern Zones)
William P. Zebe..................... 39 Senior Vice President of Development
James N. Cutler, Jr................. 45 Director
Richard A. Galanti.................. 41 Director
- -----------
(1) Executive officer.
</TABLE>
Mark J. Wattles founded the Company in June 1988 and has served as Chairman
of the Board, President and Chief Executive Officer since that time. Mr. Wattles
has been an owner and operator in the video rental industry since 1985. He has
been a participant and key speaker in several entertainment industry panels and
conferences and currently serves as a member of the Video Software Dealers
Association (VSDA) Board of Directors.
F. Mark Wolfinger became Chief Financial Officer of the Company in January
1997. Mr. Wolfinger joined the Company from Metromedia Restaurant Group, which
owns, operates and franchises multiple nationwide restaurant chains. Prior to
joining Metromedia as Chief Financial Officer, Mr. Wolfinger was with Grand
Metropolitan, PLC where he served in various capacities, including Chief
Financial Officer of Pearle Vision, Vice President and Group Controller of Grand
Met and Vice President, Finance for Burger King.
Donald J. Ekman became a director of the Company in June 1993 and became
Vice President and General Counsel in March 1994. Mr. Ekman was a partner in
Ekman & Bowersox from January 1992 until March 1994, and from August 1990 until
December 1991 he practiced law with Foster Pepper & Shefelman.
Max G. Fratto joined the Company as Executive Vice President of Store
Operations in May 1994. From 1991 to 1994 Mr. Fratto was a partner in Wallpaper
Warehouse of Idaho, a small retail chain. From 1986 to 1991 he served as Vice
President of W.N.S., Inc., a retail holding
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company, where he was responsible for the Wallpapers to Go division. Prior to
his employment with W.N.S., Mr. Fratto was Vice President of Store Operations
for several General Mills, Inc. specialty retailing companies.
F. Bruce Giesbrecht was named Senior Vice President of Product Management
in January 1996 and joined the Company in May 1993 as Vice President of
Corporate Information Systems and Chief Information Officer. Mr. Giesbrecht was
a founder of RamSoft, Inc., a software development company specializing in
management systems for the video industry, and served as its President.
Douglas A. Gordon was named Senior Vice President of Finance in November
1995 and joined the Company as Vice President of Strategic Analysis and
Forecasting in May 1995. From September 1991 to May 1995, Mr. Gordon worked for
Montgomery Securities as a Vice President and senior analyst covering the
entertainment and retail industries.
Glen E. Hahn joined the Company in April 1996 as Senior Vice President of
Operations (Central Zone) and in January 1997 became Senior Vice President of
Operations. From 1993 to 1996 Mr. Hahn was Senior Vice President-Director of
Stores for Fayva/Parade of Shoes (a specialty retail footwear division of J.
Baker), overseeing approximately 400 stores. From 1979 to 1993 Mr. Hahn worked
for Payless Shoesource (a division of May Department Stores) in various
capacities. From 1987 to 1993 Mr. Hahn worked as Division Operations Manager for
Payless Shoesource, overseeing the development of nearly 200 new stores during
this period and the overall operations of approximately 580 specialty retail
footwear stores at the time of his departure.
John Hnanicek joined the Company in October 1996 as Senior Vice President
of Information Systems. From March 1996 to October 1996 Mr. Hnanicek was Chief
Information Officer for HomePlace, a privately owned home furnishings specialty
retailer, operating 37 stores at the time of his departure. From July 1995 to
February 1996 Mr. Hnanicek was Chief Information Officer for Communicate!
Powerstores, Inc., a start-up communications superstore. From 1990 to 1995, Mr.
Hnanicek worked for OfficeMax, Inc., in various capacities, including most
recently as Senior Vice President-Information Systems and Logistics.
Dale A. Naftzger joined the Company in April 1996 as Senior Vice President
of Operations (Western Zone). From May 1995 to November 1995, Mr. Naftzger was
Chief Operating Officer of Caribou Coffee Company, a privately owned specialty
coffee retailer with approximately 40 company-owned units. From 1994 to 1995 Mr.
Naftzger was President and Chief Executive Officer of Chop Chop Chinese to You,
a venture capital financed Chinese food delivery business, operating 40 units
and three distribution centers at the time of his departure. From 1992 to 1994
Mr. Naftzger was Senior Vice President-Operations for Checkers Drive-In
Restaurants, overseeing all 248 company-owned and 200 franchised units. From
1987 to 1992 Mr. Naftzger worked for Taco Bell Corporation as Zone Vice
President, overseeing the development of approximately 100 new units and the
overall operations of approximately 350 units. From 1980 to 1987 Mr. Naftzger
worked for Wendy's International, Inc. in various capacities, including as Zone
Vice President-Operations, overseeing more than 500 company-owned and 400
franchised units at the time of his departure.
William M. Spae joined the Company in July 1996 as Senior President of
Operations (Southern Zone). From 1991 to June 1996 Mr. Spae worked for Wendy's
International as Divisional Vice President, overseeing the development of
approximately 130 new units during this period and the
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overall operations of more than 100 company-owned and 150 franchised units at
the time of his departure. From 1987 to 1991 Mr. Spae was a Zone Vice President
for Taco Bell Corporation, overseeing more than 160 company-owned and
approximately 100 franchised units.
Scott Klein joined the Company as Senior Vice President of Operations
(Midwest and Eastern Zones) in April 1997. Mr. Klein previously worked for
Nordic Track, Inc., most recently as Senior Vice President of the Retail
Division, overseeing the operations of approximately 350 retail stores.
William P. Zebe was named Senior Vice President of Development in January
1996 and joined the Company as National Vice President of Real Estate in May
1994. Mr. Zebe previously worked from June 1993 to April 1994 as the Real Estate
Manager for the Western Zone for Blockbuster Video, Blockbuster Music and
Blockbuster franchisee-owned Discovery Zone. From 1992 to May 1993 Mr. Zebe was
a Real Estate Representative for Blockbuster.
James N. Cutler, Jr. became a director of the Company in July 1993. Since
1980 Mr. Cutler has been President and Chief Executive Officer of The Cutler
Corporation, a holding company for various private businesses, and, since 1982,
he has been a director of Arrow Transportation Company of Delaware, a trucking
company. Mr. Cutler also serves as an officer or a director of a number of other
private corporations.
Richard A. Galanti became a director of the Company in April 1996. Mr.
Galanti has been a director of Costco Companies, Inc. since January 1995 and
Executive Vice President-Finance and Chief Financial Officer of Costco
Companies, Inc. since October 1993. From January 1985 to October 1993, Mr.
Galanti was Senior Vice President, Chief Financial Officer and Treasurer of
Costco Wholesale Corporation, which he joined in March 1984 as Vice
President-Finance. From 1978 to February 1984, Mr. Galanti was an investment
banker with Donaldson, Lufkin & Jenrette Securities Corporation. In March 1995
Mr. Galanti settled an action brought by the Commission alleging a five-year-old
violation of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder that
was unrelated to Mr. Galanti's positions with Costco Companies, Inc. or Costco
Wholesale Corporation. Without admitting or denying the allegations of the
Commission's complaint, Mr. Galanti agreed to pay $64,408 and entered into an
order requiring him to comply with the relevant sections of the federal
securities laws and rules.
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THE EXCHANGE OFFER
Terms of the Exchange Offer; Period for Tendering Old Notes
The Old Notes were sold by the Company on August 13, 1997 to the Initial
Purchasers pursuant to a Purchase Agreement dated August 7, 1997 by and among
the Company and the Initial Purchasers. Upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal, the Company will accept for exchange any and all Old Notes that are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m., New
York City time, on , 1997; provided, however, that if the Company,
in its sole discretion, has extended the period of time for which the Exchange
Offer is open, the term "Expiration Date" means the latest time and date to
which the Exchange Offer is extended.
As of the date of this Prospectus, $200,000,000 aggregate principal amount
of the Old Notes was outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about the date set forth on the cover
page to all holders of Old Notes at the addresses set forth in the security
register with respect to Old Notes maintained by the Trustee. The Company's
obligation to accept Old Notes for exchange pursuant to the Exchange Offer is
subject to certain conditions as set forth under "--Certain Conditions to the
Exchange Offer" below.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Old Notes, by mailing written
notice of such extension to the holders thereof as described below. During any
extension, all Old Notes previously tendered will remain subject to the Exchange
Offer and may be accepted for exchange by the Company. Any Old Notes not
accepted for exchange for any reason will be returned without expense to the
tendering holder thereof as promptly as practicable after the expiration or
termination of the Exchange Offer.
Old Notes tendered in the Exchange Offer must be $1,000 in principal amount
or any integral multiple thereof.
The Company will mail written notice of any extension, amendment,
non-acceptance or termination to the holders of the Old Notes as promptly as
practicable, such notice to be mailed to the holders of record of the Old Notes
no later than 9:00 a.m. New York City time, on the next business day after the
previously scheduled Expiration Date or other event giving rise to such notice
requirement.
Registration Rights; Additional Interest
Pursuant to the Registration Rights Agreement, the Company has agreed with
the Initial Purchasers, for the benefit of the holders of the Old Notes, that
the Company will, at its cost, (i) not later than 30 days after the closing of
the sale of the Old Notes (the "Closing Date"), file the Registration Statement
with the Commission and (ii) cause the Registration Statement to be declared
effective under the Securities Act not later than 90 days after the Closing
Date. The Registration Statement of which this Prospectus is a part constitutes
the Registration Statement.
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<PAGE>
If applicable interpretations of the staff of the Commission do not permit
the Company to effect the Exchange Offer, or if for any reason the Exchange
Offer is not completed within 120 days after the Closing Date, or if the Initial
Purchasers so request with respect to Old Notes not eligible to be exchanged for
New Notes in the Exchange Offer, or if any holder of Old Notes is not eligible
to participate in the Exchange Offer or participates in but does not receive
freely tradeable (except for prospectus delivery requirements) New Notes in the
Exchange Offer, the Company will, at its cost, (a) as promptly as practicable,
file a Shelf Registration Statement covering resales of the Notes, (b) use its
best efforts to cause the Shelf Registration Statement to be declared effective
under the Securities Act by the 120th day after the Closing Date and (c) keep
the Shelf Registration Statement effective until two years after its effective
date (or shorter period that will terminate when all Notes covered by the Shelf
Registration Statement have been sold pursuant to the Shelf Registration
Statement). The Company will, in the event a Shelf Registration Statement is
filed, among other things, provide to each holder for whom such Shelf
Registration Statement was filed copies of the prospectus which is part of the
Shelf Registration Statement, notify each such holder when the Shelf
Registration Statement has become effective and take certain other actions as
are required to permit unrestricted resales of the Notes. A holder selling such
Notes pursuant to the Shelf Registration Statement generally would be required
to be named as a selling security holder in the related prospectus and to
deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the Registration Rights Agreement that are
applicable to such holder (including certain indemnification obligations).
If (i) within 30 days after the Closing Date, neither the Registration
Statement nor the Shelf Registration Statement has been filed with the
Commission; (ii) within 90 days after the Closing Date, the Registration
Statement has not been declared effective; (iii) within 120 days after the
Closing Date, the Exchange Offer has not been completed; (iv) within 120 days
after the Closing Date, the Shelf Registration Statement has not been declared
effective if a Shelf Registration Statement is required to be filed; or (v)
after either the Registration Statement or the Shelf Registration Statement has
been declared effective, such Registration Statement thereafter ceases to be
effective or usable (subject to certain exceptions) in connection with resales
of Notes in accordance with and during the periods specified in the Registration
Agreement (each such event referred to in clauses (i) through (iv), a
"Registration Default"), interest ("Additional Interest") will accrue on the
Notes (in addition to the stated interest on the Notes) from and including the
date on which any such Registration Default shall occur to but excluding the
date on which all Registration Defaults have been cured. Additional Interest
will accrue at a rate of 0.25% per annum during the 90-day period immediately
following the occurrence of any Registration Default and shall increase by 0.25%
per annum at the end of each subsequent 90-day period, but in no event shall
such rate exceed 1.00% per annum.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all provisions of the Registration Rights
Agreement, a copy of which is filed as an exhibit to the Registration Statement
of which this Prospectus constitutes a part.
39
<PAGE>
Procedure for Tendering Old Notes
The tender to the Company of Old Notes by a holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a holder who wishes to tender
Old Notes for exchange pursuant to the Exchange Offer must transmit a properly
completed and duly executed Letter of Transmittal, together with all other
documents required by such Letter of Transmittal, to Continental Stock Transfer
& Trust Company (the "Exchange Agent") at the address set forth below under
"--Exchange Agent" on or prior to the Expiration Date. In addition, (i)
certificates for the Old Notes must be received by the Exchange Agent along with
the Letter of Transmittal or (ii) a timely confirmation of a book-entry transfer
(a "Book-Entry Confirmation") of the Old Notes, if such procedure is available,
into the Exchange Agent's account at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date or (iii) the holder must comply with the guaranteed delivery
procedures described below. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
HOLDERS. IF THE DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED IN ALL CASES.
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF
TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Old Notes who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined herein). If signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, the guarantees must be by a firm that is an eligible guarantor
institution (bank, stockbroker, national securities exchange, registered
securities association, savings and loan association or credit union with
membership in a signature medallion program) pursuant to Exchange Act Rule
17Ad-15 (collectively, "Eligible Institutions"). If Old Notes are registered in
the name of a person other than the person signing the Letter of Transmittal,
the Old Notes surrendered for exchange must be endorsed by, or be accompanied by
a written instrument or instruments of transfer or exchange, in satisfactory
form as determined by the Company in its sole discretion, duly executed by the
registered holder, with the signature thereon guaranteed by an Eligible
Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or not to accept any
particular Old Notes if acceptance might, in the judgment of the Company or its
counsel, be unlawful. The Company also reserves the absolute right in its sole
discretion to waive any defects or irregularities or conditions of the Exchange
Offer as to any particular Old Notes either before or after the Expiration Date
(including the right to waive the ineligibility of any holder who seeks to
tender Old Notes in the Exchange Offer). The interpretation of the terms and
conditions of the Exchange Offer as to any particular Old Notes either before or
after the Expiration Date (including the Letter of Transmittal and
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the instructions thereto) by the Company shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Old Notes for exchange must be cured within a reasonable period of time that
the Company shall determine. Neither the Company, the Exchange Agent nor any
other person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Old Notes for exchange, nor shall any
of them incur any liability for failure to give any notification.
If the Letter of Transmittal is signed by a person or persons other than
the registered holder or holders of Old Notes, the Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name or names of the registered holder or holders that appear on the Old
Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney 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 to so
act must be submitted with the Letter of Transmittal.
By tendering Old Notes, each holder, other than a broker-dealer, must
acknowledge that it is not engaged in, and does not intend to engage in, a
distribution of New Notes. If any holder of Old Notes is an "affiliate" of the
Company, as defined under Rule 405 of the Securities Act, or is engaged in or
intends to engage in or has any arrangement with any person to participate in
the distribution of the New Notes to be acquired pursuant to the Exchange Offer,
the holder (i) could not rely on the applicable interpretations of the staff of
the Commission and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. Each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
Acceptance of Old Notes for Exchange; Delivery of New Notes
The Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of the
Old Notes. For each Old Note accepted for exchange, the holder of the Old Note
will receive a New Note having a principal amount equal to that of the
surrendered Old Note. The New Notes will bear interest from the most recent date
to which interest has been paid on the Old Notes or, if no interest has been
paid on the Old Notes, from August 13, 1997. Accordingly, if the relevant record
date for interest payment occurs after the completion of the Exchange Offer,
registered holders of New Notes on the record date will receive interest
accruing from the most recent date to which interest has been paid or, if no
interest has been paid, from August 13, 1997. If, however, the relevant record
date for interest payment occurs prior to the completion of the Exchange Offer,
registered holders of Old Notes on the record date will receive interest
accruing from the most recent date to which interest has been paid or, if no
interest has been paid, from August 13, 1997. Old Notes accepted for exchange
will cease to accrue interest from and after the date of completion of the
Exchange Offer, except as set forth in the immediately preceding sentence.
Holders of Old Notes whose Old Notes are accepted for exchange
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will not receive any payment in respect of interest on the Old Notes otherwise
payable on any interest payment date the record date for which occurs on or
after completion of the Exchange Offer.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of (i) certificates for the Old Notes or a timely
Book-Entry Confirmation of the Old Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility, (ii) a properly completed and duly executed
Letter of Transmittal and (iii) all other required documents. If any tendered
Old Notes are not accepted for any reason set forth in the terms and conditions
of the Exchange Offer or if certificates representing Old Notes are submitted
for a greater principal amount than the holder desires to exchange, certificates
representing the unaccepted or non-exchanged Old Notes will be returned without
expense to the tendering holder thereof (or, in the case of Old Notes tendered
by book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility pursuant to the book-entry transfer procedures described
below, the non-exchanged Old Notes will be credited to an account maintained
with the Book-Entry Transfer Facility) as promptly as practicable after the
expiration or termination of the Exchange Offer.
Book-Entry Transfer
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer the Old Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility in accordance with the Book-Entry
Facility's procedures for transfer. ALTHOUGH DELIVERY OF OLD NOTES MAY BE
EFFECTED THROUGH BOOK-ENTRY TRANSFER AT THE BOOK-ENTRY TRANSFER FACILITY, THE
LETTER OF TRANSMITTAL OR A FACSIMILE THEREOF, WITH ANY REQUIRED SIGNATURE
GUARANTEES AND ANY OTHER REQUIRED DOCUMENTS, MUST, IN ANY CASE, BE TRANSMITTED
TO AND RECEIVED BY THE EXCHANGE AGENT AT THE ADDRESS SET FORTH BELOW UNDER
"EXCHANGE AGENT" ON OR PRIOR TO THE EXPIRATION DATE OR THE GUARANTEED DELIVERY
PROCEDURES DESCRIBED BELOW MUST BE COMPLIED WITH.
Guaranteed Delivery Procedures
If a registered holder of Old Notes desires to tender the Old Notes and the
Old Notes are not immediately available, or time will not permit the holder's
Old Notes or other required documents to reach the Exchange Agent before the
Expiration Date, or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if (i) the tender is made through an
Eligible Institution, (ii) prior to the Expiration Date, the Exchange Agent
receives from the Eligible Institution a properly completed and duly executed
Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of Old Notes and the amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that within five New York
Stock Exchange ("NYSE") trading days after the date of execution of the Notice
of Guaranteed Delivery, the certificates for all physically tendered Old Notes,
in proper form for transfer, or a Book-Entry Confirmation, as the case may be,
and any other documents required by the Letter of Transmittal will be deposited
by the Eligible Institution with the
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Exchange Agent and (iii) the certificates for all physically tendered Old Notes,
in proper form for transfer, or a Book-Entry Confirmation, as the case may be,
and all other documents required by the Letter of Transmittal, are received by
the Exchange Agent within five NYSE trading days after the date of execution of
the Notice of Guaranteed Delivery.
Withdrawal Rights
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date.
For a withdrawal to be effective, a written or facsimile notice of
withdrawal must be received by the Exchange Agent at the address set forth below
under "- Exchange Agent." Any notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes to
be withdrawn (including the principal amounts of such Old Notes), and (where
certificates for Old Notes have been transmitted) specify the name in which such
Old Notes are registered, if different from that of the withdrawing holder. If
certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates, the withdrawing
holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless the holder is an Eligible Institution. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes
and otherwise comply with the procedures of the facility. All questions as to
the validity, form and eligibility (including time of receipt) of the notices
will be determined by the Company, whose determination shall be final and
binding on all parties. Certificates for any Old Notes so withdrawn will be
deemed not to have been validly tendered for exchange for purposes of the
Exchange Offer. Any Old Notes that have been tendered for exchange but which are
not exchanged for any reason will be returned to the holder thereof without cost
to the holder (or, in the case of Old Notes tendered by book-entry transfer into
the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described above, the Old Notes will be credited
to an account maintained with the Book-Entry Transfer Facility for the Old
Notes) as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described under "-- Procedure for
Tendering Old Notes" above at any time on or prior to the Expiration Date.
Exchange Agent
Continental Stock Transfer & Trust Company has been appointed as the
Exchange Agent for the Exchange Offer. All executed Letters of Transmittal
should be directed to the Exchange Agent at the address set forth below.
Questions and requests for assistance, requests for additional copies of this
Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent, addressed as
follows:
By Mail or by Hand:
Continental Stock Transfer & Trust Company, Exchange Agent
2 Broadway
New York, New York 10004
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By Facsimile:
(212) 509-5150
Confirm Facsimile by Telephone:
(212) 509-4000
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF THE LETTER OF TRANSMITTAL.
Fees and Expenses
The Company will not make any payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer.
Transfer Taxes
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer tax in connection therewith, except that Holders who instruct
the Company to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering Holder will be responsible for the payment of any
applicable transfer tax thereon.
Appraisal Rights
HOLDERS OF OLD NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL RIGHTS
IN CONNECTION WITH THE EXCHANGE OFFER.
Consequences of Failure to Exchange Old Notes
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of the Old Notes. In general, the Old 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 registration requirements of the
Securities Act and applicable state securities laws. The Company does not
anticipate that it will register Old Notes under the Securities Act. Based on
interpretations by the staff of the Commission issued to third parties, New
Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold or otherwise transferred by holders thereof (other
than any holder that is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that the New
Notes are acquired in the ordinary course of the holders' business and the
holders have no arrangement with any person to participate in the distribution
of the New Notes. Each holder, other than a broker-dealer, must acknowledge that
it is not engaged in, and does not intend to engage in, a distribution of New
Notes. If any holder is an affiliate of the Company, is engaged in or intends
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to engage in or has any arrangement or understanding with respect to the
distribution of the New Notes to be acquired pursuant to the Exchange Offer, the
holder (i) could not rely on the applicable interpretations of the staff of the
Commission and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives New Notes for its own account in exchange for
Old Notes must acknowledge that the Old Notes were acquired by the broker-dealer
as a result of market-making activities or other trading activities and that it
will deliver a prospectus in connection with any resale of the New Notes. See
"Plan of Distribution." In addition, to comply with the securities laws of
certain jurisdictions, if applicable, it may be necessary to qualify for sale or
to register the New Notes prior to offering or selling the New Notes. The
Company does not intend to take any action to register or qualify the New Notes
for resale in any of these jurisdictions.
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DESCRIPTION OF NOTES
General
As used below in this "Description of Notes" section, references to the
"Notes" refer to the Old Notes and the New Notes, unless the context otherwise
requires.
The Old Notes were issued and the New Notes will be issued pursuant to an
Indenture (the "Indenture") dated as of August 13, 1997 between the Company and
U.S. Trust Company of California, N.A. (the "Trustee").
The following is a summary of certain provisions of the Indenture and the
Notes, a copy of which Indenture and the form of Notes are available upon
request to the Company at the address set forth under "Available Information."
The following summary of certain provisions of the Indenture does not purport to
be complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Indenture, including the definitions of certain terms
therein and those terms made a part thereof by the Trust Indenture Act of 1939,
as amended. Capitalized terms used herein and not otherwise defined have the
meanings set forth in the section "-Certain Definitions." As used in this
section, the term "Company" refers to Hollywood Entertainment Corporation, but
not any of its subsidiaries.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company, which, unless otherwise provided by the Company, will be the offices of
the Trustee. At the option of the Company, payment of interest may be made by
check mailed to the addresses of the Holders as such addresses appear in the
Note register.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000; provided, that
certificated Notes originally purchased by or transferred to Institutional
Accredited Investors who are not also "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act) ("QIBs") will be subject to a
minimum denomination of $250,000. No service charge will be made for any
registration of transfer or exchange of Notes, but the Company may require
payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith.
Terms of the Notes
The Notes will be unsecured senior subordinated obligations of the Company,
limited to $200 million aggregate principal amount and will mature on August 15,
2004. The Indenture provides for the issuance of up to an additional $50 million
aggregate principal amount of additional notes having identical terms and
conditions as the Notes (the "Additional Notes"). Any Additional Notes will be
part of the same issue of Notes and will vote on all matters with the Notes.
Holders of any Additional Notes will be entitled to all the benefits of the
Indenture granted to Holders of Notes. Additional Notes, if any, will be treated
for all purposes as "Securities" under the Indenture. The Notes will bear
interest at 105/8% per annum from August 13, 1997, or from the most recent date
to which interest has been paid or provided for, payable semi-annually to
Holders of record at the close of business on the February 1 or August 1
immediately preceding the interest payment date on February 15 and August 15 of
each year, commencing February 15, 1998. Interest will be computed
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on the basis of a 360-day year comprised of twelve 30-day months. The Company
will pay interest on overdue principal at the same rate per annum borne by the
Notes and it will pay interest on overdue installments of interest at such rate
to the extent lawful.
The interest rate on the Notes is subject to increase in certain
circumstances if the Company does not file a registration statement relating to
the Registered Exchange Offer on a timely basis, if the registration statement
is not declared effective on a timely basis or if certain other conditions are
not satisfied. All references herein to the interest accrued and payable on the
Notes includes Additional Interest that may become payable on the Notes. See
"The Exchange Offer - Registration Rights; Additional Interest."
Optional Redemption
Except as set forth in the following paragraph, the Notes will not be
redeemable at the option of the Company prior to August 15, 2001. Thereafter,
the Notes will be redeemable, at the Company's option, in whole or in part, at
any time or from time to time, upon not less than 30 nor more than 60 days'
prior notice mailed by first-class mail to each Holder's registered address, at
the following redemption prices (expressed in percentages of principal amount),
plus accrued and unpaid interest, if any, to the redemption date (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date), if redeemed during the 12-month period
commencing on August 15 of the years set forth below:
Redemption
Period Price
------ -----
2001............................................. 105.313%
2002............................................. 102.656
2003 and thereafter.............................. 100.000
In addition, at any time and from time to time prior to August 15, 2000,
the Company may redeem in the aggregate up to 35% of the original principal
amount of the Notes with the proceeds of one or more Public Equity Offerings, at
a redemption price (expressed as a percentage of principal amount) of 110.625%
plus accrued and unpaid interest, if any, to the redemption date (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date); provided, however, that at least 65% of
the original aggregate principal amount of the Notes must remain outstanding
after each such redemption; and provided further however, that such redemption
shall occur within 60 days of the closing date of such Public Equity Offering.
Selection
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in original principal amount or less
will be redeemed in part. If any Note is to be redeemed in part only, the notice
of redemption relating to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note.
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Subordination
The indebtedness evidenced by the Notes will be senior subordinated
obligations of the Company. The payment of the principal of, premium, if any,
and interest on, and all other Obligations in respect of the Notes is
subordinated in right of payment, as set forth in the Indenture, to the prior
payment in full of all Senior Indebtedness of the Company, whether outstanding
on the Issue Date or thereafter incurred, including the obligations of the
Company under the Senior Credit Facility. The Notes will also be effectively
subordinated to any Secured Indebtedness of the Company to the extent of the
value of the assets securing such Indebtedness and to any liabilities of
Subsidiaries.
As of June 30, 1997, on a pro forma basis after giving effect to the sale
of the Old Notes and the application of the net proceeds therefrom, the Company
would have had $9.6 million of Senior Indebtedness outstanding. In addition, any
borrowings under the New Credit Facility will be Senior Indebtedness. Although
the Indenture contains limitations on the amount of additional Indebtedness that
the Company and its Restricted Subsidiaries may incur, under certain
circumstances the amount of such Indebtedness could be substantial and, in any
case, such Indebtedness may be Senior Indebtedness. See "-Certain
Covenants-Limitation on Indebtedness."
Only Indebtedness of the Company that is Senior Indebtedness will rank
senior to the Notes in accordance with the provisions of the Indenture. The
Notes will in all respects rank pari passu with all other senior subordinated
Indebtedness of the Company. The Company has agreed in the Indenture that it
will not Incur, directly or indirectly, any Indebtedness that is subordinate or
junior in ranking in right of payment to its Senior Indebtedness unless such
Indebtedness is pari passu with or is expressly subordinated in right of payment
to the Notes. Unsecured Indebtedness is not deemed to be subordinated or junior
merely because it is unsecured.
The Company may not pay principal of, premium, if any, or interest on, or
any other Obligations in respect of the Notes or make any deposit pursuant to
the provisions described under "-Defeasance" below and may not repurchase,
redeem or otherwise retire any Notes (collectively, "pay the Notes") if (i) any
Senior Indebtedness is not paid when due or (ii) any other default on any such
Senior Indebtedness occurs and the maturity of such Senior Indebtedness is
accelerated in accordance with its terms unless, in either case, the default has
been cured or waived and any such acceleration has been rescinded or such Senior
Indebtedness has been paid in full. However, the Company may pay the Notes
without regard to the foregoing if the Company and the Trustee receive written
notice approving such payment from the Representative of the Senior Indebtedness
with respect to which either of the events set forth in clause (i) or (ii) of
the immediately preceding sentence has occurred and is continuing. During the
continuance of any default (other than a default described in clauses (i) and
(ii) of the second preceding sentence) with respect to any Designated Senior
Indebtedness pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods, the
Company may not pay the Notes for a period (a "Payment Blockage Period")
commencing upon the receipt by the Trustee (with a copy to the Company) of
written notice (a "Blockage Notice") of such default from the Representative of
the holders of such Designated Senior Indebtedness specifying an election to
effect a Payment Blockage Period and ending 179 days thereafter (or earlier if
such Payment Blockage Period is terminated (i) by written notice to the Trustee
and the Company from the Person or Persons who gave such Blockage Notice, (ii)
because the default giving rise to such Blockage Notice is no longer continuing
or (iii) because such
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Designated Senior Indebtedness has been repaid in full). Notwithstanding the
provisions described in the immediately preceding sentence, unless the holders
of such Designated Senior Indebtedness or the Representative of such holders has
accelerated the maturity of such Designated Senior Indebtedness, the Company may
resume payments on the Notes after the end of such Payment Blockage Period. The
Notes shall not be subject to more than one Payment Blockage Period in any
consecutive 365-day period, irrespective of the number of defaults with respect
to Designated Senior Indebtedness during such period.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation or dissolution or reorganization of or similar proceeding
relating to the Company or its property, the holders of Senior Indebtedness will
be entitled to receive payment in full of such Senior Indebtedness before the
Noteholders are entitled to receive any payment, and, until the Senior
Indebtedness is paid in full, any payment or distribution to which Noteholders
would be entitled but for the subordination provisions of the Indenture will be
made to holders of such Senior Indebtedness as their interests may appear. If a
payment or distribution is made to Noteholders that, due to the subordination
provisions, should not have been made to them, such Noteholders are required to
hold it in trust for the holders of Senior Indebtedness and pay it over to them
as their interests may appear.
By reason of the subordination provisions contained in the Indenture, in
the event of insolvency, creditors of the Company who are holders of Senior
Indebtedness of the Company may recover more, ratably, than the Noteholders, and
creditors of the Company who are not holders of Senior Indebtedness may recover
less, ratably, than holders of Senior Indebtedness and may recover more,
ratably, than the Noteholders.
The terms of the subordination provisions described above will not apply to
payments from money or the proceeds of U.S. Government Obligations held in trust
by the Trustee for the payment of principal of and interest on the Notes
pursuant to the provisions described under "-Defeasance."
Change of Control
Upon the occurrence of a Change of Control, each Holder shall have the
right to require that the Company repurchase all or a portion (equal to $1,000
or an integral multiple thereof) of such Holder's Notes at a purchase price in
cash equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of repurchase (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date), in accordance with the provisions of the next paragraph.
Within 30 days following any Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee stating: (1) that a Change of
Control has occurred and that such Holder has the right to require the Company
to purchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount outstanding at the repurchase date plus accrued and unpaid
interest, if any, to the date of repurchase (subject to the right of Holders of
record on the relevant record date to receive interest on the relevant interest
payment date); (2) the circumstances and relevant facts and relevant financial
information regarding such Change of Control; (3) the repurchase date (which
shall be no earlier than 30 days nor later than 60 days from the date such
notice is mailed); and (4) the instructions determined by the Company,
consistent with the covenant described hereunder, that a Holder must follow in
order to have its Notes repurchased.
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On the Change of Control repurchase date, the Company will, to the extent
lawful (i) accept for payment all Notes or portions thereof properly tendered
pursuant to the immediately preceding paragraph, (ii) deposit with the Trustee
(or other paying agent appointed pursuant to the Indenture) an amount equal to
the Change of Control payment in respect of all Notes or portions thereof
tendered and (iii) deliver or cause to be delivered to the Trustee the Notes so
accepted together with an officer's certificate from the Company stating the
aggregate principal amount of Notes or portions thereof being repurchased by the
Company. The Trustee (or paying agent) will promptly mail to each Holder of
Notes so tendered the Change of Control payment for such Notes, and the Trustee
will promptly authenticate and mail (or cause to be transferred by book entry)
to each Holder a new Note equal in principal amount to any unpurchased portion
of the Notes surrendered, if any; provided, however, that each such new Note
will be in a principal amount of $1,000 or an integral multiple thereof.
The Indenture will provide that, prior to complying with the provisions of
this covenant, but in any event within 90 days following a Change of Control,
the Company will either repay all outstanding Senior Indebtedness or obtain the
requisite consents, if any, under all agreements governing outstanding Senior
Indebtedness to permit the repurchase of the Notes required by this covenant.
The Company shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to the covenant
described hereunder. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
the Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the covenant
described hereunder by virtue thereof.
The occurrence of certain of the events which would constitute a Change of
Control would constitute a default under the Senior Credit Facility. Future
Senior Indebtedness of the Company may contain prohibitions of certain events
which would constitute a Change of Control or require such Senior Indebtedness
to be repurchased upon a Change of Control. Moreover, the exercise by the
Holders of their right to require the Company to repurchase the Notes could
cause a default under such Senior Indebtedness, even if the Change of Control
itself does not, due to the financial effect of such repurchase on the Company.
Finally, the Company's ability to pay cash to the Holders upon a repurchase may
be limited by the Company's then existing financial resources. There is no
assurance that sufficient funds will be available when necessary to make any
repurchases required in connection with a Change of Control. The Company's
failure to purchase the Notes in connection with a Change in Control would
result in a default under the Indenture which would, in turn, constitute a
default under the Senior Credit Facility. In such circumstances, the
subordination provisions in the Indenture would likely restrict payment to the
Holders of the Notes. See "Description of Certain Other Indebtedness-The New
Credit Facility."
The existence of a Holder's right to require the Company to repurchase such
Holder's Notes upon the occurrence of a Change of Control may deter a third
party from seeking to acquire the Company in a transaction that would constitute
a Change of Control.
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Book-Entry, Delivery and Form
Except as set forth in the next paragraph, the Notes sold will be issued in
the form of a Global Note. The Global Note will be deposited with, or on behalf
of, the Depository and registered in the name of the Depository or its nominee.
Except as set forth below, the Global Note may be transferred, in whole and not
in part, only to the Depository or another nominee of the Depository. Investors
may hold their beneficial interests in the Global Note directly through the
Depository if they have an account with the Depository or indirectly through
organizations which have accounts with the Depository.
Notes that are (i) originally issued to Institutional Accredited Investors
who are not QIBs or (ii) issued as described below under "-Certificated Notes"
will be issued in definitive form. Upon the transfer of a Note in definitive
form, such Note will, unless the Global Note has previously been exchanged for
Notes in definitive form, be exchanged for an interest in the Global Note
representing the principal amount of Notes being transferred.
The Depository has advised the Company as follows: The Depository is a
limited-purpose trust company and 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 Securities Exchange
Act of 1934 (the "Exchange Act"). The Depository was created to hold securities
of institutions that have accounts with the Depository ("participants") and to
facilitate the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical movement
of securities certificates. The Depository's participants include securities
brokers and dealers (which may include the Initial Purchasers), banks, trust
companies, clearing corporations and certain other organizations. Access to the
Depository's book-entry system is also available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, whether directly or indirectly.
Upon the issuance of the Global Note, the Depository will credit, on its
book-entry registration and transfer system, the principal amount of the Notes
represented by such Global Note to the accounts of participants. The accounts to
be credited shall be designated by the Initial Purchasers of such Notes.
Ownership of beneficial interests in the Global Note will be limited to
participants or persons that may hold interests through participants. Ownership
of beneficial interests in the Global Note will be shown on, and the transfer of
those ownership interests will be effected only through, records maintained by
the Depository (with respect to participants' interest) and such participants
(with respect to the owners of beneficial interests in the Global Note other
than participants). The laws of some jurisdictions may require that certain
purchasers of securities take physical delivery of such securities in definitive
form. Such limits and laws may impair the ability to transfer or pledge
beneficial interests in the Global Note.
So long as the Depository, or its nominee, is the registered holder and
owner of the Global Note, the Depository or such nominee, as the case may be,
will be considered the sole legal owner and holder of the related Notes for all
purposes of such Notes and the Indenture. Except as set forth below, owners of
beneficial interests in the Global Note will not be entitled to have the Notes
represented by the Global Note registered in their names, will not receive or be
entitled to receive physical delivery of certificated Notes in definitive form
and will not be considered to be the owners
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or holders of any Notes under the Global Note. The Company understands that
under existing industry practice, in the event an owner of a beneficial interest
in the Global Note desires to take any action that the Depository, as the holder
of the Global Note, is entitled to take, the Depository would authorize the
participants to take such action, and that the participants would authorize
beneficial owners owning through such participants to take such action or would
otherwise act upon the instructions of beneficial owners owning through them.
Payment of principal of, and interest on, Notes represented by the Global
Note registered in the name of and held by the Depository or its nominee will be
made to the Depository or its nominee, as the case may be, as the registered
owner and holder of the Global Note.
The Company expects that the Depository or its nominee, upon receipt of any
payment of principal of, or interest on the Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Note as
shown on the records of the Depository or its nominee. The Company also expects
that payments by participants to owners of beneficial interests in the Global
Note held through such participants will be governed by standing instructions
and customary practices and will be the responsibility of such participants. The
Company will not 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 Note for any Note or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests or for any
other aspect of the relationship between the Depository and its participants or
the relationship between such participants and the owners of beneficial
interests in the Global Note owning through such participants.
Unless and until it is exchanged in whole or in part for certificated Notes
in definitive form, the Global Note may not be transferred except as a whole by
the Depository to a nominee of such Depository or by a nominee of such
Depository to such Depository or another nominee of such Depository.
Although the Depository has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Note among participants of the
Depository, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Trustee nor the Company will have any responsibility for the performance by the
Depository or its participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
Certificated Notes
The Notes represented by the Global Note are exchangeable for certificated
Notes in definitive form of like tenor as such Notes in denominations of
U.S.$1,000 and integral multiples thereof if (i) the Depository notifies the
Company that it is unwilling or unable to continue as Depository for the Global
Note or if at any time the Depository ceases to be a clearing agency registered
under the Exchange Act, (ii) the Company in its discretion at any time
determines not to have all of the Notes represented by the Global Note or (iii)
a default entitling the Holders of the Notes to accelerate the maturity thereof
has occurred and is continuing. Any Note that is exchangeable pursuant to the
preceding sentence is exchangeable for certificated Notes issuable in authorized
denominations and registered in such names as the Depository shall direct.
Subject to the foregoing, the Global Note is not exchangeable, except for a
Global Note of the same aggregate denomination to be registered in
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the name of the Depository or its nominee. Holders of certificated Notes may
only transfer their Notes (i) to the Company or (ii) to a QIB; provided,
however, that the agreement of such Holder is subject to any requirement of law
that the disposition of such Holder's property shall at all times be and remain
within its control.
Certain Covenants
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness
(a) The Company shall not, and shall not permit any Restricted Subsidiary
to, Incur, directly or indirectly, any Indebtedness unless, immediately after
giving effect to such Incurrence, the Consolidated Coverage Ratio exceeds 2.25
to 1.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur any or all of the following Indebtedness:
(1) Indebtedness Incurred pursuant to the New Credit Facility; to the
extent that, after giving effect to any such Incurrence, the aggregate
principal amount of such Indebtedness then outstanding does not exceed $300
million;
(2) Indebtedness represented by the Old Notes (and the New Notes)
other than Additional Notes;
(3) Indebtedness outstanding on the Issue Date (other than
Indebtedness described in clause (1) of this paragraph);
(4) Indebtedness of the Company owed to and held by any Wholly Owned
Subsidiary or Indebtedness of a Restricted Subsidiary owed to and held by
the Company or a Wholly Owned Subsidiary; provided, however, that any
subsequent issuance or transfer of any Capital Stock which results in any
such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any
subsequent transfer of such Indebtedness (other than to the Company or a
Wholly Owned Subsidiary) shall be deemed, in each case, to constitute the
Incurrence of such Indebtedness by the issuer thereof;
(5) Refinancing Indebtedness, the net proceeds of which are used to
extend, refinance, renew, replace, defease or refund Indebtedness that was
permitted by the Indenture to be Incurred pursuant to paragraph (a) or
pursuant to clause (1), (2), (3) or this clause (5) of this paragraph (b);
(6) Indebtedness in respect of performance bonds, bankers'
acceptances, letters of credit and surety or appeal bonds entered into by
the Company and the Restricted Subsidiaries in the ordinary course of their
business;
(7) Hedging Obligations consisting of Interest Rate Agreements entered
into in the ordinary course of business and not for the purpose of
speculation; provided, however, that such Interest Rate Agreements do not
increase the Indebtedness of the Company outstanding
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at any time other than as a result of fluctuations in interest rates or by
reason of fees, indemnities and compensation payable thereunder;
(8) Indebtedness Incurred by the Company or any Restricted Subsidiary
in connection with the purchase or improvement of property (real or
personal) or other capital expenditures in the ordinary course of business
(including for the purchase of assets or stock of any Related Business) or
consisting of Capital Lease Obligations Incurred, in either case subsequent
to the Issue Date in an aggregate principal amount which does not exceed 5%
of aggregate total revenue of the Company and its Restricted Subsidiaries
during the most recently completed four fiscal quarter period on a
consolidated basis (measured at the time of Incurrence);
(9) Guarantees of Indebtedness Incurred pursuant to the New Credit
Facility; and
(10) Indebtedness in an aggregate principal amount which, together
with all other Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the date of such Incurrence (other than Indebtedness
permitted by clauses (1) through (9) above or paragraph (a)), does not
exceed $10 million.
(c) Notwithstanding the foregoing, the Company shall not, and shall not
permit any Restricted Subsidiary to, Incur any Indebtedness pursuant to the
foregoing paragraph (b) if the proceeds thereof are used, directly or
indirectly, to Refinance (i) any Subordinated Obligations unless such
Indebtedness shall be subordinated to the Notes to at least the same extent as
such Subordinated Obligations or (ii) any Senior Subordinated Indebtedness
unless such Indebtedness shall be Senior Subordinated Indebtedness or shall be
subordinated to the Notes.
(d) For purposes of determining compliance with the foregoing covenant, (i)
in the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described above, the Company, in its sole discretion,
will classify such item of Indebtedness and only be required to include the
amount and type of such Indebtedness in one of the above clauses and (ii) an
item of Indebtedness may be divided and classified in more than one of the types
of Indebtedness described above.
Limitation on Restricted Payments
(a) The Company shall not, and shall not permit any Restricted Subsidiary,
directly or indirectly, to make a Restricted Payment if at the time the Company
or such Restricted Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom);
(2) the Company is not able to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of the covenant described under
"-Limitation on Indebtedness"; or
(3) the aggregate amount of such Restricted Payment together with all
other Restricted Payments (the amount of any payments made in property
other than cash to be valued at the fair market value of such property, as
determined in good faith by the Board of Directors) declared or made since
the Issue Date would exceed the sum of: (A) 50% of the
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Consolidated Net Income accrued during the period (treated as one
accounting period) from the beginning of the fiscal quarter immediately
following the fiscal quarter in which the Issue Date occurs to the end of
the most recent fiscal quarter prior to the date of such Restricted Payment
for which financial statements are available (or, in case such Consolidated
Net Income accrued during such period (treated as one accounting period)
shall be a deficit, minus 100% of such deficit); (B) the aggregate Net Cash
Proceeds received by the Company from the issuance or sale of its Capital
Stock (other than Disqualified Stock) subsequent to the Issue Date (other
than an issuance or sale to a Subsidiary of the Company); (C) the amount by
which Indebtedness of the Company or its Restricted Subsidiaries is reduced
on the Company's balance sheet upon the conversion or exchange (other than
by a Subsidiary of the Company) subsequent to the Issue Date, of any
Indebtedness of the Company or its Restricted Subsidiaries convertible or
exchangeable for Capital Stock (other than Disqualified Stock) of the
Company (less the amount of any cash, or the fair value of any other
property, distributed by the Company or any Restricted Subsidiary upon such
conversion or exchange; (D) an amount equal to the sum of (i) the net
reduction in Investments in Unrestricted Subsidiaries resulting from
dividends, repayments of loans or advances or other transfers of assets
subsequent to the Issue Date, in each case to the Company or any Restricted
Subsidiary from Unrestricted Subsidiaries, and (ii) the portion
(proportionate to the Company's equity interest in such Subsidiary) of the
fair market value of the net assets of an Unrestricted Subsidiary at the
time such Unrestricted Subsidiary is designated a Restricted Subsidiary;
provided, however, that the foregoing sum shall not exceed, in the case of
any Unrestricted Subsidiary, the amount of Investments previously made (and
treated as a Restricted Payment) by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary; and (E) $5 million.
(b) The provisions of the foregoing paragraph (a) shall not prohibit,
without duplication:
(1) any acquisition of any shares of Capital Stock or the repurchase,
redemption, defeasance or repayment of any Subordinated Obligations of the
Company or any Restricted Subsidiary made in exchange for, or out of the
proceeds of the substantially concurrent sale of, Capital Stock of the Company
(other than Disqualified Stock and other than Capital Stock issued or sold to a
Subsidiary of the Company); provided, however, that the Net Cash Proceeds that
are utilized for any such acquisition, repurchase, redemption, defeasance or
repayment shall be excluded from the calculation of the amount of Restricted
Payments and (B) the Net Cash Proceeds from such sale shall be excluded from the
calculation of amounts under clause (3)(B) of paragraph (a) above;
(2) any purchase or redemption of (A) Subordinated Obligations of the
Company made in exchange for, or out of the proceeds of the substantially
concurrent sale of, Indebtedness of the Company which is permitted to be
Incurred pursuant to paragraphs (b) and (c) of the covenant described under
"-Limitation on Indebtedness" or (B) Subordinated Obligations of a Restricted
Subsidiary made in exchange for, or out of the proceeds of the substantially
concurrent sale of, Indebtedness of such Restricted Subsidiary or the Company
which is permitted to be Incurred pursuant to paragraphs (b) and (c) of the
covenant described under " -Limitation on Indebtedness"; provided, however, that
such purchase or redemption shall be excluded from the calculation of the amount
of Restricted Payments;
(3) any purchase or redemption of (A) Disqualified Stock of the
Company made in exchange for, or out of the proceeds of the substantially
concurrent sale of, Disqualified Stock of the Company or (B) Disqualified Stock
of a Restricted Subsidiary made in exchange for, or out of the
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proceeds of the substantially concurrent sale of, Disqualified Stock of such
Restricted Subsidiary or the Company; provided, however, that (i) at the time of
such exchange, no Default or Event of Default shall have occurred and be
continuing or would result therefrom and (ii) such purchase or redemption will
be excluded from the calculation of the amount of Restricted Payments; and
(4) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied with
this covenant; provided, however, that at the time of such dividend, no Default
shall have occurred and be continuing (or would result therefrom); provided,
further, however, that such dividend shall be included in the calculation of the
amount of Restricted Payments.
Limitation on Restrictions on Distributions from Restricted Subsidiaries
The Company shall not, and shall not permit any Restricted Subsidiary to,
create or otherwise cause or permit to exist or become effective any consensual
encumbrance or consensual restriction on the ability of any Restricted
Subsidiary:
(a) to pay dividends or make any other distributions on its Capital
Stock to the Company or a Restricted Subsidiary or pay any Indebtedness
owed to the Company;
(b) to make any loans or advances to the Company; or
(c) to transfer any of its property or assets to the Company or any
Restricted Subsidiary,
except: (i) any encumbrance or restriction pursuant to an agreement in effect at
or entered into on the Issue Date; (ii) any encumbrance or restriction with
respect to a Restricted Subsidiary pursuant to an agreement relating to any
Indebtedness Incurred by such Restricted Subsidiary which was entered into on or
prior to the date on which such Restricted Subsidiary was acquired by the
Company (other than as consideration in, or to provide all or any portion of the
funds or credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by the Company) and outstanding on such
date; (iii) any encumbrance or restriction pursuant to an agreement effecting a
Refinancing of Indebtedness Incurred pursuant to an agreement referred to in
clause (i) or (ii) of this covenant (or effecting a Refinancing of such
Refinancing Indebtedness pursuant to this clause (iii) or contained in any
amendment to an agreement referred to in clause (i) or (ii) of this covenant or
this clause (iii); provided, however, that the encumbrances and restrictions
with respect to such Restricted Subsidiary contained in any such refinancing
agreement or amendment are no more restrictive in any material respect than the
encumbrances and restrictions with respect to such Restricted Subsidiary
contained in such agreements; (iv) any such encumbrance or restriction
consisting of customary non-assignment provisions in leases governing leasehold
interests to the extent such provisions restrict the transfer of the lease or
the property leased thereunder; (v) in the case of clause (c) above,
restrictions contained in security agreements or mortgages securing Indebtedness
of a Restricted Subsidiary to the extent such restrictions restrict the transfer
of the property subject to such security agreements or mortgages; (vi) any
restriction with respect to a Restricted Subsidiary imposed pursuant to an
agreement entered into for the sale or disposition of all or substantially all
the Capital Stock or assets of such Restricted Subsidiary pending the closing of
such sale or disposition; (vii) any encumbrance or restriction pursuant to the
New Credit Facility and any amendments, modifications, restatements, renewals,
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increases, supplements, refundings, replacements or refinancings thereof,
provided that such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings contain encumbrances and
restrictions with respect to such Restricted Subsidiary that are no more
restrictive in any material respect than the encumbrances and restrictions with
respect to such Restricted Subsidiary contained in the New Credit Facility; and
(viii) any restriction imposed by applicable law.
Limitation on Sales of Assets and Subsidiary Stock
The Company shall not, and shall not permit any Restricted Subsidiary to,
consummate any Asset Disposition unless the Company or such Restricted
Subsidiary receives consideration at the time of such Asset Disposition at least
equal to the fair market value (including as to the value of all non-cash
consideration), as determined in good faith by the Board of Directors, of the
shares and assets subject to such Asset Disposition and at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary is
in the form of cash or cash equivalents. For the purposes of this covenant, the
following are deemed to be cash: (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 Disposition and (y) securities received by the Company or any
Restricted Subsidiary from the transferee that are immediately converted by the
Company or such Restricted Subsidiary into cash.
With respect to any Asset Disposition occurring on or after the Issue Date
from which the Company or any Restricted Subsidiary receives Net Available Cash,
the Company or such Restricted Subsidiary shall:
(i) within 360 days after the date such Net Available Cash is received
and to the extent the Company or such Restricted Subsidiary elects (or is
required by the terms of any Senior Indebtedness) to (A) apply an amount
equal to such Net Available Cash to prepay, repay or purchase Senior
Indebtedness of the Company or such Restricted Subsidiary, in each case
owing to a Person other than the Company or any Affiliate of the Company,
or (B) invest an equal amount, or the amount not so applied pursuant to
clause (A), in Additional Assets (including by means of an Investment in
Additional Assets by a Restricted Subsidiary with Net Available Cash
received by the Company or another Restricted Subsidiary); and
(ii) apply such excess Net Available Cash (to the extent not applied
pursuant to clause (i)) as provided in the following paragraphs of the
covenant described hereunder; provided, however, that in connection with
any prepayment, repayment or purchase of Senior Indebtedness pursuant to
clause (A) above, the Company or such Restricted Subsidiary shall retire
such Senior Indebtedness and shall cause the related loan commitment (if
any) to be permanently reduced in an amount equal to the principal amount
so prepaid, repaid or purchased. The amount of Net Available Cash required
to be applied pursuant to clause (ii) above and not theretofore so applied
shall constitute "Excess Proceeds." Pending application of Net Available
Cash pursuant to this provision, such Net Available Cash shall be invested
in Temporary Cash Investments.
If at any time the aggregate amount of Excess Proceeds not theretofore
subject to an Excess Proceeds Offer (as defined below) totals at least $10
million, the Company shall, not later than 30 days after the end of the period
during which the Company is required to apply such Excess Proceeds
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pursuant to clause (i) of the immediately preceding paragraph (or, if the
Company so elects, at any time within such period), make an offer (an "Excess
Proceeds Offer") to purchase from the Holders on a pro rata basis an aggregate
principal amount of Notes equal to the Excess Proceeds (rounded down to the
nearest multiple of $1,000) on such date, at a purchase price equal to 100% of
the principal amount of such Notes, plus, in each case, accrued interest (if
any) to the date of purchase (the "Excess Proceeds Payment"). Upon completion of
an Excess Proceeds Offer the amount of Excess Proceeds remaining after
application pursuant to such Excess Proceeds Offer (including payment of the
purchase price for Notes duly tendered), may be used by the Company for any
corporate purpose (to the extent not otherwise prohibited by the Indenture) and
the amount of Excess Proceeds shall thereafter be reset at zero. The Indenture
will provide that, prior to complying with the provisions of this paragraph, but
in any event within 30 days following the date on which the aggregate amount of
Excess Proceeds not theretofore subject to an Excess Proceeds Offer totals at
least $10 million, the Company will either repay all outstanding Senior
Indebtedness or obtain the requisite consents, if any, under all agreements
governing outstanding Senior Indebtedness to permit the repurchase of the Notes
required by this paragraph.
The Company shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations thereunder in the event that such Excess Proceeds are received by
the Company under the covenant described hereunder and the Company is required
to repurchase Notes as described above. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the covenant
described hereunder, the Company shall comply with the applicable securities
laws and regulations and shall not be deemed to have breached its obligations
under the covenant described hereunder by virtue thereof.
Limitation on Affiliate Transactions
(a) The Company shall not, and shall not permit any Restricted Subsidiary
to, enter into or permit to exist any transaction or series of related
transactions (including the purchase, sale, lease or exchange of any property,
employee compensation arrangements or the rendering of any service) with any
Affiliate of the Company (an "Affiliate Transaction") unless the terms thereof:
(1) are no less favorable to the Company or such Restricted Subsidiary
than those that could be obtained at the time of such transaction in
arm's-length dealings with a Person who is not such an Affiliate;
(2) if such Affiliate Transaction (or series of related Affiliate
Transactions) involve aggregate payments in an amount in excess of $1
million in any one year, (i) are set forth in writing, (ii) comply with
clause (1) and (iii) have been approved by a majority of the disinterested
members of the Board of Directors; and
(3) if such Affiliate Transaction (or series of related Affiliate
Transactions) involve aggregate payments in an amount in excess of $5
million in any one year, (i) comply with clause (2) and (ii) have been
determined by a nationally recognized consulting, accounting, appraisal or
investment banking firm to be fair, from a financial standpoint, to the
Company and its Restricted Subsidiaries.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
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(1) any Restricted Payment permitted to be paid pursuant to the
covenant described under "-Limitation on Restricted Payments";
(2) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise, pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans in the ordinary
course of business and approved by the Board of Directors;
(3) the grant of stock options or similar rights to employees and
directors of the Company in the ordinary course of business and pursuant to
plans approved by the Board of Directors;
(4) loans or advances to employees in the ordinary course of business
of the Company or its Restricted Subsidiaries;
(5) fees, compensation or employee benefit arrangements paid to and
indemnity provided for the benefit of directors, officers or employees of
the Company or any Subsidiary in the ordinary course of business; or
(6) any Affiliate Transaction between the Company and a Restricted
Subsidiary or between Restricted Subsidiaries in the ordinary course of
business (so long as the other stockholders of any participating Restricted
Subsidiaries which are not Wholly Owned Restricted Subsidiaries are not
themselves Affiliates of the Company).
Limitation on the Issuance or Sale of Capital Stock of Restricted Subsidiaries
The Company shall not (i) sell, pledge, hypothecate or otherwise dispose of
any shares of Capital Stock of a Restricted Subsidiary (other than pledges of
Capital Stock securing Senior Indebtedness) or (ii) permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any
shares of its Capital Stock other than (A) to the Company or a Wholly Owned
Subsidiary, (B) directors' qualifying shares or (C) if, immediately after giving
effect to such issuance or sale, such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary.
Limitation on Liens
Except for Permitted Liens, the Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, Incur or permit to exist any
Lien of any nature whatsoever on any property of the Company or any Restricted
Subsidiary (including Capital Stock of a Restricted Subsidiary), whether owned
at the Issue Date or thereafter acquired which secures Indebtedness that ranks
pari passu with or is subordinated to the Notes unless (i) if such Lien secures
Indebtedness that ranks pari passu with the Notes, the Notes are secured on an
equal and ratable basis with the obligation so secured until such time as such
obligation is no longer secured by a Lien or (ii) if such Lien secures
Indebtedness that is subordinated to the Notes, such Lien shall be subordinated
to a Lien granted to the Holders on the same collateral as that securing such
Lien to the same extent as such subordinated Indebtedness is subordinated to the
Note.
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Merger and Consolidation
The Company shall not consolidate with or merge with or into, or convey,
transfer or lease, in one transaction or a series of related transactions, all
or substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor
Company") shall be a Person organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and
the Successor Company (if not the Company) shall expressly assume, by an
indenture supplemental thereto, executed and delivered to the Trustee, in
form satisfactory to the Trustee, all the obligations of the Company under
the Notes and the Indenture;
(ii) immediately after giving effect to such transaction on a pro
forma basis (and treating any Indebtedness which becomes an obligation of
the Successor Company or any Subsidiary as a result of such transaction as
having been Incurred by such Successor Company or such Subsidiary at the
time of such transaction), no Default shall have occurred and be
continuing;
(iii) except in the case of a merger with or into a Wholly Owned
Restricted Subsidiary or a merger, the sole purpose of which is to change
the Company's jurisdiction of incorporation, immediately after giving
effect to such transaction on a pro forma basis, the Successor Company
would be able to Incur an additional $1.00 of Indebtedness pursuant to
paragraph (a) of the covenant described under "-Limitation on
Indebtedness";
(iv) immediately after giving effect to such transaction on a pro
forma basis, the Successor Company shall have Consolidated Net Worth in an
amount that is not less than the Consolidated Net Worth of the Company
immediately prior to such transaction; and
(v) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture. Notwithstanding the foregoing clauses (ii),
(iii) and (iv), any Restricted Subsidiary may consolidate with, merge into
or transfer all or part of its properties and assets to the Company.
The Successor Company shall be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, but the predecessor Company in the case of a
conveyance, transfer or lease shall not be released from the obligation to pay
the principal of and interest on the Notes.
Future Guarantors
The Company shall cause each Restricted Subsidiary that at any time becomes
an obligor or guarantor with respect to any obligations under the New Credit
Facility to execute and deliver to the Trustee a supplemental indenture pursuant
to which such Restricted Subsidiary will Guarantee payment of the Notes on the
same terms and conditions as those set forth in the Indenture. Any such
Guarantee will be subordinated in a manner similar to that of the Notes. Each
Subsidiary Guaranty will be limited in amount to an amount not to exceed the
maximum amount that can be Guaranteed by
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the applicable Subsidiary Guarantor without rendering such Subsidiary Guaranty
voidable under applicable law relating to fraudulent conveyance or fraudulent
transfer or similar laws affecting the rights of creditors generally.
Notwithstanding the foregoing, any such Guarantee by a Restricted Subsidiary of
the Notes shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon either (i) the release or discharge
of such Guarantee of such Indebtedness, except a discharge by or as a result of
payment under such Guarantee, or (ii) 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
sale, exchange or transfer is made in compliance with the applicable provisions
of the Indenture. The form of such Guarantee will be attached as an exhibit to
the Indenture.
SEC Reports
The Indenture will provide that, whether or not required by the rules and
regulations of the SEC, so long as any Notes are outstanding, the Company will
furnish to Holders of Notes (i) all quarterly and annual financial information
that would be required to be contained in a filing with the SEC on Forms 10-Q
and 10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants and (ii) all current reports
that would be required to be filed with the SEC on Form 8-K if the Company were
required to file such reports. In addition, whether or not required by the rules
and regulations of the SEC, the Company will file a copy of all such information
and reports with the SEC for public availability (unless the SEC will not accept
such a filing) and make such information available to securities analysts and
prospective investors upon request. In addition, the Company has agreed that,
for so long as any Notes remain outstanding, it will furnish to the Holders and
to securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
Defaults
An Event of Default is defined in the Indenture as:
(i) a default in the payment of interest on the Notes when due
(whether or not such payment is prohibited by the provisions described
under "Subordination" above), continued for 30 days;
(ii) a default in the payment of principal, or premium, if any, of any
Note when due at its Stated Maturity, upon optional redemption, upon
required repurchase, upon declaration or otherwise (whether or not such
payment is prohibited by the provisions described under "Subordination"
above);
(iii) the failure by the Company to comply with any of its obligations
under the covenants described under "-Change in Control," "-Certain
Covenants-Limitation on Indebtedness," "-Limitation on Restricted
Payments," "-Limitation on Sales of Assets and Subsidiary Stock" and
"-Merger, Consolidation and Sale of Assets" for 30 days after notice;
(iv) the failure by the Company to comply with any of its other
covenants or other agreements of the Indenture for 60 days after notice;
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(v) Indebtedness of the Company or any Restricted Subsidiary is not
paid within any applicable grace period after final maturity or is
accelerated by the holders thereof because of a default and the total
amount of such Indebtedness unpaid or accelerated exceeds $5 million and in
either case, such default is not cured or waived and such acceleration, if
any, rescinded or the Indebtedness is not paid in 30 days (the
"cross-acceleration provision");
(vi) certain events of bankruptcy, insolvency or reorganization of the
Company or a Restricted Subsidiary (the "bankruptcy provisions"); or
(vii) any judgment or decree for the payment of money in excess of $5
million is rendered against the Company or a Restricted Subsidiary, remains
outstanding following such judgment and is not discharged, waived or stayed
within 60 days after entry of such judgment or decree (the "judgment
default provision").
However, a default under clauses (iii) or (iv) will not constitute an Event
of Default until the Trustee or the Holders of 25% in principal amount of the
outstanding Notes notify the Company of the default and the Company does not
cure such default within the time specified in clause (iii) or (iv) hereof, as
the case may be, after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the outstanding Notes may declare the
principal of and accrued but unpaid interest on all the Notes to be due and
payable. Upon such a declaration, such principal and interest shall be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs and is
continuing, the principal of and interest on all the Notes will ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holders of the Notes. Under certain
circumstances, the Holders of a majority in principal amount of the outstanding
Notes may rescind any such acceleration with respect to the Notes and its
consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no Holder may pursue any
remedy with respect to the Indenture or the Notes unless:
(i) such Holder has previously given the Trustee notice that an Event
of Default is continuing;
(ii) Holders of at least 25% in principal amount of the outstanding
Notes have requested the Trustee to pursue the remedy;
(iii) such Holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense;
(iv) the Trustee has not complied with such request within 60 days
after the receipt thereof and the offer of security or indemnity; and
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(v) the Holders of a majority in principal amount of the outstanding
Notes have not given the Trustee a direction inconsistent with such request
within such 60-day period. Subject to certain restrictions, the Holders of
a majority in principal amount of the outstanding Notes are given the right
to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or of exercising any trust or power
conferred on the Trustee. The Trustee, however, may refuse to follow any
direction that conflicts with law or the Indenture or that the Trustee
determines is unduly prejudicial to the rights of any other Holder or that
would involve the Trustee in personal liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder notice of the Default
within 90 days after it occurs. Except in the case of a Default in the payment
of principal of or interest on any Note, the Trustee may withhold notice if and
so long as a committee of its trust officers determines that withholding notice
is not opposed to the interest of the Holders. In addition, the Company is
required to deliver to the Trustee, within 120 days after the end of each fiscal
year, a certificate indicating whether the signers thereof know of any Default
that occurred during the previous year. The Company also is required to deliver
to the Trustee, within 30 days after the occurrence thereof, written notice of
any event which would constitute certain Defaults, their status and what action
the Company is taking or proposes to take in respect thereof.
Amendments and Waivers
Subject to certain exceptions, the Indenture may be amended with the
consent of the Holders of a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange for the Notes) and any past default or compliance with any provisions
may also be waived with the consent of the Holders of a majority in principal
amount of the Notes then outstanding. However, without the consent of each
Holder of an outstanding Note affected thereby, no amendment may, among other
things, (i) reduce the amount of Notes whose Holders must consent to an
amendment, (ii) reduce the rate of or extend the time for payment of interest on
any Note, (iii) reduce the principal of or extend the Stated Maturity of any
Note, (iv) reduce the premium payable upon the redemption of any Note or change
the time at which any Note may be redeemed as described under "-Optional
Redemption" above, (v) make any Note payable in money other than that stated in
the Note, (vi) impair the right of any Holder to institute suit for the
enforcement of any payment on or with respect to such Holder's Notes, (vii) make
any change in the amendment provisions which require each Holder's consent or in
the waiver provisions, or (viii) make any change to the subordination provisions
of the Indenture that would adversely affect the Noteholders.
Without the consent of any Holder, the Company and Trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation of the obligations of the Company
under the Indenture, to provide for the issuance of Additional Notes, to provide
for uncertificated Notes in addition to or in place of certificated Notes
(provided that the uncertificated Notes are issued in registered form for
purposes of Section 163(f) of the Code, or in a manner such that the
uncertificated Notes are described in Section 163(f)(2)(B) of the Code), to add
guarantees with respect to the Notes, to secure the Notes, to add to the
covenants of the Company for the benefit of the Holders or to surrender any
right or power conferred upon the Company, to make any change that does not
adversely affect the rights of any Holder or to comply with any requirement of
the SEC in connection with the qualification of the Indenture under the Trust
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Indenture Act. However, no amendment may be made to the subordination provisions
of the Indenture that adversely affects the rights of any holder of Senior
Indebtedness then outstanding unless the holders of such Senior Indebtedness (or
their Representative) consents to such change.
The consent of the Holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to Holders a notice briefly describing such amendment. However,
the failure to give such notice to all Holders, or any defect therein, will not
impair or affect the validity of the amendment.
No Personal Liability of Directors, Officers, Employees and Shareholders
No director, officer, employee, incorporator or shareholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes or the Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each Holder of Notes by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
Defeasance
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under "-Change of
Control" and under the covenants described under "-Certain Covenants" (other
than the covenant described under "-Merger and Consolidation"), the operation of
the cross-acceleration provision, the bankruptcy provisions with respect to
Significant Subsidiaries and the judgment default provision described under
"-Defaults" above and the limitations contained in clauses (iii) and (iv) under
"-Certain Covenants-Merger and Consolidation" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iii), (iv), (v) (with respect only to
Significant Subsidiaries) or (vi) under "-Defaults" above or because of the
failure of the Company to comply with clause (iii) or (iv) under "-Certain
Covenants-Merger and Consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the Notes to
redemption or maturity, as the case may be, and must comply with certain other
conditions, including delivery to the Trustee of an Opinion of Counsel to the
effect that holders of the Notes will not recognize income, gain or loss for
Federal income tax purposes as a
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result of such deposit and defeasance and will be subject to Federal income tax
on the same amount and in the same manner and at the same times as would have
been the case if such deposit and defeasance had not occurred (and, in the case
of legal defeasance only, such Opinion of Counsel must be based on a ruling of
the Internal Revenue Service or other change in applicable Federal income tax
law).
Concerning the Trustee
U.S. Trust Company of California, N.A., is the Trustee under the Indenture
and has been appointed by the Company as Registrar and Paying Agent with regard
to the Notes.
The Holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain
exceptions. The Indenture provides that if an Event of Default occurs (and is
not cured), the Trustee will be required, in the exercise of its power, to use
the degree of care of a prudent person in the conduct of his own affairs.
Subject to such provisions, the Trustee will be under no obligation to exercise
any of its rights or powers under the Indenture at the request of any Holder of
Notes, unless such Holder shall have offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or expense and then
only to the extent required by the terms of the Indenture.
Governing Law
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
Certain Definitions
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; or (ii) the Capital Stock
of a Person that becomes a Restricted Subsidiary as a result of the acquisition
of such Capital Stock by the Company or another Restricted Subsidiary; provided,
however, that any such Restricted Subsidiary is primarily engaged in a Related
Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "-Certain Covenants-Limitation on
Restricted Payments," "-Limitation on Affiliate Transactions" and "-Limitations
on Sales of Assets and Subsidiary Stock" only, "Affiliate" shall also mean any
beneficial owner of Capital Stock representing 10% or more of the total voting
power of the Voting Stock (on a fully diluted basis) of the Company or of rights
or warrants to purchase such Capital Stock (whether or not currently
exercisable) and any Person who would be an Affiliate of any such beneficial
owner pursuant to the first sentence hereof.
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"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by the Company
or any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of (i) any shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares and, to the
extent required by local ownership laws in foreign countries, shares owned by
foreign shareholders), (ii) all or substantially all the assets of any division,
business segment or comparable line of business of the Company or any Restricted
Subsidiary or (iii) any other assets of the Company or any Restricted Subsidiary
outside of the ordinary course of business of the Company or such Restricted
Subsidiary. Notwithstanding the foregoing, the term "Asset Disposition" shall
not include (x) a disposition by a Restricted Subsidiary to the Company or by
the Company or a Restricted Subsidiary to a Wholly Owned Subsidiary, (y) for
purposes of the covenant described under "- Certain Covenants-Limitation on
Sales of Assets and Subsidiary Stock," a disposition that constitutes a
Permitted Investment or a Restricted Payment permitted by the covenant described
under "- Certain Covenants-Limitation on Restricted Payments," and (z) a
disposition of assets having a fair market value of less than $1 million. For
purposes hereof, "ordinary course of business" for the Company shall be deemed
to include, without limitation, (i) the sale of rental inventory, consistent
with past practice, and (ii) sales or closures of stores; provided, however,
that the Company or a Restricted Subsidiary acquires or opens another store
within 90 days thereof for each such store sold or closed.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in such
Sale/Leaseback Transaction (including any period for which such lease has been
extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of numbers of years from the date of determination to the dates
of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in respect
of the Senior Credit Facility, including principal, premium, if any, interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization, whether or not a claim for post-filing
interest is allowed in such proceedings), fees, charges, expenses, reimbursement
obligations, Guarantees and all other amounts and Obligations payable thereunder
or in respect thereof.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of
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the last payment of rent or any other amount due under such lease prior to the
first date upon which such lease may be terminated by the lessee without payment
of a penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"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) (other than one or more Permitted Holders),
is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that for purposes of this clause such person
or group shall be deemed to have "beneficial ownership" of all shares that
any such person or group 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 voting power of the Voting Stock
of the Company; provided, however, a Change in Control shall not be deemed
to have occurred if (A) such beneficial ownership is shared with one or
more Permitted Holders who hold the sole power to vote such Voting Stock;
or (B) one or more Permitted Holders possess the right (by contract or
otherwise) to elect, or cause the election of, a majority of the members of
the Company's Board of Directors; or
(ii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors (together
with any new directors whose election by such Board of Directors or whose
nomination for election by the shareholders of the Company was approved by
a vote of at least 66 2/3% of the directors of the Company then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the Board of Directors then in
office.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of Operating Cash Flow for the period of the
most recent four consecutive fiscal quarters ending at least 45 days (or, if
less, the number of days after the end of such fiscal quarter as the
consolidated financial statements of the Company shall be available) prior to
the date of such determination to (ii) Consolidated Interest Expense for such
four fiscal quarters; provided, however, that (1) if the Company or any
Restricted Subsidiary has Incurred any Indebtedness since the beginning of such
period that remains outstanding on such date of determination or if the
transaction giving rise to the need to calculate the Consolidated Coverage Ratio
is an Incurrence of Indebtedness, or both, Operating Cash Flow and Consolidated
Interest Expense for such period shall be calculated after giving effect on a
pro forma basis to such Indebtedness as if such Indebtedness had been Incurred
on the first day of such period and the discharge of any other Indebtedness
repaid, repurchased, defeased or otherwise discharged with the proceeds of such
new Indebtedness as if such discharge had occurred on the first day of such
period (except that, in the case of Indebtedness used to finance working capital
needs incurred under a revolving credit or similar arrangement, the amount
thereof shall be deemed to be the average daily balance of such Indebtedness
during such
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four-fiscal-quarter period), (2) if since the beginning of such period the
Company or any Restricted Subsidiary shall have made any Asset Disposition, the
Operating Cash Flow for such period shall be reduced by an amount equal to the
Operating Cash Flow (if positive) directly attributable to the assets which are
the subject of such Asset Disposition for such period, or increased by an amount
equal to the Operating Cash Flow (if negative) directly attributable thereto for
such period, and Consolidated Interest Expense for such period shall be reduced
by an amount equal to the Consolidated Interest Expense directly attributable to
any Indebtedness of the Company or any Restricted Subsidiary repaid,
repurchased, defeased, assumed by a third person (to the extent the Company and
its Restricted Subsidiaries are no longer liable for such Indebtedness) or
otherwise discharged with respect to the Company and its continuing Restricted
Subsidiaries in connection with such Asset Disposition for such period (or, if
the Capital Stock of any Restricted Subsidiary is sold, the Consolidated
Interest Expense for such period directly attributable to the Indebtedness of
such Restricted Subsidiary to the extent the Company and its continuing
Restricted Subsidiaries are no longer liable for such Indebtedness after such
sale), (3) if since the beginning of such period the Company shall have
consummated a Public Equity Offering, Consolidated Interest Expense for such
period shall be reduced by an amount equal to the Consolidated Interest Expense
directly attributable to any Indebtedness of the Company or any Restricted
Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to
the Company and its Restricted Subsidiaries in connection with such Public
Equity Offering for such period, (4) if since the beginning of such period the
Company or any Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any Person which becomes a
Restricted Subsidiary) or an acquisition of assets, which acquisition
constitutes all or substantially all of an operating unit of a business,
including any such Investment or acquisition occurring in connection with a
transaction requiring a calculation to be made hereunder, Operating Cash Flow
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto (including the Incurrence of any Indebtedness)
as if such Investment or acquisition occurred on the first day of such period
and (5) if since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Company or any
Restricted Subsidiary since the beginning of such period) shall have made any
Asset Disposition, any Investment or acquisition of assets that would have
required an adjustment pursuant to clause (3) or (4) above if made by the
Company or a Restricted Subsidiary during such period, Operating Cash Flow and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Asset Disposition, Investment or acquisition
occurred on the first day of such period. If any Indebtedness bears a floating
rate of interest and is being given pro forma effect, the interest of such
Indebtedness shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, (i) interest expense
attributable to Capital Lease Obligations, (ii) amortization of debt discount,
(iii) capitalized interest, (iv) non-cash interest expenses, (v) commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, (vi) net costs associated with Hedging
Obligations (including amortization of fees), (vii) Preferred Stock dividends in
respect of all Preferred Stock held by Persons other than the Company or a
Wholly Owned Subsidiary, and (viii) interest actually paid on any Indebtedness
of any other Person that is Guaranteed by the Company or any Restricted
Subsidiary.
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"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income: (i) any net income (or loss) of
any Person if such Person is not the Company or a Restricted Subsidiary, except
that, subject to the exclusion contained in clause (iv) below, the Company's
equity in the net income of any such Person for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Person during such period to the Company or a Restricted
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution paid to a Restricted Subsidiary, to the
limitations contained in clause (iii) below); (ii) for purposes of subclause
(a)(3)(A) of the covenant described under "- Certain Covenants-Limitation on
Restricted Payments" only, any net income (or loss) of any Person acquired by
the Company or a Subsidiary in a pooling of interests transaction for any period
prior to the date of such acquisition; (iii) any net income of any Restricted
Subsidiary if such Restricted Subsidiary is subject to restrictions, directly or
indirectly, on the payment of dividends or the making of distributions by such
Restricted Subsidiary, directly or indirectly, to the Company, except that (A)
subject to the exclusion contained in clause (iv) below, the Company's equity in
the net income of any such Restricted Subsidiary for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash that
could have been distributed by such Restricted Subsidiary consistent with such
restriction during such period to the Company or another Restricted Subsidiary
as a dividend or other distribution (subject, in the case of a dividend or other
distribution paid to another Restricted Subsidiary, to the limitation contained
in this clause) and (B) the Company's equity in a net loss of any such
Restricted Subsidiary for such period shall be included in determining such
Consolidated Net Income; (iv) any gain (or loss) realized upon the sale or other
disposition of any assets of the Company or its consolidated Subsidiaries
(including pursuant to any sale-and-leaseback arrangement) which is not sold or
otherwise disposed of in the ordinary course of business and any gain (or loss)
realized upon the sale or other disposition of any Capital Stock of any Person;
(v) extraordinary gains or losses; (vi) the cumulative effect of a change in
accounting principles; and (vii) with respect to any period that includes the
three months ended March 31, 1997, the nonrecurring $18.9 million pre-tax
expense related to the settlement in such period of a securities class action
lawsuit, Murphy v. Hollywood Entertainment Corporation et al., case no.
C95-1926-MA, U.S. District Court for the District of Oregon. Notwithstanding the
foregoing, for the purposes of the covenant described under "- Certain
Covenants-Limitation on Restricted Payments" only, there shall be excluded from
Consolidated Net Income any dividends, repayments of loans or advances or other
transfers of assets from Unrestricted Subsidiaries to the Company or a
Restricted Subsidiary to the extent such dividends, repayments or transfers
increase the amount of Restricted Payments permitted under such covenant
pursuant to clause (a)(3)(D) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending at least 45 days prior to the taking of any
action for the purpose of which the determination is being made, as (i) the par
or stated value of all outstanding Capital Stock of the Company plus (ii)
paid-in capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit and (B) any
amounts attributable to Disqualified Stock.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
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"Designated Senior Indebtedness" means (i) the Bank Indebtedness and (ii)
any other Senior Indebtedness of the Company which, at the date of
determination, has an aggregate principal amount outstanding of, or under which,
at the date of determination, the holders thereof are committed to lend up to,
at least $10 million and is specifically designated by the Company in the
instrument evidencing or governing such Senior Indebtedness as "Designated
Senior Indebtedness" for purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event (i) matures
or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise,
(ii) is convertible or exchangeable, at the option of the holder thereof, for
Indebtedness or Disqualified Stock or (iii) is redeemable at the option of the
holder thereof, in whole or in part, in each case on or prior to the first
anniversary of the Stated Maturity of the Notes.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Credit Facility" means the Amended and Restated Revolving Credit
Agreement, made as of February 12, 1997, by and among Bank of America National
Trust & Savings Association, United States National Bank of Oregon, Union Bank
of California, N.A., Key Bank of Washington, Banque Nationale de Paris, Societe
Generale and The Sumitomo Bank, Limited, as Lenders, and Bank of America
National Trust & Savings Association d/b/a "Seafirst Bank," as agent for the
Lenders, and Hollywood Entertainment Corporation as Borrower.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in (i)
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board and (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession.
"Guarantee" means any obligation, contingent or other, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
Person and any obligation, direct or indirect, contingent or other, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such Person (whether
arising by virtue of partnership arrangements, or by agreements to keep-well, to
purchase assets, goods, securities or services, to take-or-pay or to maintain
financial statement conditions or otherwise) or (ii) entered into for the
purpose of assuring in any other manner the obligee of such Indebtedness or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided, however, that the term
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning. The term "Guarantor" shall mean any Person Guaranteeing
any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
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"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary; provided, further, however, that
in the case of a discount security, neither the accrual of interest nor the
accretion of original issue discount shall be considered an Incurrence of
Indebtedness, but the entire face amount of such security shall be deemed
Incurred upon the issuance of such security. The term "Incurrence" when used as
a noun shall have a correlative meaning.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of (A) indebtedness of such Person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar instruments
for the payment of which such Person is responsible or liable; (ii) all Capital
Lease Obligations of such Person and all Attributable Debt in respect of
Sale/Leaseback Transactions entered into by such Person; (iii) all obligations
of such Person issued or assumed as the deferred purchase price of property or
services, all conditional sale obligations of such Person and all obligations of
such Person under any title retention agreement (but excluding trade accounts
payable and accrued liabilities arising in the ordinary course of business and
which are not more than 90 days past due and not in dispute), which purchase
price or obligation is due more than six months after the date of placing such
property in service or taking delivery and title thereto or the completion of
such services (provided that, in the case of obligations of an acquired Person
assumed in connection with an acquisition of such Person, such obligations would
constitute Indebtedness of such Person); (iv) all obligations of such Person for
the reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction (other than obligations with respect to letters of
credit securing obligations (other than obligations described in (i) through
(iii) above) entered into in the ordinary course of business of such Person to
the extent such letters of credit are not drawn upon or, if and to the extent
drawn upon, such drawing is reimbursed no later than the tenth Business Day
following receipt by such Person of a demand for reimbursement following payment
on the letter of credit); (v) the amount of all obligations of such Person with
respect to the redemption, repayment or other repurchase of any Disqualified
Stock or, with respect to any Subsidiary of such Person, any Preferred Stock
(but excluding, in each case, any accrued dividends); (vi) all obligations of
the type referred to in clauses (i) through (v) of other Persons and all
dividends of other Persons for the payment of which, in either case, such Person
is responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise, including by means of any Guarantee; (vii) all obligations of the
type referred to in clauses (i) through (vi) of other Persons secured by any
Lien on any property or asset of such Person (whether or not such obligation is
assumed by such Person), the amount of such obligation being deemed to be the
lesser of the value of such property or assets or the amount of the obligation
so secured; and (viii) to the extent not otherwise included in this definition,
Hedging Obligations of such Person. The amount of Indebtedness of any Person at
any date shall be the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability, upon the occurrence of
the contingency giving rise to the obligation, of any contingent obligations as
described above at such date; provided, however, that the amount outstanding at
any time of any Indebtedness issued with original issue discount shall be deemed
to be the face amount of such Indebtedness less the remaining unamortized
portion of the original issue discount of such Indebtedness at such time as
determined in conformity with GAAP.
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"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement designed to
protect the Company or any Restricted Subsidiary against fluctuations in
interest rates.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person) or other
extensions of credit (including by way of Guarantee or similar arrangement) 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 or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary," the definition of "Restricted Payment" and the
covenant described under "- Certain Covenants-Limitation on Restricted
Payments," (i) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of any Subsidiary of the Company at the time that such Subsidiary is
designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall
be deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary equal to an amount (if positive) equal to (x) the Company's
"Investment" in such Subsidiary at the time of such redesignation less (y) the
portion (proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of such Subsidiary at the time of such
redesignation; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the Board of Directors.
"Issue Date" means the date on which the Notes are originally issued.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the State of New York.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Net Available Cash" from an Asset Disposition means cash payments received
by the Company or any of its Subsidiaries therefrom (including any cash payments
received by way of deferred payment of principal pursuant to a note or
installment receivable or otherwise, but only as and when received, but
excluding any other consideration received in the form of assumption by the
acquiring Person of Indebtedness or other obligations relating to such
properties or assets or received in any other noncash form) in each case net of
(i) all legal, title and recording tax expenses, commissions and other fees and
expenses incurred, and all Federal, state, provincial, foreign and local taxes
required to be paid or accrued as a liability under GAAP, as a consequence of
such Asset Disposition, (ii) all payments made on any Indebtedness which is
secured by any assets subject to such Asset Disposition, in accordance with the
terms of any Lien upon or other security agreement of any kind with respect to
such assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Disposition, or by applicable law, be repaid out of the
proceeds from such Asset Disposition, (iii) all distributions and other payments
required to be made to minority interest holders in Subsidiaries or Joint
Ventures as a result of such Asset Disposition and (iv) the deduction of
appropriate amounts provided by the seller as a reserve, in accordance with
GAAP, against any liabilities associated with the property or other assets
disposed in such Asset Disposition and retained
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by the Company or any Restricted Subsidiary after such Asset Disposition,
including without limitation liabilities under any indemnification obligations
associated with such Asset Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys fees and
disbursements, accountants fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"New Credit Facility" means the Revolving Credit Agreement, dated as of
September 5, 1997, by and among Hollywood Entertainment Corporation, as
Borrower, and Societe Generale, DLJ Capital Funding, Inc., Goldman Sachs Credit
Partners L.P. and certain other financial institutions, as Lenders, and Societe
Generale, as Agent for the Lenders, Donaldson, Lufkin & Jenrette Securities
Corporation, as Administrative Agent, Goldman Sachs Credit Partners, L.P., as
Documentation Agent, and Credit Lyonnais Los Angeles Branch, Barclays Bank PLC,
Deutsche Bank AG, New York Branch, U.S. Bank National Association and KeyBank
National Association, as Co-Agents.
"Obligations" means all present and future obligations for principal,
premium, interest (including, without limitation, any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for in
the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law), penalties, fees, indemnifications,
reimbursements (including, without limitation, all reimbursement and other
obligation pursuant to any letters of credit, bankers acceptance or similar
instruments or documents), damages and other liabilities payable under the
documentation at any time governing any indebtedness.
"Operating Cash Flow," means, for any Person and for any period, the sum of
Consolidated Net Income plus (A) Consolidated Interest Expense, plus (B) the
following to the extent deducted in calculating such Consolidated Net Income,
without duplication: (i) income tax expense, (ii) depreciation expense, (iii)
amortization expense, (iv) all other non cash items reducing Consolidated Net
Income (other than items that will require cash payments and for which an
accrual or reserve is, or is required by GAAP to be made), plus (C) any cash
charges associated with the acquisition of new release videocassettes (including
any fees in connection with revenue sharing arrangements with respect to rental
inventory) and other media and game inventory purchases to the extent such cash
charges have been included in the operating expenses used to calculate
Consolidated Net Income, minus (D) 30% of rental revenue for such period.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization of, a Subsidiary of the
Company shall be added to Consolidated Net Income to compute Operating Cash Flow
only to the extent (and in the same proportion) that the net income of such
Subsidiary was included in calculating Consolidated Net Income.
"Permitted Holder" means (i) Mark J. Wattles, (ii) an employee benefit plan
of the Company, or any of its subsidiaries or any participant therein, (iii) a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or any of its subsidiaries or (iv) any Permitted Transferee of any
of the foregoing persons.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) the Company, (ii) a Restricted Subsidiary or a Person that
will, upon the making of such Investment, become a Restricted Subsidiary;
provided, however, that the primary business of such
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Restricted Subsidiary is a Related Business; provided further that no such
Investment shall constitute assets owned by the Company as of the issue date (or
any substitute or replacement assets therefor); (iii) another Person if as a
result of such Investment such other Person is merged or consolidated with or
into, or transfers or conveys all or substantially all its assets to, the
Company or a Restricted Subsidiary; provided, however, that such Person's
primary business is a Related Business; provided further that no such Investment
shall constitute assets owned by the Company as of the issue date (or any
substitute or replacement assets therefor); (iv) Temporary Cash Investments; (v)
receivables owing to the Company or any Restricted Subsidiary if created or
acquired in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms; provided, however, that such trade items
may include such concessionary trade terms as the Company or any such Restricted
Subsidiary deems reasonable under the circumstances; (vi) payroll, travel and
similar advances to cover matters that are expected at the time of such advances
ultimately to be treated as expenses for accounting purposes and that are made
in the ordinary course of business; (vii) loans or advances to employees made in
the ordinary course of business consistent with past practices of the Company or
such Restricted Subsidiary; (viii) stock, obligations or securities received in
settlement of debts created in the ordinary course of business and owing to the
Company or any Restricted Subsidiary or in satisfaction of judgments; (ix) any
Person to the extent such Investment represents the non-cash portion of the
consideration received for an Asset Disposition as permitted pursuant to the
covenant described under "- Certain Covenants-Limitation on Sales of Assets and
Subsidiary Stock"; and (x) Persons other than the Company and Restricted
Subsidiaries, in an aggregate amount after the Issue Date of up to $15 million;
provided, however, the amount of any dividends, repayment of loans or transfers
of assets as a return on such Permitted Investments will reduce the amount of
such $15 million amount used (but not below $0).
"Permitted Liens" means (i) Liens in favor of the Company or such
Restricted Subsidiary, (ii) Liens on property or assets of a Person existing at
the time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary; provided that such Liens were in existence prior to the
merger or consolidation and were not created or incurred in contemplation of
such merger or consolidation and do not extend to any assets other than those of
the Person merged into or consolidated with the Company or such Restricted
Subsidiary prior to such merger; and (iii) Liens on property existing at the
time of acquisition thereof by the Company or any Restricted Subsidiary;
provided that the Liens were in existence prior to the acquisition and were not
created or incurred in contemplation of such acquisition.
"Permitted Transferees" means, with respect to any person, (i) any
Affiliate of such person, (ii) the heirs, executors, administrators,
testamentary trustees, legatees or beneficiaries of any such person, (iii) a
trust, the beneficiaries of which, or a corporation or partnership, the
stockholders or general or limited partners of which, include only such person
or his or her spouse or lineal descendants, in each case to whom such person has
transferred the beneficial ownership of any securities of the Company, (iv) any
investment account whose investment managers and investment advisors consist
solely of such person and/or Permitted Transferees of such person, and (v) any
investment fund or investment entity that is a subsidiary of such person or
Permitted Transferee of such person.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
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"Preferred Stock," as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Purchase Money Indebtedness" means Indebtedness (i) consisting of the
deferred purchase price of property, conditional sale obligations, obligations
under any title retention agreement, other purchase money obligations and
obligations in respect of industrial revenue bonds or similar Indebtedness, in
each case where the maturity of such Indebtedness does not exceed the
anticipated useful life of the asset being financed, and (ii) incurred to
finance the acquisition by the Company or a Restricted Subsidiary of such asset,
including additions and improvements; provided, however, that any Lien arising
in connection with any such Indebtedness shall be limited to the specified asset
being financed or, in the case of real property or fixtures, including additions
and improvements, the real property on which such asset is attached; and
provided, further, however, that such Indebtedness is Incurred within 90 days
after such acquisition of such asset by the Company or Restricted Subsidiary.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture; provided, however, that (i)
other than Refinancing Indebtedness in respect of the Senior Credit Facility,
such Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) other than Refinancing
Indebtedness in respect of the Senior Credit Facility, such Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being Refinanced and (iii) such Refinancing Indebtedness has an aggregate
principal amount (or if Incurred with original issue discount, an aggregate
issue price) that is equal to or less than the aggregate principal amount (or if
Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus fees and expenses, including any premium and
defeasance costs and, solely in the case of Bank Indebtedness, Obligations)
under the Indebtedness being Refinanced; provided further, however, that
Refinancing Indebtedness shall not include (x) Indebtedness of a Subsidiary that
Refinances Indebtedness of the Company or (y) Indebtedness of the Company or a
Restricted Subsidiary that Refinances Indebtedness of an Unrestricted
Subsidiary.
"Related Business" means any business related, ancillary or complementary
(as determined in good faith by the Board of Directors) to the businesses of the
Company and the Restricted Subsidiaries.
"Representative" means any trustee, agent or representative (if any) for an
issue of Senior Indebtedness of the Company.
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"Restricted Payment" means, with respect to any Person, (i) the declaration
or payment of any dividends or any other distributions on or in respect of its
Capital Stock (including any payment in connection with any merger or
consolidation involving such Person) or similar payment to the holders of its
Capital Stock, except dividends or distributions payable solely in its Capital
Stock (other than Disqualified Stock) and except dividends or distributions
payable solely to the Company or a Restricted Subsidiary (and, if such
Restricted Subsidiary is not wholly owned, to its other shareholders on a pro
rata basis or on a basis that results in the receipt by the Company or a
Restricted Subsidiary of dividends or distributions of greater value than it
would receive on a pro rata basis), (ii) the purchase, redemption or other
acquisition or retirement for value of any Capital Stock of the Company held by
any Person or of any Capital Stock of a Restricted Subsidiary held by any
Affiliate of the Company (other than a Restricted Subsidiary), including the
exercise of any option to exchange any Capital Stock (other than into Capital
Stock of the Company that is not Disqualified Stock), (iii) the purchase,
repurchase, redemption, defeasance or other acquisition or retirement for value,
prior to scheduled maturity, scheduled repayment or scheduled sinking fund
payment, of any Subordinated Obligations (other than the purchase, repurchase or
other acquisition of Subordinated Obligations purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of acquisition) or (iv) the making
of any Investment in any Person (other than a Permitted Investment).
"Restricted Subsidiary" means, at any time, any Subsidiary of the Company
that is not an Unrestricted Subsidiary; provided, however, that upon the
occurrence of any Unrestricted Subsidiary ceasing to be an Unrestricted
Subsidiary, such Subsidiary shall be included in the definition of "Restricted
Subsidiary."
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Credit Facility" means one of (i) until the Existing Credit
Facility is terminated and all Obligations (other than in respect of contingent,
unliquidated or disputed indemnification obligations) in respect thereof due and
payable thereunder have been paid, the Existing Credit Facility or (ii) upon the
termination of the Existing Credit Facility, the payment of all Obligations
(other than in respect of contingent, unliquidated or disputed indemnification
obligations) thereunder and the initial closing under the New Credit Facility,
the New Credit Facility, in each case as the same may be amended, waived,
modified, replaced or Refinanced from time to time (except to the extent that
any such amendment, waiver, modification, replacement or Refinancing would be
prohibited by the terms of the Indenture).
"Senior Indebtedness" of the Company means (i) Indebtedness of the Company,
whether outstanding on the Issue Date or thereafter Incurred, including the
Guarantees by the Company of all Bank Indebtedness, (ii) accrued and unpaid
interest (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not a claim
for
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post-filing interest is allowed in such proceeding) in respect of (A)
indebtedness of the Company for money borrowed and (B) indebtedness evidenced by
notes, debentures, bonds or other similar instruments for the payment of which
the Company is responsible or liable unless, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is provided
that such obligations are subordinate in right of payment to the Notes, and
(iii) all Obligations of the Company in respect of any of the foregoing,
provided, however, that Senior Indebtedness shall not include (1) any obligation
of the Company to any Subsidiary, (2) any liability for federal, state, local or
other taxes owed or owing by the Company, (3) any accounts payable or other
liability to trade creditors arising in the ordinary course of business
(including guarantees thereof or instruments evidencing such liabilities), (4)
any Indebtedness of the Company (and any accrued and unpaid interest in respect
thereof) which is subordinate or junior in any respect (other than as a result
of the Indebtedness being unsecured) to any other Indebtedness or other
obligation of the Company, including any Senior Subordinated Indebtedness and
any Subordinated Obligations, (5) any obligations with respect to any Capital
Stock or (6) that portion of any Indebtedness which at the time of Incurrence is
Incurred in violation of the Indenture.
"Senior Subordinated Indebtedness" of the Company means the Notes and any
other Indebtedness of the Company that specifically provides that such
Indebtedness is to rank pari passu with the Notes in right of payment and is not
subordinated by its terms in right of payment to any Indebtedness or other
obligation of the Company which is not Senior Indebtedness.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement to that
effect.
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (i) such Person, (ii) such
Person and one or more Subsidiaries of such Person or (iii) one or more
Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations guaranteed by the United States of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $50,000,000 (or the foreign currency
equivalent thereof) and has outstanding debt which is rated "A" (or such similar
equivalent rating) or higher by at least one nationally recognized statistical
rating organization (as defined in Rule 436 under the Securities Act) or any
money-market fund sponsored by a registered
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broker dealer or mutual fund distributor, (iii) repurchase obligations with a
term of not more than 30 days for underlying securities of the types described
in clause (i) above entered into with a bank meeting the qualifications
described in clause (ii) above, (iv) investments in commercial paper, maturing
not more than 90 days after the date of acquisition, issued by a corporation
(other than an Affiliate of the Company) organized and in existence under the
laws of the United States of America, any State thereof or the District of
Columbia or any foreign country recognized by 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 Investors Service, Inc. or "A-1" (or higher)
according to Standard and Poor's Ratings Group, and (v) investments in
securities with maturities of six months or less from the date of acquisition
issued or fully guaranteed by any state, commonwealth or territory of the United
States of America, or by any political subdivision or taxing authority thereof,
and rated at least "A" by Standard & Poor's Ratings Group or "A" by Moody's
Investors Service, Inc.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided, however, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, such designation would be permitted
under the covenant described under "- Certain Covenants-Limitation on Restricted
Payments." The Board of Directors may designate any Unrestricted Subsidiary to
be a Restricted Subsidiary; provided, however, that immediately after giving
effect to such designation (x) the Company could Incur $1.00 of additional
Indebtedness under paragraph (a) of the covenant described under "- Certain
Covenants-Limitation on Indebtedness" and (y) no Default shall have occurred and
be continuing. Any such designation by the Board of Directors shall be notified
by the Company to the Trustee by promptly filing with the Trustee a copy of the
board resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the Company
and/or one or more Wholly Owned Subsidiaries.
78
<PAGE>
DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS
The following is a summary of certain terms and provisions of certain debt
instruments to which the Company is or will become a party. This summary does
not purport to be complete.
Existing Credit Facility
The Company established the Existing Credit Facility as of February 12,
1997 with a syndicate of banks. The Existing Credit Facility established a $150
million revolving line of credit, the proceeds of which were used for interim
funding of new store growth and acquisitions and for general working capital
purposes. In connection with the offering of the Old Notes, the Company repaid
in full all of the outstanding indebtedness under the Existing Credit Facility.
The Existing Credit Facility was terminated on September 4, 1997.
New Credit Facility
The Company established the New Credit Facility on September 5, 1997. The
following is a summary of certain terms and provisions contained in the proposed
New Credit Facility.
The New Credit Facility is a five-year $300 million revolving credit
facility collateralized by substantially all of the Company's personal property,
including (i) accounts receivable; (ii) videocassettes and other inventory;
(iii) equipment, machinery and fixtures; (iv) patents, trademarks, trade names
and other general intangibles; and (v) investment property of the Company. The
proceeds of the facility are anticipated to be used for general working capital
purposes, including refinancing existing indebtedness, new store expansion and
acquisitions. The maximum available amount of $300 million will be reduced by
$37.5 million per quarter beginning with the first quarter after the third
anniversary of the establishment of the New Credit Facility and will also be
reduced by the amount of proceeds of certain asset dispositions.
The New Credit Facility contains financial and other restrictive covenants,
including a minimum interest coverage ratio; a maximum leverage (total funded
debt to Adjusted EBITDA) ratio; a minimum average per store contribution to
profit requirement; a minimum net worth requirement; and restrictions on mergers
and other business combinations, asset sales, additional indebtedness,
guaranties, liens, investments, operating lease obligations and acquisitions.
The New Credit Facility also contains customary events of default and other
provisions, including an event of default due to a change of control (as
described therein) of the Company. Upon the occurrence of an event of default,
the lenders may terminate their commitments to lend and declare all amounts
owing under the New Credit Facility to be immediately due and payable (except
that, upon the occurrence of an event of default triggered by certain events of
bankruptcy, the commitments to lend will automatically terminate and borrowings
under the New Credit Facility ipso facto will become due and payable), whereupon
the banks may initiate proceedings to realize on the collateral with respect to
the New Credit Facility.
Borrowings under the New Credit Facility bear interest, at the Company's
option, at the lender's base rate plus up to 1.125% or the IBOR Rate. The New
Credit Facility also provides for the payment by the Company of a commitment fee
of 0.5% per annum on the available and unused portion of the credit line and
certain other fees.
79
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of certain U.S. federal income tax
consequences associated with the exchange of the Old Notes for the New Notes
pursuant to the Exchange Offer. The discussion below does not purport to
consider all aspects of U.S. federal income taxation that may be relevant to
particular holders in the context of their specific investment circumstances or
certain types of holders subject to special treatment under such laws (e.g.,
financial institutions, tax-exempt organizations, foreign corporations and
individuals who are not citizens or residents of the U.S.). This summary is
based upon the United States federal tax laws and regulations as now in effect
and as currently interpreted and does not take into account possible changes in
such tax laws or such interpretations, any of which may be applied
retroactively. It does not include any description of the tax laws of any state,
local or foreign government that may be applicable to the Notes or a holder
thereof.
The exchange of the Old Notes for the New Notes pursuant to the Exchange
Offer will not be treated as an "exchange" for federal income tax purposes
because the New Notes do not differ materially in either kind or extent from the
Old Notes and because the exchange will occur by operation of the terms of the
Old Notes. Rather, the New Notes received by a holder will be treated as a
continuation of the Old Notes in the hands of the holder. As a result, there
generally will be no federal income tax consequences to holders exchange Old
Notes for the New Notes pursuant to the Exchange Offer. In addition, any "market
discount" on the Old Notes should carry over to the New Notes. Holders should
consult their tax advisors regarding the application of the market discount
rules to the New Notes received in exchange for the Old Notes pursuant to the
Exchange Offer.
Interest accruing throughout the term of the New Notes at a rate of 10 5/8%
per annum will be includable in gross income in accordance with a holder's
regular method of accounting. If Additional Interest is paid (in addition to the
accrual of interest at a rate of 10 5/8% per annum) on the Old Notes as
described above under "The Exchange Offer - Registration Rights; Additional
Interest," such Additional Interest payments generally should be includable in a
holder's gross income as ordinary income when such payment is made.
THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS OF UNITED STATES FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF THE NOTES IN LIGHT OF
HIS, HER OR ITS PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION. EACH HOLDER
OF THE NOTES SHOULD CONSULT SUCH HOLDER'S TAX ADVISOR AS TO THE SPECIFIC TAX
CONSEQUENCES TO SUCH HOLDER OF THE EXCHANGE OR OLD NOTES FOR NEW NOTES AND THE
OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING THE APPLICATION AND EFFECT OF
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS OR CHANGES THEREOF.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account in
connection with the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where the Old Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that for a period
ending on the earlier of (i) 180 days after the date of this
80
<PAGE>
Prospectus and (ii) the date on which a broker-dealer is no longer required to
deliver a prospectus in connection with market-making or other trading
activities, it will make available and provide promptly upon reasonable request
this Prospectus (as amended or supplemented), in a form meeting the requirements
of the Securities Act to any broker-dealer for use in connection with any such
resale.
The Company will receive no proceeds in connection with the Exchange Offer.
New Notes received by 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 New Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchasers or through brokers or dealers who may receive compensation in the
form of commissions or concessions from any such broker-dealer and/or the
purchasers of any such New Notes. Any broker-dealer that resells New Notes that
were received by it for its own account pursuant to the Exchange Offer and any
broker or dealer that participates in a distribution of such New Notes may be
deemed to be an "underwriter" within the meaning of the Securities Act, and any
profit on any such resale of New Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that by acknowledging that
it will deliver, and by delivering, a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act. The Company has agreed to indemnify such broker-dealers against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the issuance of the New Notes will be passed upon for the
Company by Stoel Rives LLP, Portland, Oregon and by Latham & Watkins, San
Francisco, California.
EXPERTS
The financial statements of Hollywood Entertainment Corporation for the
year ended December 31, 1994 incorporated by reference into this Prospectus have
been audited by Coopers & Lybrand L.L.P., independent accountants, as indicated
in their report with respect thereto, and are included herein in reliance upon
the authority of said firm as experts in accounting and auditing.
The financial statements incorporated in this Prospectus by reference to
the Annual Report on Form 10-K of Hollywood Entertainment Corporation as of
December 31, 1996 and 1995 and for each of the two years in the period ended
December 31, 1996 have been so incorporated in reliance on the report of Price
Waterhouse LLP, independent accountants, given on authority of said firm as
experts in auditing and accounting.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports and other information with the
Commission. The Company has also filed with the Commission a Registration
Statement under the Securities Act with respect to the New Notes offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the New Notes offered hereby,
reference is made to such Registration Statement,
81
<PAGE>
exhibits and schedules. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. A copy of the
Registration Statement and the reports and other information filed pursuant to
the Exchange Act may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Regional Offices of the Commission at Suite 1300, Seven World Trade
Center, New York, New York 10048 and Suite 1400, Citicorp Center, 500 West
Madison Street, Chicago, Illinois 60661. Copies of all or any part of the
Registration Statement and the reports and other information filed pursuant to
the Exchange Act may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 upon the payment of
the fees prescribed by the Commission. The Commission maintains an Internet Web
Site at http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the Commission
pursuant to the Exchange Act are incorporated in this Prospectus by reference:
(a) The Company's Annual Report on Form 10-K for the year ended December
31, 1996 (and Amendment No. 1 thereto on Form 10-K/A);
(b) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997;
(c) The Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1997;
(d) The Company's Current Report on Form 8-K, dated July 21, 1997;
(e) The Company's Current Report on Form 8-K, dated July 22 1997;
(f) The Company's Current Report on Form 8-K, dated August 8, 1997; and
(g) The description of the Company's Common Stock contained in the
Company's registration statement on Form 8-A filed under Section 12 of
the Exchange Act, dated July 15, 1993, including any amendment or
report updating such description.
In addition, all documents filed by the Company pursuant to sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after , 1997 and prior to the
termination of this offering shall be deemed to be incorporated by reference in
this Prospectus and to be a part hereof from the date of filing of such
documents (such documents, and the documents enumerated above, being hereinafter
referred to as "Incorporated Documents"). Any statement contained in an
Incorporated Document shall be deemed to be modified or superseded for purposes
of this Prospectus to the extent that a statement contained herein or in any
other subsequently filed Incorporated Document modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
82
<PAGE>
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, including any beneficial
owner, on the written or oral request of any such person, a copy of any or all
of the Incorporated Documents, other than exhibits to such documents, unless
such exhibits are specifically incorporated by reference therein. Requests shall
be directed to Hollywood Entertainment Corporation, 25600 SW Parkway Center
Drive, Wilsonville, Oregon 97070, Attention: Mr. Donald J. Ekman, Senior Vice
President and General Counsel (telephone number (503) 570-1600). The information
relating to the Company contained in this Prospectus does not purport to be
comprehensive and should be read together with the information contained in the
Incorporated Documents.
83
<PAGE>
No dealer, sales representative, or any other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in this Prospectus and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or the Initial Purchasers. This Prospectus does not
constitute an offer to sell or a solicitation of any offer to buy any securities
other than the Notes to which it relates or an offer to, or a solicitation of,
any person in any jurisdiction where such an offer or solicitation would be
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create an implication that there has been no
change in the affairs of the Company or that information contained herein is
correct as of any time subsequent to the date hereof.
-----------------------
TABLE OF CONTENTS
-----------------------
Page
Summary ...................................................................... 1
Risk Factors..................................................................10
Use of Proceeds...............................................................15
Selected Financial Data.......................................................16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations...............................................................19
Business......................................................................28
Management....................................................................35
The Exchange Offer............................................................38
Description of Notes..........................................................46
Description of Certain Other Indebtedness.....................................79
Certain United States Federal Income Tax
Consequences.............................................................80
Plan of Distribution..........................................................80
Legal Matters.................................................................81
Experts.......................................................................81
Available Information.........................................................81
Incorporation of Certain Documents by
Reference................................................................82
<PAGE>
$200,000,000
HOLLYWOOD ENTERTAINMENT
CORPORATION
105/8% Series B Senior Subordinated
Notes due 2004
-----------------------
PROSPECTUS
-----------------------
, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Officers and Directors
Article IV of the Company's 1993B Restated Articles of Incorporation (the
"Articles") requires indemnification of current or former directors or nominees
for director ("directors") of the Company to the fullest extent not prohibited
by the Oregon Business Corporation Act (the "Act"). The effects of the Articles
and the Act (the "Indemnification Provisions") are summarized as follows:
(a) The Indemnification Provisions grant a right of indemnification in
respect of any action, suit or proceeding (other than an action by or in
the right of the Company) against expenses (including attorney fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred, if the person concerned acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of
the Company, was not adjudged liable on the basis of receipt of an improper
personal benefit and, with respect to any criminal action or proceeding,
had no reasonable cause to believe the conduct was unlawful. The
termination of an action, suit or proceeding by judgment, order,
settlement, conviction or plea of nolo contendere does not, of itself,
create a presumption that the person did not meet the required standards of
conduct.
(b) The Indemnification Provisions grant a right of indemnification in
respect of any action or suit by or in the right of the Company against the
expenses (including attorney fees) actually and reasonably incurred if the
person concerned acted in good faith and in a manner the person reasonably
believed to be in or not opposed to the best interests of the Company,
except that no right of indemnification will be granted if the person is
adjudged to be liable to the Company.
(c) Every person who has been wholly successful on the merits of a
controversy described in (a) or (b) above is entitled to indemnification as
a matter of right.
(d) Because the limits of permissible indemnification under Oregon law
are not clearly defined, the Indemnification Provisions may provide
indemnification broader than that described in (a) and (b).
Article IV of the Articles provides that the Company will advance to a
director the expenses incurred in defending any action, suit or proceeding in
advance of its final disposition if the director affirms in good faith that he
or she has met the standard of conduct to be entitled to indemnification as
described in (a) or (b) above and undertakes to repay any amount advanced if it
is determined that the person did not meet the required standard of conduct.
Article V of the Articles provides that the Company may, in the discretion
of the Board of Directors, indemnify officers, employees and agents to the same
extent that directors are entitled to indemnification.
<PAGE>
The Company may obtain insurance for the protection of its directors and
officers against any liability asserted against them in their official
capacities.
The rights of indemnification described above are not exclusive of any
other rights of indemnification to which the persons indemnified may be entitled
under any bylaw, agreement, vote of shareholders or directors or otherwise.
Item 21. Exhibits and Financial Statement Schedules
3.1 1993 Restated Articles of Incorporation (incorporated by reference
to the Registration Statement on Form S-1 of the Registrant (File
No. 33-63042))
3.2 Bylaws (incorporated by reference to the Registration Statement on
Form S-1 of the Registrant (File No. 33-63042))
4.1 Indenture, dated August 13, 1997 between Registrant and U.S. Trust
Company of California, N.A.
4.2 Form of Senior Subordinated Note
4.3 Form of Series B Senior Subordinated Note
4.4 Registration Rights Agreement, dated as of August 13, 1997, by and
among the Registrant, Montgomery Securities, Donaldson, Lufkin &
Jenrette Securities Corporation, Goldman, Sachs & Co. and Societe
Generale Securities Corporation
5.1 Opinion of Stoel Rives LLP
5.2 Opinion of Latham & Watkins
10.1 Revolving Credit Agreement, dated as of September 5, 1997, among the
Registrant, as Borrower, and Societe Generale, DLJ Capital Funding,
Inc., Goldman Sachs Credit Partners L.P. and certain other financial
institutions, as Lenders, and Societe Generale, as Agent for the
Lenders, Donaldson, Lufkin & Jenrette Securities Corporation, as
Administrative Agent, Goldman Sachs Credit Partners, L.P., as
Documentation Agent, and Credit Lyonnais Los Angeles Branch,
Barclays Bank PLC, Deutsche Bank AG, New York Branch, U.S. Bank
National Association and KeyBank National Association, as Co-Agents
12.1 Statements re Computation of Ratios
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Stoel Rives LLP (included in Exhibit 5.1)
24.1 Powers of Attorney (included on Page II-5 of the Registration
Statement)
<PAGE>
25.1 Statement of Eligibility of Trustee
99.1 Form of Letter of Transmittal
- -------------
Item 22. Undertakings
(a) The undersigned registrant 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 of 1933, as amended (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 percent 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 to 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.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by
<PAGE>
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(c) The undersigned registrant 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.
(d) The undersigned registrant 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.
(e) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
<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 Wilsonville, State of
Oregon, on September 10, 1997.
HOLLYWOOD ENTERTAINMENT CORPORATION
By: MARK J. WATTLES
-------------------------------------
Mark J. Wattles
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons on
September 10, 1997 in the capacities indicated.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Mark J. Wattles, Donald J. Ekman and
Douglas A. Gordon or any one of them, his true and lawful attorneys-in-fact and
agents, each with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any amendments
(whether pre-effective or post-effective) to this Registration Statement and any
registration statement for the same offering that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same
with all exhibits thereto and other documents in connection therewith with the
Securities and Exchange Commission, granting unto each of 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 to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each of said attorneys-in-fact and agents, or their
substitute or substitutes, may do or cause to be done by virtue hereof.
Signature Title
--------- -----
MARK J. WATTLES Chairman of the Board, President
- ---------------------------------- and Chief Executive Officer
Mark J. Wattles (Principal Executive Officer)
F. MARK WOLFINGER Chief Financial Officer
- ---------------------------------- (Principal Financial and Accounting
F. Mark Wolfinger Officer)
DONALD J. EKMAN Director
- ----------------------------------
Donald J. Ekman
JAMES N. CUTLER, JR. Director
- ----------------------------------
James N. Cutler, Jr.
RICHARD A. GALANTI Director
- ----------------------------------
Richard A. Galanti
HOLLYWOOD ENTERTAINMENT CORPORATION,
as Issuer,
and
U.S. TRUST COMPANY OF CALIFORNIA, N.A.,
as Trustee
10 5/8% Senior Subordinated Notes Due 2004
--------------------
INDENTURE
Dated as of August 13, 1997
--------------------
<PAGE>
CROSS-REFERENCE TABLE
TIA Section Indenture Section
- ----------- -----------------
310 (a)(1)......................................................7.9; 7.10
(a)(2) ..........................................................7.10
(a)(3)...........................................................N.A.
(a)(4)...........................................................N.A.
(b).........................................................7.8; 7.10
(c)..............................................................N.A.
311 (a)..............................................................7.11
(b)..............................................................7.11
312 (a)...............................................................2.5
(b).........................................................2.5; 11.3
(c)..............................................................11.3
313 (a)...............................................................7.6
(b)(1)............................................................7.6
(b)(2)...........................................................N.A.
(c)..............................................................11.2
(d)...............................................................7.6
314 (a)...................................................4.2; 4.10; 11.2
(b)..............................................................N.A.
(c)(1)...........................................................11.4
(c)(2)...........................................................11.4
(c)(3)...........................................................N.A.
(d)..............................................................N.A.
(e)..............................................................11.5
(f)..............................................................4.10
315 (a)...............................................................7.1
(b).........................................................7.5; 11.2
(c)...............................................................7.1
(d)...............................................................7.1
(e)..............................................................6.11
316 (a)(last sentence)...............................................11.6
(a)(1)(A).........................................................6.5
(a)(1)(B).........................................................6.4
(a)(2)...........................................................N.A.
(b)...............................................................6.7
317 (a)(1)............................................................6.9
(a)(2)............................................................6.9
(b)...............................................................2.4
318 (a)..............................................................11.1
N.A. means Not Applicable.
i.
<PAGE>
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
ii.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE.......................1
SECTION 1.1. Definitions.................................................1
SECTION 1.2. Other Definitions..........................................18
SECTION 1.3. Incorporation by Reference of Trust Indenture Act..........19
SECTION 1.4. Rules of Construction......................................19
ARTICLE 2 THE SECURITIES..................................................20
SECTION 2.1. Form and Dating............................................20
SECTION 2.2. Execution and Authentication...............................21
SECTION 2.3. Registrar and Paying Agent.................................21
SECTION 2.4. Paying Agent to Hold Money in Trust........................22
SECTION 2.5. Securityholder Lists.......................................22
SECTION 2.6. Transfer and Exchange......................................22
SECTION 2.7. Replacement Securities.....................................25
SECTION 2.8. Outstanding Securities.....................................25
SECTION 2.9. Temporary Securities.......................................26
SECTION 2.10. Cancellation...............................................26
SECTION 2.11. Defaulted Interest.........................................26
SECTION 2.12. CUSIP Numbers..............................................26
SECTION 2.13. Restrictive Legends........................................27
SECTION 2.14. Special Transfer Provisions................................28
ARTICLE 3 REDEMPTION......................................................30
SECTION 3.1. Optional Redemption........................................30
SECTION 3.2. Notices to Trustee.........................................31
SECTION 3.3. Selection of Securities to Be Redeemed.....................31
SECTION 3.4. Notice of Redemption.......................................31
SECTION 3.5. Effect of Notice of Redemption.............................32
SECTION 3.6. Deposit of Redemption Price................................33
SECTION 3.7. Securities Redeemed in Part................................33
SECTION 3.8. Mandatory Redemption.......................................33
iii.
<PAGE>
Page
ARTICLE 4 COVENANTS.......................................................33
SECTION 4.1. Payment of Securities......................................33
SECTION 4.2. SEC Reports................................................34
SECTION 4.3. Limitation on Indebtedness.................................34
SECTION 4.4. Limitation on Restricted Payments..........................36
SECTION 4.5. Limitation on Restrictions on Distributions from
Restricted Subsidiaries....................................38
SECTION 4.6. Limitation on Sales of Assets and Subsidiary Stock.........39
SECTION 4.7. Limitation on Affiliate Transactions.......................42
SECTION 4.8. Change of Control..........................................43
SECTION 4.9. Compliance Certificate.....................................44
SECTION 4.10. Further Instruments and Acts...............................44
SECTION 4.11. Limitation on Liens........................................44
SECTION 4.12. Limitation on Issuance or Sale of Capital Stock of
Restricted Subsidiaries....................................45
SECTION 4.13. Payment of Taxes and Other Claims..........................45
SECTION 4.14. Future Guarantors..........................................45
SECTION 4.15. Maintenance of Office or Agency............................46
SECTION 4.16. Corporate Existence........................................46
ARTICLE 5 SUCCESSOR COMPANY...............................................47
SECTION 5.1. Merger, Consolidation and Sale of Assets...................47
ARTICLE 6 DEFAULTS AND REMEDIES...........................................48
SECTION 6.1. Events of Default..........................................48
SECTION 6.2. Acceleration...............................................50
SECTION 6.3. Other Remedies.............................................50
SECTION 6.4. Waiver of Past Defaults....................................51
SECTION 6.5. Control by Majority........................................51
SECTION 6.6. Limitation on Suits........................................51
SECTION 6.7. Rights of Holders to Receive Payment.......................51
SECTION 6.8. Collection Suit by Trustee.................................52
SECTION 6.9. Trustee May File Proofs of Claim...........................52
SECTION 6.10. Priorities.................................................52
SECTION 6.11. Undertaking for Costs......................................52
SECTION 6.12. Waiver of Stay or Extension Laws...........................53
iv.
<PAGE>
Page
ARTICLE 7 TRUSTEE.........................................................53
SECTION 7.1. Duties of Trustee..........................................53
SECTION 7.2. Rights of Trustee..........................................54
SECTION 7.3. Individual Rights of Trustee...............................55
SECTION 7.4. Trustee's Disclaimer.......................................55
SECTION 7.5. Notice of Defaults.........................................55
SECTION 7.6. Reports by Trustee to Holders..............................56
SECTION 7.7. Compensation and Indemnity.................................56
SECTION 7.8. Replacement of Trustee.....................................57
SECTION 7.9. Successor Trustee by Merger................................58
SECTION 7.10. Eligibility; Disqualification..............................58
SECTION 7.11. Preferential Collection of Claims Against Company..........58
ARTICLE 8 DISCHARGE OF INDENTURE; DEFEASANCE..............................59
SECTION 8.1. Discharge of Liability on Securities; Defeasance...........59
SECTION 8.2. Conditions to Defeasance...................................60
SECTION 8.3. Application of Trust Money.................................61
SECTION 8.4. Repayment to Company.......................................61
SECTION 8.5. Indemnity for Government Obligations.......................62
SECTION 8.6. Reinstatement..............................................62
ARTICLE 9 AMENDMENTS......................................................62
SECTION 9.1. Without Consent of Holders.................................62
SECTION 9.2. With Consent of Holders....................................63
SECTION 9.3. Compliance with Trust Indenture Act........................64
SECTION 9.4. Revocation and Effect of Consents and Waivers..............64
SECTION 9.5. Notation on or Exchange of Securities......................64
SECTION 9.6. Trustee to Sign Amendments.................................64
ARTICLE 10 SUBORDINATION OF THE SECURITIES.................................65
SECTION 10.1. Agreement to Subordinate...................................65
SECTION 10.2. Liquidation; Dissolution; Bankruptcy.......................66
SECTION 10.3. Default on Senior Indebtedness.............................67
SECTION 10.4. Payment of Subordinated Debt Permitted if No Default.......68
SECTION 10.5. When Subordinated Debt Must Be Paid Over...................68
SECTION 10.6. Notices by the Company.....................................68
SECTION 10.7. Subrogation................................................68
SECTION 10.8. Relative Rights............................................69
SECTION 10.9. Subordination May Not Be Impaired by the Company...........69
v.
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Page
SECTION 10.10. Distribution of Notice to Representative...................69
SECTION 10.11. Rights of Trustee and Paying Agent.........................69
SECTION 10.12. Consent of Holders of Senior Indebtedness..................70
SECTION 10.13. Contractual Subordination..................................70
ARTICLE 11 MISCELLANEOUS...................................................70
SECTION 11.1. Trust Indenture Act Controls...............................70
SECTION 11.2. Notices....................................................71
SECTION 11.3. Communication by Holders with Other Holders................72
SECTION 11.4. Certificate and Opinion as to Conditions Precedent.........72
SECTION 11.5. Statements Required in Certificate or Opinion..............72
SECTION 11.6. When Securities Disregarded................................73
SECTION 11.7. Rules by Trustee, Paying Agent and Registrar...............73
SECTION 11.8. Legal Holidays.............................................73
SECTION 11.9. Governing Law..............................................73
SECTION 11.10. No Recourse Against Others.................................73
SECTION 11.11. Successors.................................................73
SECTION 11.12. Multiple Originals.........................................74
SECTION 11.13. Table of Contents; Headings................................74
SECTION 11.14. Severability Clause........................................74
EXHIBIT A...................................................................A-1
EXHIBIT B...................................................................B-1
EXHIBIT C...................................................................C-1
EXHIBIT D...................................................................D-1
EXHIBIT E...................................................................E-1
EXHIBIT F...................................................................F-1
Note: This Table of Contents shall not, for any purpose, be deemed to be part
of the Indenture.
vi.
<PAGE>
INDENTURE dated as of August 13, 1997, between HOLLYWOOD ENTERTAINMENT
CORPORATION, an Oregon corporation (the "Company"), and U.S. TRUST COMPANY OF
CALIFORNIA, N.A., a national banking corporation, as trustee (the "Trustee").
Each party agrees as follows for the benefit of the other parties and
for the equal and ratable benefit of the Holders of the Company's 10 5/8% Senior
Subordinated Notes Due 2004 (the "Securities"):
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1. Definitions.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; or (ii) the Capital Stock
of a Person that becomes a Restricted Subsidiary as a result of the acquisition
of such Capital Stock by the Company or another Restricted Subsidiary; provided,
however, that any such Restricted Subsidiary is primarily engaged in a Related
Business.
"Affiliate" of any specified Person means any other Person, directly
or indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under Sections 4.4, 4.6 and 4.7 only,
"Affiliate" shall also mean any beneficial owner of Capital Stock representing
10% or more of the total voting power of the Voting Stock (on a fully diluted
basis) of the Company or of rights or warrants to purchase such Capital Stock
(whether or not currently exercisable) and any Person who would be an Affiliate
of any such beneficial owner pursuant to the first sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other
disposition (or series of related sales, leases, transfers or dispositions) by
the Company or any Restricted Subsidiary, including any disposition by means of
a merger, consolidation or similar transaction (each referred to for the
purposes of this definition as a "disposition"), of (i) any shares of Capital
Stock of a Restricted Subsidiary (other than directors' qualifying shares and,
to the extent required by local ownership laws in foreign countries, shares
owned by foreign shareholders), (ii) all or substantially all the assets of any
division, business segment or comparable line of business of the Company or any
Restricted Subsidiary or (iii) any other assets of the Company or any Restricted
Subsidiary outside of the ordinary course of business of the Company or such
Restricted Subsidiary. Notwithstanding the foregoing, the term "Asset
Disposition" shall not include (x) a disposition by a Restricted Subsidiary to
the Company or by the Company or a Restricted Subsidiary to a Wholly Owned
Subsidiary, (y) for purposes of Section 4.6, a disposition that constitutes a
1.
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Permitted Investment or a Restricted Payment permitted by Section 4.4, and (z) a
disposition of assets having a fair market value of less than $1 million. For
purposes hereof, "ordinary course of business" for the Company shall be deemed
to include, without limitation, (i) the sale of rental inventory, consistent
with past practice, and (ii) sales or closures of stores; provided, however,
that the Company or a Restricted Subsidiary acquires or opens another store
within 90 days thereof for each such store sold or closed.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means,
as at the time of determination, the present value (discounted at the interest
rate borne by the Securities, compounded annually) of the total obligations of
the lessee for rental payments during the remaining term of the lease included
in such Sale/Leaseback Transaction (including any period for which such lease
has been extended).
"Average Life" means, as of the date of determination, with respect to
any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the
sum of the products of the numbers of years from the date of determination to
the dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in
respect of the Senior Credit Facility, including principal, premium, if any,
interest (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization, whether or not a claim for post-filing
interest is allowed in such proceedings), fees, charges, expenses, reimbursement
obligations, Guarantees and all other amounts and Obligations payable thereunder
or in respect thereof.
"Board of Directors" means the Board of Directors of the Company or
any committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Change of Control" means the occurrence of any of the following
events:
2.
<PAGE>
(i) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act) (other than one or more Permitted Holders)
is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that for purposes of this clause (i) such
person or group shall be deemed to have "beneficial ownership" of all
shares that any such person or group 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 voting power of the
Voting Stock of the Company; provided, however, a Change in Control shall
not be deemed to have occurred if (A) such beneficial ownership is shared
with one or more Permitted Holders who hold the sole power to vote such
Voting Stock; or (B) one or more Permitted Holders possess the right (by
contract or otherwise) to elect, or cause the election of, a majority of
the members of the Company's Board of Directors; or
(ii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors (together
with any new directors whose election by such Board of Directors or whose
nomination for election by the shareholders of the Company was approved by
a vote of at least 66-2/3% of the directors of the Company then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the Board of Directors then in
office.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means
the ratio of (i) the aggregate amount of Operating Cash Flow for the period of
the most recent four consecutive fiscal quarters ending at least 45 days (or, if
less, the number of days after the end of such fiscal quarter as the
consolidated financial statements of the Company shall be available) prior to
the date of such determination to (ii) Consolidated Interest Expense for such
four fiscal quarters; provided, however, that (1) if the Company or any
Restricted Subsidiary has Incurred any Indebtedness since the beginning of such
period that remains outstanding on such date of determination or if the
transaction giving rise to the need to calculate the Consolidated Coverage Ratio
is an Incurrence of Indebtedness, or both, Operating Cash Flow and Consolidated
Interest Expense for such period shall be calculated after giving effect on a
pro forma basis to such Indebtedness as if such Indebtedness had been Incurred
on the first day of such period and the discharge of any other Indebtedness
repaid, repurchased, defeased or otherwise discharged with the proceeds of such
new Indebtedness as if such discharge had occurred on the first day of such
period (except that, in the case of Indebtedness used to finance working capital
needs incurred under a revolving credit or similar arrangement, the amount
thereof shall be deemed to be the average daily balance of such Indebtedness
during such four-fiscal-quarter period), (2) if since the beginning of such
period the Company or any Restricted Subsidiary shall have made any Asset
Disposition, the Operating Cash Flow for such period shall be reduced by an
amount equal to the Operating Cash Flow (if positive) directly attributable to
the assets which are the subject of such Asset Disposition for such period, or
increased by an amount equal to the Operating Cash Flow (if negative) directly
attributable thereto for such period, and Consolidated Interest Expense for such
period shall be reduced by an amount equal to the Consolidated Interest Expense
directly
3.
<PAGE>
attributable to any Indebtedness of the Company or any Restricted Subsidiary
repaid, repurchased, defeased, assumed by a third person (to the extent the
Company and its Restricted Subsidiaries are no longer liable for such
Indebtedness) or otherwise discharged with respect to the Company and its
continuing Restricted Subsidiaries in connection with such Asset Disposition for
such period (or, if the Capital Stock of any Restricted Subsidiary is sold, the
Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent the Company and its
continuing Restricted Subsidiaries are no longer liable for such Indebtedness
after such sale), (3) if since the beginning of such period the Company shall
have consummated a Public Equity Offering, Consolidated Interest Expense for
such period shall be reduced by an amount equal to the Consolidated Interest
Expense directly attributable to any Indebtedness of the Company or any
Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with
respect to the Company and its Restricted Subsidiaries in connection with such
Public Equity Offering for such period, (4) if since the beginning of such
period the Company or any Restricted Subsidiary (by merger or otherwise) shall
have made an Investment in any Restricted Subsidiary (or any Person which
becomes a Restricted Subsidiary) or an acquisition of assets, which acquisition
constitutes all or substantially all of an operating unit of a business,
including any such Investment or acquisition occurring in connection with a
transaction requiring a calculation to be made hereunder, Operating Cash Flow
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto (including the Incurrence of any Indebtedness)
as if such Investment or acquisition occurred on the first day of such period
and (5) if since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Company or any
Restricted Subsidiary since the beginning of such period) shall have made any
Asset Disposition, any Investment or acquisition of assets that would have
required an adjustment pursuant to clause (3) or (4) above if made by the
Company or a Restricted Subsidiary during such period, Operating Cash Flow and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Asset Disposition, Investment or acquisition
occurred on the first day of such period. For purposes of this definition,
whenever pro forma effect is to be given to an acquisition of assets, the amount
of income, earnings or expense relating thereto and the amount of Consolidated
Interest Expense associated with any Indebtedness Incurred in connection
therewith, the pro forma calculations shall be prepared in accordance with
Article 11 of Regulation S-X promulgated by the SEC as determined in good faith
by a responsible financial or accounting Officer of the Company. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest of such Indebtedness shall be calculated as if the rate in
effect on the date of determination had been the applicable rate for the entire
period (taking into account any Interest Rate Agreement applicable to such
Indebtedness if such Interest Rate Agreement has a remaining term in excess of
12 months).
"Consolidated Interest Expense" means, for any period, the total
interest expense of the Company and its consolidated Restricted Subsidiaries,
plus, to the extent not included in such total interest expense, and to the
extent incurred by the Company or its Restricted Subsidiaries, (i) interest
expense attributable to Capital Lease Obligations, (ii) amortization of debt
discount, (iii) capitalized interest, (iv) non-cash interest expense, (v)
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing, (vi) net costs associated with
Hedging Obligations (including amortization of fees),
4.
<PAGE>
(vii) Preferred Stock dividends in respect of all Preferred Stock held by
Persons other than the Company or a Wholly Owned Subsidiary, and (viii) interest
actually paid on any Indebtedness of any other Person that is Guaranteed by the
Company or any Restricted Subsidiary.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income: (i) any net income (or loss) of
any Person if such Person is not the Company or a Restricted Subsidiary, except
that subject to the exclusion contained in clause (iv) below, the Company's
equity in the net income of any such Person for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Person during such period to the Company or a Restricted
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution paid to a Restricted Subsidiary, to the
limitations contained in clause (iii) below); (ii) for purposes of subclause
(a)(iii)(A) of Section 4.4 only, any net income (or loss) of any Person acquired
by the Company or a Subsidiary in a pooling of interests transaction for any
period prior to the date of such acquisition; (iii) any net income of any
Restricted Subsidiary if such Restricted Subsidiary is subject to restrictions,
directly or indirectly, on the payment of dividends or the making of
distributions by such Restricted Subsidiary, directly or indirectly, to the
Company, except that (A) subject to the exclusion contained in clause (iv)
below, the Company's equity in the net income of any such Restricted Subsidiary
for such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash that could have been distributed by such Restricted
Subsidiary consistent with such restriction during such period to the Company or
another Restricted Subsidiary as a dividend or other distribution (subject, in
the case of a dividend or other distribution paid to another Restricted
Subsidiary, to the limitation contained in this clause) and (B) the Company's
equity in a net loss of any such Restricted Subsidiary for such period shall be
included in determining such Consolidated Net Income; (iv) any gain (or loss)
realized upon the sale or other disposition of any assets of the Company or its
consolidated Subsidiaries (including pursuant to any sale-and-leaseback
arrangement) which is not sold or otherwise disposed of in the ordinary course
of business and any gain (or loss) realized upon the sale or other disposition
of any Capital Stock of any Person; (v) extraordinary gains or losses; (vi) the
cumulative effect of a change in accounting principles; and (vii) with respect
to any period that includes the three months ended March 31, 1997, the
nonrecurring $18.9 million pre-tax expense related to the settlement in such
period of a securities class action lawsuit, Murphy v. Hollywood Entertainment
Corporation et al., case no. C95-1926-MA, U.S. District Court for the District
of Oregon. Notwithstanding the foregoing, for the purposes of Section 4.4 only,
there shall be excluded from Consolidated Net Income any dividends, repayments
of loans or advances or other transfers of assets from Unrestricted Subsidiaries
to the Company or a Restricted Subsidiary to the extent such dividends,
repayments or transfers increase the amount of Restricted Payments permitted
under such covenant pursuant to clause (a)(iii)(D) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending at least 45 days prior to the taking of any
action for the purpose of which the determination is being made, as (i) the par
or stated value of all outstanding Capital Stock of the Company plus (ii) paid-
5.
<PAGE>
in capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit and (B) any
amounts attributable to Disqualified Stock.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Depository" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in Section 2.3 as the
Depository, its nominees and their respective successors.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness and
(ii) any other Senior Indebtedness of the Company which, at the date of
determination, has an aggregate principal amount outstanding of, or under which,
at the date of determination, the holders thereof are committed to lend up to,
at least $10 million and is specifically designated by the Company in the
instrument evidencing or governing such Senior Indebtedness as "Designated
Senior Indebtedness" for purposes of this Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital
Stock which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or upon the happening of any event
(i) matures or is mandatorily redeemable pursuant to a sinking fund obligation
or otherwise, (ii) is convertible or exchangeable, at the option of the holder
thereof, for Indebtedness or Disqualified Stock or (iii) is redeemable at the
option of the holder thereof, in whole or in part, in each case on or prior to
the first anniversary of the Stated Maturity of the Securities.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Securities" means the 10 5/8% Senior Subordinated Notes due
2004 to be issued in exchange for the Initial Securities pursuant to the
Registration Rights Agreement.
"Existing Credit Facility" means the Amended and Restated Revolving
Credit Agreement, made as of February 12, 1997, by and among Bank of America
National Trust & Savings Association, United National Bank of Oregon, Union Bank
of California, N.A., Key Bank of Washington, Banque Nationale de Paris, Societe
Generale and The Sumitomo Bank, Limited, as Lenders, and Bank of America
National Trust & Savings Association d/b/a "Seafirst Bank," as agent for the
Lenders, and Hollywood Entertainment Corporation, as Borrower.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the Issue Date, including those set forth
in (i) the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board and (iii) in such
other statements by such other entity as approved by a significant segment of
the accounting profession.
6.
<PAGE>
"Guarantee" means any obligation, contingent or other, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
Person and any obligation, direct or indirect, contingent or other, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such Person (whether
arising by virtue of partnership arrangements or by agreements to keep-well, to
purchase assets, goods, securities or services, to take-or-pay or to maintain
financial statement conditions or otherwise) or (ii) entered into for the
purpose of assuring in any other manner the obligee of such Indebtedness or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided, however, that the term
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Guarantor" means any Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such
Person pursuant to any Interest Rate Agreement.
"Holder" or "Securityholder" means the Person in whose name a Security
is registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become
liable for; provided, however, that any Indebtedness or Capital Stock of a
Person existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary; provided, further, however, that
in the case of a discount security, neither the accrual of interest nor the
accretion of original issue discount shall be considered an Incurrence of
Indebtedness, but the entire face amount of such security shall be deemed
Incurred upon the issuance of such security. The term "Incurrence" when used as
a noun shall have a correlative meaning.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of (A) indebtedness of such Person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar instruments
for the payment of which such Person is responsible or liable; (ii) all Capital
Lease Obligations of such Person and all Attributable Debt in respect of
Sale/Leaseback Transactions entered into by such Person; (iii) all obligations
of such Person issued or assumed as the deferred purchase price of property or
services, all conditional sale obligations of such Person and all obligations of
such Person under any title retention agreement (but excluding trade accounts
payable and accrued liabilities arising in the ordinary course of business and
which are not more than 90 days past due and not in dispute), which purchase
price or obligation is due more than six months after the date of placing such
property in service or taking delivery and title thereto or the completion of
such services (provided that, in the case of obligations of an acquired Person
assumed in connection with an acquisition of such Person, such obligations would
constitute Indebtedness of such Person); (iv) all obligations of such Person for
the reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction (other than obligations with respect to letters of
credit securing obligations (other than obligations described
7.
<PAGE>
in (i) through (iii) above) entered into in the ordinary course of business of
such Person to the extent such letters of credit are not drawn upon or, if and
to the extent drawn upon, such drawing is reimbursed no later than the tenth
Business Day following receipt by such Person of a demand for reimbursement
following payment on the letter of credit); (v) the amount of all obligations of
such Person with respect to the redemption, repayment or other repurchase of any
Disqualified Stock or, with respect to any Subsidiary of such Person, any
Preferred Stock (but excluding, in each case, any accrued dividends); (vi) all
obligations of the type referred to in clauses (i) through (v) of other Persons
and all dividends of other Persons for the payment of which, in either case,
such Person is responsible or liable, directly or indirectly, as obligor,
guarantor or otherwise, including by means of any Guarantee; (vii) all
obligations of the type referred to in clauses (i) through (vi) of other Persons
secured by any Lien on any property or asset of such Person (whether or not such
obligation is assumed by such Person), the amount of such obligation being
deemed to be the lesser of the value of such property or assets or the amount of
the obligation so secured; and (viii) to the extent not otherwise included in
this definition, Hedging Obligations of such Person. The amount of Indebtedness
of any Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability, upon the
occurrence of the contingency giving rise to the obligation, of any contingent
obligations as described above at such date; provided, however, that the amount
outstanding at any time of any Indebtedness issued with original issue discount
shall be deemed to be the face amount of such Indebtedness less the remaining
unamortized portion of the original issue discount of such Indebtedness at such
time as determined in conformity with GAAP.
"Indenture" means this Indenture as amended or supplemented from time
to time by one or more supplemental indentures entered into pursuant to the
applicable provisions hereof or otherwise in accordance with the terms hereof.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"Initial Purchasers" means, collectively, Montgomery Securities,
Donaldson, Lufkin & Jenrette Securities Corporation, Goldman, Sachs & Co. and
Societe Generale Securities Corporation.
"Initial Securities" means the 10 5/8% Senior Subordinated Notes due
2004 of the Company issued on the Issue Date, for so long as such securities
constitute Restricted Securities.
"Interest Rate Agreement" means any interest rate swap agreement,
interest rate cap agreement or other financial agreement or arrangement designed
solely to protect the Company or any Restricted Subsidiary against fluctuations
in interest rates.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person) or other
extensions of credit (including by way of Guarantee or similar arrangement) 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
8.
<PAGE>
any purchase or acquisition of Capital Stock, Indebtedness or other similar
instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary," the definition of "Restricted Payment" and Section
4.4 hereof, (i) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of any Subsidiary of the Company at the time that such Subsidiary is
designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall
be deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary equal to an amount (if positive) equal to (x) the Company's
"Investment" in such Subsidiary at the time of such redesignation less (y) the
portion (proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of such Subsidiary at the time of such
redesignation, and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the Board of Directors.
"Issue Date" means the date on which the Securities are originally
issued.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the State of New York, the City of
Los Angeles, California or at a place of payment authorized by law, regulators
or executive order to remain closed.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any conditional sale or other title
retention agreement or lease in the nature thereof).
"Moody's" means Moody's Investors Service, Inc.
"Net Available Cash" from an Asset Disposition means cash payments
received by the Company or any of its Subsidiaries therefrom (including any cash
payments received by way of deferred payment of principal pursuant to a note or
installment receivable or otherwise, but only as and when received, but
excluding any other consideration received in the form of assumption by the
acquiring Person of Indebtedness or other obligations relating to such
properties or assets or received in any other noncash form) in each case net of
(i) all legal, title and recording tax expenses, commissions and other fees and
expenses incurred, and all Federal, state, provincial, foreign and local taxes
required to be paid or accrued as a liability under GAAP, as a consequence of
such Asset Disposition, (ii) all payments made on any Indebtedness which is
secured by any assets subject to such Asset Disposition, in accordance with the
terms of any Lien upon or other security agreement of any kind with respect to
such assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Disposition, or by applicable law, be repaid out of the
proceeds from such Asset Disposition, (iii) all distributions and other payments
required to be made to minority interest holders in Subsidiaries or Joint
Ventures as a result of such Asset Disposition and (iv) the deduction of
appropriate amounts provided by the seller as a reserve, in accordance with
GAAP, against any liabilities associated with the property or other assets
disposed in such Asset Disposition and retained by the Company or any Restricted
9.
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Subsidiary after such Asset Disposition including without limitation under any
indemnification obligations associated with such Asset Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital
Stock, means the cash proceeds of such issuance or sale net of attorneys' fees
and disbursements, accountants' fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"New Credit Facility" means the revolving credit facility described in
the commitment letter to the Company from the Arrangers named therein dated July
18, 1997 or, if such credit facility is not established, any credit facility or
facilities established by the Company with one or more lenders, in any case
pursuant to which the Company may borrow, in the aggregate pursuant to all such
facilities, up to $300 million.
"Non-U.S. Person" means a person who is not a U.S. Person, as defined
in Regulation S.
"Obligations" means all present and future obligations for principal,
premium, interest (including, without limitation, any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for in
the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law), penalties, fees, indemnifications,
reimbursements (including, without limitation, all reimbursement and other
obligation pursuant to any letters of credit, bankers acceptances or similar
instruments or documents), damages and other liabilities payable under the
documentation at any time governing any indebtedness.
"Officer" means the Chairman of the Board, any Vice Chairman, the
Chief Executive Officer, the Treasurer or Chief Financial Officer, the Chief
Operating Officer, the President, any Vice President (or any such other officer
that performs similar duties), the Secretary or the Assistant Secretary of the
Company.
"Officers' Certificate" means a certificate signed by two Officers,
one of which is the Chairman of the Board, the Chief Executive Officer,
President, Chief Operating Officer or any Vice President and the other of which
is the Chief Financial Officer or Treasurer or Secretary or Assistant Secretary
(or any such other officer that performs similar duties).
"Operating Cash Flow," means, for any Person and for any period, the
sum of Consolidated Net Income plus (A) Consolidated Interest Expense, plus (B)
the following to the extent deducted in calculating such Consolidated Net
Income, without duplication: (i) income tax expense, (ii) depreciation expense,
(iii) amortization expense, (iv) all other non cash items reducing Consolidated
Net Income (other than items that will require cash payments and for which an
accrual or reserve is, or is required by GAAP to be made), plus (C) any cash
charges associated with the acquisition of new release videocassettes (including
any fees in connection with revenue sharing arrangements with respect to rental
inventory) and other media and game inventory purchases to the extent such cash
charges have been included in the operating expenses
10.
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used to calculate Consolidated Net Income, minus (D) 30% of rental revenue for
such period. Notwithstanding the foregoing, the provision for taxes based on the
income or profits of, and the depreciation and amortization of, a Subsidiary of
the Company shall be added to Consolidated Net Income to compute Operating Cash
Flow only to the extent (and in the same proportion) that the net income of such
Subsidiary was included in calculating Consolidated Net Income.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee, which opinion shall comply with the
provisions of Section 11.5 hereof. The counsel may be an employee of or counsel
to the Company or the Trustee; provided that any Opinion of Counsel delivered
pursuant to Section 8.2 hereof shall not be rendered by an employee of the
Company or any Subsidiary.
"Permitted Holder" means (i) Mark J. Wattles, (ii) an employee benefit
plan of the Company, or any of its subsidiaries or any participant therein,
(iii) a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any of its subsidiaries or (iv) any Permitted Transferee
of any of the foregoing persons.
"Permitted Investment" means an Investment by the Company or any
Restricted Subsidiary in (i) the Company; (ii) a Restricted Subsidiary or a
Person that will, upon the making of such Investment, become a Restricted
Subsidiary; provided, however, that the primary business of such Restricted
Subsidiary is a Related Business; provided further, that no such Investment
shall constitute assets owned by the Company as of the Issue Date (or any
substitute or replacement assets therefor); (iii) another Person if as a result
of such Investment such other Person is merged or consolidated with or into, or
transfers or conveys all or substantially all its assets to, the Company or a
Restricted Subsidiary; provided, however, that such Person's primary business is
a Related Business; provided, further, that no such Investment shall constitute
assets owned by the Company as of the Issue Date (or any substitute or
replacement assets therefor); (iv) Temporary Cash Investments; (v) receivables
owing to the Company or any Restricted Subsidiary if created or acquired in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; provided, however, that such trade terms may include such
concessionary trade terms as the Company or any such Restricted Subsidiary deems
reasonable under the circumstances; (vi) payroll, travel and similar advances to
cover matters that are expected at the time of such advances ultimately to be
treated as expenses for accounting purposes and that are made in the ordinary
course of business; (vii) loans or advances to employees made in the ordinary
course of business consistent with past practices of the Company or such
Restricted Subsidiary; (viii) stock, obligations or securities received in
settlement of debts created in the ordinary course of business and owing to the
Company or any Restricted Subsidiary or in satisfaction of judgments; (ix) any
Person to the extent such Investment represents the non-cash portion of the
consideration received for an Asset Disposition as permitted under Section 4.6
hereof; and (x) Persons other than the Company and Restricted Subsidiaries, in
an aggregate amount after the Issue Date of up to $15 million; provided,
however, the amount of any dividends, repayments of loans or transfers of assets
as a return on such Permitted Investments shall reduce the amount of such $15
million amount used (but not below $0).
11.
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"Permitted Liens" means (i) Liens in favor of the Company or such
Restricted Subsidiary, (ii) Liens on property or assets of a Person existing at
the time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary; provided that such Liens were in existence prior to the
merger or consolidation and were not created or incurred in contemplation of
such merger or consolidation and do not extend to any assets other than those of
the Person merged into or consolidated with the Company or such Restricted
Subsidiary prior to such merger; and (iii) Liens on property existing at the
time of acquisition thereof by the Company or any Restricted Subsidiary;
provided that the Liens were in existence prior to the acquisition and were not
created or incurred in contemplation of such acquisition.
"Permitted Transferees" means, with respect to any person, (i) any
Affiliate of such person, (ii) the heirs, executors, administrators,
testamentary trustees, legatees or beneficiaries of any such person, (iii) a
trust, the beneficiaries of which, or a corporation or partnership, the
stockholders or general or limited partners of which include only such person or
his or her spouse or lineal descendants, in each case to whom such person has
transferred the beneficial ownership of any securities of the Company, (iv) any
investment account whose investment managers and investment advisors consist
solely of such person and/or Permitted Transferees of such person, and (v) any
investment fund or investment entity that is a subsidiary of such person or
Permitted Transferee of such person.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"Preferred Stock," as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"principal" of a Security means the principal of the Security plus the
premium, if any, payable on the Security which is due or overdue or is to become
due at the relevant time.
"Private Placement Legend" means the legend initially set forth on the
securities in the form set forth in Section 2.13.
"Public Equity Offering" means an underwritten primary public offering
of common stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Purchase Money Indebtedness" means Indebtedness (i) consisting of the
deferred purchase price of property, conditional sale obligations, obligations
under any title retention agreement, other purchase money obligations and
obligations in respect of industrial revenue bonds or similar Indebtedness, in
each case where the maturity of such Indebtedness does not exceed the
anticipated useful life of the asset being financed, and (ii) incurred to
finance the
12.
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acquisition by the Company or a Restricted Subsidiary of such asset, including
additions and improvements; provided, however, that any Lien arising in
connection with any such Indebtedness shall be limited to the specified asset
being financed or, in the case of real property or fixtures, including additions
and improvements, the real property on which such asset is attached; and
provided, further, however, that such Indebtedness is Incurred within 90 days
after such acquisition of such asset by the Company or Restricted Subsidiary.
"Qualified Institutional Buyer" or "QIB" shall have the meaning
specified in Rule 144A under the Securities Act.
"Refinance" means, in respect of any Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue
other Indebtedness in exchange or replacement for, such Indebtedness.
"Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with this Indenture; provided, however, that (i)
other than Refinancing Indebtedness in respect of the Senior Credit Facility
such Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) other than Refinancing
Indebtedness in respect of the Senior Credit Facility, such Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being Refinanced and (iii) such Refinancing Indebtedness has an aggregate
principal amount (or if Incurred with original issue discount, an aggregate
issue price) that is equal to or less than the aggregate principal amount (or if
Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus fees and expenses, including any premium and
defeasance costs, and, solely in the case of Bank Indebtedness, Obligations)
under the Indebtedness being Refinanced; provided further, however, that
Refinancing Indebtedness shall not include (x) Indebtedness of a Subsidiary that
Refinances Indebtedness of the Company or (y) Indebtedness of the Company or a
Restricted Subsidiary that Refinances Indebtedness of an Unrestricted
Subsidiary.
"Registration Rights Agreement" means the Registration Rights
Agreement dated the Issue Date among the Company and the Initial Purchasers.
"Regulation S" means Regulation S under the Securities Act.
"Related Business" means any business related, ancillary or
complementary (as determined in good faith by the Board of Directors) to the
businesses of the Company and the Restricted Subsidiaries.
"Representative" means any trustee, agent or representative (if any)
for an issue of Senior Indebtedness of the Company.
13.
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"Responsible Officer" means, when used with respect to the Trustee,
any officer within the Corporate Trust Division (or any successor group of the
Trustee), including any vice president, assistant vice president, assistant
secretary or any other officer of the Trustee to whom any corporate trust matter
is customarily referred because of his or her knowledge or familiarity with the
particular subject.
"Restricted Payment" means, with respect to any Person, (i) the
declaration or payment of any dividends or any other distributions on or in
respect of its Capital Stock (including any payment in connection with any
merger or consolidation involving such Person) or similar payment to the holders
of its Capital Stock, except dividends or distributions payable solely in its
Capital Stock (other than Disqualified Stock) and except dividends or
distributions payable solely to the Company or a Restricted Subsidiary (and, if
such Restricted Subsidiary is not wholly owned, to its other shareholders on a
pro rata basis or on a basis that results in the receipt by the Company or a
Restricted Subsidiary of dividends or distributions of greater value than it
would receive on a pro rata basis), (ii) the purchase, redemption or other
acquisition or retirement for value of any Capital Stock of the Company held by
any Person or of any Capital Stock of a Restricted Subsidiary held by any
Affiliate of the Company (other than a Restricted Subsidiary), including the
exercise of any option to exchange any Capital Stock (other than into Capital
Stock of the Company that is not Disqualified Stock), (iii) the purchase,
repurchase, redemption, defeasance or other acquisition or retirement for value,
prior to scheduled maturity, scheduled repayment or scheduled sinking fund
payment of any Subordinated Obligations (other than the purchase, repurchase or
other acquisition of Subordinated Obligations purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of acquisition) or (iv) the making
of any Investment in any Person (other than a Permitted Investment).
"Restricted Security" has the meaning assigned to such term in Rule
144(a)(3) under the Securities Act; provided, however, that the Trustee shall be
entitled to request and conclusively rely on an Opinion of Counsel with respect
to whether any Note constitutes a Restricted Security.
"Restricted Subsidiary" means, at any time, any Subsidiary of the
Company that is not an Unrestricted Subsidiary; provided, however, that upon the
occurrence of any Unrestricted Subsidiary ceasing to be an Unrestricted
Subsidiary, such Subsidiary shall be included in the definition of "Restricted
Subsidiary."
"Rule 144A" means Rule 144A under the Securities Act.
"Sale/Leaseback Transaction" means an arrangement relating to property
now owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
14.
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"Secured Indebtedness" means any Indebtedness of the Company secured
by a Lien.
"Securities" shall mean the Initial Securities and the Exchange
Securities.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Credit Facility" means (i) until the Existing Credit Facility
is terminated and all Obligations in respect thereof due and payable thereunder
have been paid, the Existing Credit Facility or (ii) upon the termination of the
Existing Credit Facility, the payment of all Obligations thereunder and the
initial closing under the New Credit Facility, the New Credit Facility, in each
case as the same may be amended, waived, modified, Refinanced or replaced from
time to time (except to the extent that any such amendment, waiver,
modification, replacement or Refinancing would be prohibited by the terms of the
Indenture).
"Senior Indebtedness" of the Company means (i) all Bank Indebtedness
of the Company, whether outstanding on the Issue Date or thereafter Incurred,
including the Guarantees by the Company of all Bank Indebtedness, (ii) accrued
and unpaid interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company whether or
not a claim for post-filing interest is allowed in such proceeding) in respect
of (A) indebtedness of the Company for money borrowed and (B) indebtedness
evidenced by notes, debentures, bonds or other similar instruments for the
payment of which the Company is responsible or liable unless, in the instrument
creating or evidencing the same or pursuant to which the same is outstanding, it
is provided that such obligations are subordinate in right of payment to the
Securities, and (iii) all Obligations of the Company in respect of any of the
foregoing; provided, however, that Senior Indebtedness shall not include (1) any
obligation of the Company to any Subsidiary, (2) any liability for federal,
state, local or other taxes owed or owing by the Company, (3) any accounts
payable or other liability to trade creditors arising in the ordinary course of
business (including guarantees thereof or instruments evidencing such
liabilities), (4) any Indebtedness of the Company (and any accrued and unpaid
interest in respect thereof) which is subordinate or junior in any respect
(other than as a result of the Indebtedness being unsecured) to any other
Indebtedness or other obligation of the Company, including any Senior
Subordinated Indebtedness and any Subordinated Obligations, (5) any obligations
with respect to any Capital Stock or (6) that portion of any Indebtedness which
at the time of Incurrence is Incurred in violation of this Indenture.
"Senior Subordinated Indebtedness" of the Company means the Securities
and any other Indebtedness of the Company that specifically provides that such
Indebtedness is to rank pari passu with the Securities in right of payment and
is not subordinated by its terms in right of payment to any Indebtedness or
other obligation of the Company which is not Senior Indebtedness.
"Significant Subsidiary" means any Restricted Subsidiary that would be
a "Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
15.
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"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the final payment of
principal of such security is due and payable, including pursuant to any
mandatory redemption provision (but excluding any provision providing for the
repurchase of such security at the option of the holder thereof upon the
happening of any contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company
(whether outstanding on the Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Securities pursuant to a
written agreement to that effect.
"Subsidiary" means, in respect of any Person, any corporation,
association, partnership or other business entity of which more than 50% of the
total voting power of shares of Capital Stock or other interests (including
partnership interests) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by (i) such Person,
(ii) such Person and one or more Subsidiaries of such Person or (iii) one or
more Subsidiaries of such Person.
"Subsidiary Guarantor" means any Subsidiary that issues a Subsidiary
Guaranty.
"Subsidiary Guaranty" means the Guarantee by a Subsidiary Guarantor of
the Company's obligations with respect to the Securities.
"S&P" means Standard and Poor's Ratings Service.
"Temporary Cash Investments" means any of the following: (i) any
investment in direct obligations of the United States of America or any agency
thereof or obligations guaranteed by the United States of America or any agency
thereof, (ii) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws of
the United States of America, any state thereof or any foreign country
recognized by the United States, and which bank or trust company has capital,
surplus and undivided profits aggregating in excess of $50,000,000 (or the
foreign currency equivalent thereof) and has outstanding debt which is rated "A"
(or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker,
dealer or mutual fund distributor, (iii) repurchase obligations with a term of
not more than 30 days for underlying securities of the types described in clause
(i) above entered into with a bank meeting the qualifications described in
clause (ii) above, (iv) investments in commercial paper, maturing not more than
90 days after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America, any State thereof or the District of Columbia or any
foreign country recognized by 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 (v) investments in
securities with maturities of six months or less from the date of acquisition
issued or fully guaranteed by any state, commonwealth or
16.
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territory of the United States of America, or by any political subdivision or
taxing authority thereof, and rated at least "A" by S&P or "A" by Moody's.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 1
77aaa-77bbbb) as in effect on the date of this Indenture, except as provided in
Section 9.3.
"Trustee" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President or any
other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Uniform Commercial Code" means the New York Uniform Commercial Code
as in effect from time to time.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that
at the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary
of the Company (including any newly acquired or newly formed Subsidiary) to be
an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries
owns any Capital Stock or Indebtedness of, or holds any Lien on any property of,
the Company or any other Subsidiary of the Company that is not a Subsidiary of
the Subsidiary to be so designated; provided, however, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, such designation would be permitted
under Section 4.4. The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that immediately
after giving effect to such designation (x) the Company could Incur $1.00 of
additional Indebtedness under Section 4.3(a) and (y) no Default shall have
occurred and be continuing. Any such designation by the Board of Directors shall
be notified by the Company to the Trustee by promptly filing with the Trustee a
copy of the board resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
provisions.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
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"Wholly Owned Subsidiary" means a Restricted Subsidiary all the
Capital Stock of which (other than directors' qualifying shares) is owned by the
Company and/or one or more Wholly Owned Subsidiaries.
SECTION 1.2. Other Definitions.
Term Defined in Section
---- ------------------
"Affiliate Transaction" 4.7
"Agent Members" 2.6
"Bankruptcy Law" 6.1
"Blockage Notice" 10.3(c)
"covenant defeasance option" 8.1(b)
"Custodian" 6.1
"defeasance trust" 8.2
"Event of Default" 6.1
"Excess Proceeds" 4.6(a)
"Excess Proceeds Offer" 4.6(a)
"Excess Proceeds Offer Amount" 4.6(c)
"Excess Proceeds Offer Period" 4.6(c)
"Excess Proceeds Payment" 10.3
"Global Securities" 2.1(b)
"legal defeasance option" 8.1(b)
"Notice of Default" 6.1
"Participants" 2.6(4)
"pay the Subordinated Debt" 10.3(a)
"Paying Agent" 2.3
"Payment Blockage Period" 10.3(c)
"Physical Securities" 2.1(b)
"Private Placement Legend" 2.13
"Purchase Date" 4.6(b)
"Registrar" 2.3
"Securities Register" 2.3
"Successor Company" 5.1
SECTION 1.3. Incorporation by Reference of Trust Indenture Act. This
Indenture is subject to the mandatory provisions of the TIA, which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
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"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the Securities means the Company and any other successor
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them by such definitions.
SECTION 1.4. Rules of Construction. Unless the context otherwise
requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in the plural
include the singular;
(6) the principal amount of any non-interest-bearing or other discount
security at any date shall be the principal amount thereof that would be
shown on a balance sheet of the Company dated such date prepared in
accordance with GAAP;
(7) all references to $, US$, dollars or United States dollars shall
refer to the lawful currency of the United States;
(8) "herein," "hereof" and other words of similar import refer to this
Indenture as a whole and not to any particular Article, Section or other
subdivision;
(9) provisions apply to successive events and transaction; and
(10) references to sections of or rules under the Securities Act shall
be deemed to include substitute, replacement of successor sections or rules
adopted by the SEC from time to time.
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ARTICLE 2
THE SECURITIES
SECTION 2.1. Form and Dating. (a) The Initial Securities and the
Trustee's certificate of authentication shall be substantially in the form of
Exhibit A, which is hereby incorporated in and expressly made a part of this
Indenture. The Exchange Securities and the Trustee's certificate of
authentication relating thereto shall be substantially in the form of Exhibit B
hereto. The Securities shall have the notations, legends or endorsements
required by law, stock exchange rules, agreements to which the Company is
subject, if any, or usage (provided that any such notation, legend or
endorsement is in a form acceptable to the Company), all as set forth in Exhibit
A and Exhibit B. Each Security shall be dated the date of its authentication.
The Securities shall be in denominations of $1,000 and integral multiples
thereof; provided that, the Physical Securities originally purchased by
institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act) who are not also "qualified institutional buyers"
(as defined in Rule 144A under the Securities Act) shall be subject to a minimum
denomination of $250,000. If required, the Securities may bear the appropriate
legend regarding any original issue discount for federal income tax purposes.
The terms and provisions contained in the Securities, annexed hereto
as Exhibits A and B, shall constitute, and are hereby expressly made, a part of
this Indenture and, to the extent applicable, the Company and the Trustee, by
their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.
(b) Global Securities. The Securities offered and sold in reliance on
Rule 144A and Securities offered and sold in reliance on Regulation S shall be
issued initially in the form of one or more permanent Global Securities ("Global
Securities") in definitive, fully registered form without interest coupons, in
substantially the form of Exhibit A, which shall be deposited on behalf of the
purchasers of the Securities represented thereby with the Trustee, at the
Trustee's office in New York City, as custodian for the Depository, and
registered in the name of the Depository or a nominee of the Depository, duly
executed by the Company and authenticated by the Trustee as hereinafter provided
and shall bear the legend set forth in Section 2.13. 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 and the Depository or its
nominee in the limited circumstances hereinafter provided.
Securities offered and sold to institutional "accredited investors"
(as defined in Rule 501(a)(1),(2),(3) or (7) under the Securities Act) and
Securities issued in exchange for interests in Global Securities pursuant to
Section 2.6 may be issued in the form of permanent certificated Securities in
registered form in substantially the form set forth in Exhibit A (the "Physical
Securities"). All Securities offered and sold in reliance on Regulation S shall
remain in the form of a Global Security until the consummation of the Exchange
Offer pursuant to the Registration Rights Agreement; provided, however, that all
of the time periods specified in the Registration Rights Agreement to be
complied with by the Company have been so complied with.
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SECTION 2.2. Execution and Authentication. An Officer of the Company
shall sign the Securities for the Company by manual or facsimile signature. If
an Officer whose signature is on a Security no longer holds that office at the
time the Trustee authenticates the Security, the Security shall be valid
nevertheless. A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture. The Trustee shall authenticate and make available for
delivery (i) Initial Securities for original issue in an aggregate principal
amount of up to $250,000,000 and (ii) Exchange Securities from time to time for
issue only in exchange for a like principal amount of Initial Securities, in
each case, upon a written order of the Company signed by an Officer of the
Company. Such order shall specify the amount of the Securities to be
authenticated and the date on which the Securities are to be authenticated. The
aggregate principal amount of Securities outstanding at any time may not exceed
$250,000,000 except as provided in Section 2.7. The Trustee may appoint an
authenticating agent reasonably acceptable to the Company to authenticate the
Securities, upon the consent of the Company to such appointment. Unless limited
by the terms of such appointment, an authenticating agent may authenticate
Securities whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as any Registrar, Paying Agent,
co-registrar or agent for service of notices and demands.
SECTION 2.3. Registrar and Paying Agent. The Company shall maintain an
office or agency where Securities may be presented for registration of transfer
or for exchange (the "Registrar") and an office or agency where Securities may
be presented for payment (the "Paying Agent"). The Registrar, acting on behalf
of and as agent for the Company, shall keep a register (the "Securities
Register") of the Securities and of their transfer and exchange. The Company may
have one or more co-registrars and one or more additional paying agents.
The term "Registrar" includes any co-registrar and the term "Paying
Agent" includes any additional paying agent. The Company may change any Paying
Agent or Registrar without notice to any Securityholder. The Company shall enter
into an appropriate agency agreement with any Registrar, Paying Agent or
co-registrar not a party to this Indenture, which shall incorporate the terms of
the TIA. The agreement shall implement the provisions of this Indenture that
relate to such agent. The Company shall notify the Trustee of the name and
address of any such agent. If the Company fails to maintain a Registrar or
Paying Agent, the Trustee shall act as such and shall be entitled to appropriate
compensation therefor pursuant to Section 7.7. The Company or any of its
Subsidiaries may act as Paying Agent, Registrar, co-Registrar or transfer agent.
The Company initially appoints The Depository Trust Company to act as
Depository with respect to the Global Notes.
The Company initially appoints the Trustee as Registrar and Paying
Agent in connection with the Securities, until such time as the Trustee has
resigned or a successor has been appointed. Any of the Registrar, the Paying
Agent, co-registrar or any other agent may resign upon 30 days' notice to the
Company.
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SECTION 2.4. Paying Agent to Hold Money in Trust. On or prior to each
due date of the principal and interest on any Security, the Company shall
deposit with the Paying Agent a sum sufficient to pay such principal and
interest when so becoming due. The Company shall require each Paying Agent
(other than the Trustee) to agree in writing that the Paying Agent shall hold in
trust for the benefit of Securityholders or the Trustee all money held by the
Paying Agent for the payment of principal of or interest on the Securities and
shall notify the Trustee of any default by the Company in making any such
payment. If the Company or a Subsidiary acts as Paying Agent, it shall segregate
the money held by it as Paying Agent and hold it as a separate trust fund. The
Company at any time may require a Paying Agent to pay all money held by it to
the Trustee and to account for any funds disbursed by the Paying Agent. Upon
complying with this Section, the Paying Agent shall have no further liability
for the money delivered to the Trustee. Upon any bankruptcy or reorganization
proceedings relating to the Company, the Trustee shall serve as Paying Agent for
the Securities.
SECTION 2.5. Securityholder Lists. The Trustee shall preserve in as
current a form as is reasonably practicable the most recent list available to it
of the names and addresses of Securityholders and shall otherwise comply with
TIA ss. 312(a). If the Trustee is not the Registrar, the Company shall furnish
to the Trustee, in writing at least five Business Days before each interest
payment date and at such other times as the Trustee may request in writing, a
list in such form and as of such date as the Trustee may reasonably require of
the names and addresses of Securityholders and the Company shall otherwise
comply with TIA ss. 312(a); provided that as long as the Trustee is the
Registrar, no such list need be furnished.
SECTION 2.6. Transfer and Exchange. The Securities shall be issued in
registered form and shall be transferable only upon the surrender of a Security
for registration of transfer. When a Security is presented to the Registrar or a
co-registrar with a request to register a transfer, the Registrar and the
Trustee may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and the Registrar shall record in the
Securities Register the transfer as requested if the requirements of Section
8-401(a) of the Uniform Commercial Code are met, and thereupon one or more new
Securities in the same aggregate principal amount shall be issued to the
designated assignee or transferee and the old Security will be returned to the
Company. When Securities are presented to the Registrar or a co-registrar with a
request to exchange them for an equal principal amount of Securities of other
authorized denominations, the Registrar shall make the exchange as requested, in
the same manner, if the same requirements are met. To permit registration of
transfers and exchanges, the Company shall execute and the Trustee shall
authenticate Securities at the Registrar's or co-registrar's request. The
Company may require payment of a sum sufficient to pay all taxes, assessments or
other governmental charges in connection with any transfer or exchange pursuant
to this Section. The Company shall not be required to make and the Registrar
need not register transfers or exchanges of Securities selected for redemption
(except, in the case of Securities to be redeemed in part, the portion thereof
not to be redeemed) or any Securities for a period of 15 days before a selection
of Securities to be redeemed or 15 days before an interest payment date.
Prior to the due presentation for registration of transfer of any
Security, the Company, the Trustee, the Paying Agent, the Registrar or any
co-registrar may deem and treat the
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person in whose name a Security is registered as the absolute owner of such
Security for the purpose of receiving payment of principal of and interest on
such Security and for all other purposes whatsoever, whether or not such
Security is overdue, and none of the Company, the Trustee, the Paying Agent, the
Registrar or any co-registrar shall be affected by notice to the contrary.
All Securities issued upon any transfer or exchange pursuant to the
terms of this Indenture will evidence the same debt and will be entitled to the
same benefits under this Indenture as the Securities surrendered upon such
transfer or exchange.
With respect to Global Securities:
(1) Each Global Security authenticated under this Indenture shall (i)
be registered in the name of the Depository designated for such Global
Security or a nominee thereof, (ii) be deposited with such Depository or a
nominee thereof or custodian therefor, (iii) bear legends as set forth in
Section 2.13 and (iv) constitute a single Security for all purposes of this
Indenture.
Members of, or participants in, the Depository ("Agent Members") shall
have no rights under this Indenture with respect to any Global Security held on
their behalf by the Depository, or the Trustee as its custodian, or under the
Global Securities, and the Depository 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 Depository or impair, as between the Depository
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a Holder of any Security.
(2) Transfers of a Global Security shall be limited to transfers in
whole but not in part to the Depository, its successors or their respective
nominees. Interests of beneficial owners in a Global Security may be
transferred or exchanged for Physical Securities in accordance with the
rules and procedures of the Depository and the provisions of Section 2.14.
In addition, a Global Security is exchangeable for certificated Securities
if (i) the Depository notifies the Company that it is unwilling or unable
to continue as a Depository for such Global Security or if at any time the
Depository ceases to be a clearing agency registered under the Exchange
Act, (ii) the Company executes and delivers to the Trustee a notice that
such Global Security shall be so transferable, registrable, and
exchangeable, and such transfers shall be registrable or (iii) there shall
have occurred and be continuing an Event of Default or an event which, with
the giving of notice or lapse of time or both, would constitute an Event of
Default with respect to the Securities represented by such Global Security.
Any Global Security that is exchangeable for certificated Securities
pursuant to the preceding sentence will be transferred to, and registered
and exchanged for, certificated Securities in authorized denominations,
without legends applicable to a Global Security, and registered in such
names as the Depository holding such Global Security may direct. Subject to
the foregoing, a Global Security is
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not exchangeable, except for a Global Security of like denomination to be
registered in the name of the Depository or its nominee. In the event that
a Global Security becomes exchangeable for certificated Securities, (i)
certificated Securities will be issued only in fully registered form in
denominations of $1,000 or integral multiples thereof, (ii) payment of
principal, any repurchase price, and interest on the certificated
Securities will be payable, and the transfer of the certificated Securities
will be registrable, at the office or agency of the Company maintained for
such purposes, and (iii) no service charge will be made for any
registration or transfer or exchange of the certificated Securities,
although the Company may require payment of a sum sufficient to cover any
tax or governmental charge imposed in connection therewith.
(3) Securities issued in exchange for a Global Security or any portion
thereof shall have an aggregate principal amount equal to that of such
Global Security or portion thereof to be so exchanged, shall be registered
in such names and be in such authorized denominations as the Depository
shall designate and shall bear the applicable legends provided for herein.
Any Global Security to be exchanged in whole shall be surrendered by the
Depository to the Trustee. With respect to any Global Security to be
exchanged in part, either such Global Security shall be so surrendered for
exchange or, if the Trustee is acting as custodian for the Depository or
its nominee with respect to such Global Security, the principal amount
thereof shall be reduced, by an amount equal to the portion thereof to be
so exchanged, by means of an appropriate adjustment made on the records of
the Trustee. Upon any such surrender or adjustment, the Trustee shall
authenticate and deliver the Security issuable on such exchange to or upon
the order of the Depository or an authorized representative thereof.
(4) Every Security authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any
portion thereof, whether pursuant to this Section 2.6, Section 2.7, 2.9,
2.14 or otherwise, shall be authenticated and delivered in the form of, and
shall be, a Global Security, unless such Security is registered in the name
of a Person other than the Depository for such Global Security or a nominee
thereof. Members of, or participants in, the Depository ("Participants")
shall have no rights under this Indenture with respect to any Global
Security held on their behalf by the Depository or by the Trustee as the
custodian of the Depository or under such Global Security, and the
Depository 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 Depository or impair, as between the
Depository and its Participants, the operation of customary practices of
such Depository governing the exercise of the rights of a holder of a
beneficial interest in any Global Security.
SECTION 2.7. Replacement Securities. If a mutilated Security is
surrendered to the Trustee or Registrar or if the Holder of a Security claims
that the Security has been lost, destroyed or wrongfully taken, the Company
shall issue and the Trustee shall
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authenticate a replacement Security if the requirements of Section 8-405 of the
Uniform Commercial Code are met and the Holder satisfies any other reasonable
requirements of the Trustee and the Company. Such Holder shall furnish an
indemnity bond sufficient in the judgment of the Company and the Trustee to
protect the Company, the Trustee, the Paying Agent, the Registrar and any
co-registrar from any loss which any of them may suffer if a Security is
replaced. The Company and the Trustee may charge the Holder for their expenses
in replacing a Security.
Every replacement Security issued pursuant to the terms of this
Section shall constitute an original additional contractual obligation of the
Company and, to the extent applicable, any Subsidiary Guarantors under this
Indenture, 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 2.8. Outstanding Securities. Securities outstanding at any
time are all Securities authenticated by the Trustee except for those canceled
by it, those delivered to it for cancellation and those described in this
Section as not outstanding. Subject to the provisions of Section 11.6, a
Security does not cease to be outstanding because the Company or an Affiliate of
the Company holds the security.
If a Security is replaced pursuant to Section 2.7, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in accordance with
this Indenture, on a redemption date or maturity date or, pursuant to Section
8.1(a), within 91 days prior thereto, money sufficient to pay all principal and
interest payable on that redemption or maturity date with respect to the
Securities (or portions thereof) to be redeemed or maturing, as the case may be,
then on and after such date such Securities (or portions thereof) cease to be
outstanding and on and after such redemption or maturity date interest on them
ceases to accrue.
SECTION 2.9. Temporary Securities. Until definitive Securities are
ready for delivery, the Company may prepare and the Trustee shall authenticate
temporary Securities. Temporary Securities shall be substantially in the form of
definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate definitive Securities and
deliver them in exchange for temporary securities.
SECTION 2.10. Cancellation. The Company at any time may deliver
Securities to the Trustee for cancellation. The Registrar and the Paying Agent
shall forward to the Trustee any Securities surrendered to them for registration
of transfer, exchange or payment.
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The Trustee and no one else shall cancel all Securities surrendered for
registration of transfer, exchange, payment or cancellation and deliver such
canceled Securities to the Company. The Trustee shall from time to time provide
the Company a list of all Securities that have been canceled as requested by the
Company. The Company may not issue new Securities to replace Securities it has
redeemed, paid or delivered to the Trustee for cancellation.
SECTION 2.11. Defaulted Interest. If the Company defaults in a payment
of interest on the Securities, the Company shall pay defaulted interest (plus
interest on such defaulted interest to the extent lawful) in any lawful manner
in accordance with Section 4.1. The Company may pay the defaulted interest to
the persons who are Securityholders on a subsequent special record date. The
Company shall fix or cause to be fixed any such special record date and payment
date to the reasonable satisfaction of the Trustee and shall promptly mail to
each Securityholder a notice that states the special record date, the payment
date and the amount of defaulted interest to be paid.
SECTION 2.12. CUSIP Numbers. The Company in issuing the Securities may
use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall
use "CUSIP" numbers in notices of redemption as a convenience to Holders;
provided that any such notice may state that no representation is made as to the
correctness of such numbers either as printed on the Securities or as contained
in any notice of a redemption and that reliance may be placed only on the other
identification numbers printed on the Securities, and any such redemption shall
not be affected by any defect in or omission of such numbers. The Company will
promptly notify the Trustee of any change in the CUSIP numbers.
SECTION 2.13. Restrictive Legends. Each Global Security and Physical
Security that constitutes a Restricted Security or is sold in compliance with
Regulation S shall bear the following legend (the "Private Placement Legend") on
the face thereof until after the second anniversary of the later of the Issue
Date and the last date on which the Company or any Affiliate of the Company was
the owner of such Security (or any predecessor security) (or such shorter period
of time as permitted by Rule 144(k) under the Securities Act or any successor
provision thereunder) (or such longer period of time as may be required under
the Securities Act or applicable state securities laws in the opinion of counsel
for the Company, unless otherwise agreed by the Company and the Holder thereof):
"THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED
IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE NOTE
EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE NOTE EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE
RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT
PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE NOTE EVIDENCED HEREBY AGREES
FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH NOTE MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED ONLY
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(1) BY THE INITIAL PURCHASER (a) TO A PERSON WHO THE SELLER REASONABLY BELIEVES
IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT), PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A UNDER
THE SECURITIES ACT, (b) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR RULE 904 OF REGULATION S
UNDER THE SECURITIES ACT, (c) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF APPLICABLE) OR IN
ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO
REQUESTS), (d) TO THE COMPANY, (e) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR (f) TO AN INSTITUTIONAL ACCREDITED
INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, AND (2) BY SUBSEQUENT PURCHASERS, AS SET FORTH IN (1)(a) THROUGH
(e) ABOVE, AND IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF
ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE
HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF
THE NOTE EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE. NO
REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY
RULE 144 FOR RESALE OF THE SECURITY EVIDENCED HEREBY."
Each Global Security shall also bear the following legend on the face
thereof:
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF THE
DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH SUCCESSOR DEPOSITORY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO AN ISSUER OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A
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SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS
GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN SECTION 2.14 OF THE INDENTURE.
SECTION 2.14. Special Transfer Provisions. (a) Transfers to Non-QIB
Institutional Accredited Investors and Non-U.S. Persons. The following
provisions shall apply with respect to the registration of any proposed transfer
of a Security constituting a Restricted Security to any Institutional Accredited
Investor which is not a QIB or to any Non-U.S. Person:
(i) the Registrar shall register the transfer of any Security
constituting a Restricted 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) or (y) (1) in the case of a transfer to an
Institutional Accredited Investor which is not a QIB (excluding Non-U.S.
Persons), the proposed transferee has delivered to the Registrar a
certificate substantially in the form of Exhibit C hereto and any legal
opinions and certifications required thereby or (2) in the case of a
transfer to a Non-U.S. Person, the proposed transferor has delivered to the
Registrar a certificate substantially in the form of Exhibit D hereto; and
(ii) if the proposed transferor is an Agent Member holding a
beneficial interest in the Global Security, upon receipt by the Registrar
of (x) the certificate, if any, required by paragraph (i) above and (y)
written instructions given in accordance with the Depository's and the
Registrar's procedures,
whereupon (a) the Registrar shall reflect on its books and records the date and
(if the transfer does not involve a transfer of outstanding Physical Securities)
a decrease in the principal amount of such Global Security in an amount equal to
the principal amount of the beneficial interest in the Global Security to be
transferred, and (b) the Company shall execute and the Trustee shall
authenticate and deliver, one or more Physical Securities of like tenor and
amount.
(b) Transfers to QIBs. The following provisions shall apply with
respect to the registration of any proposed transfer of a Security constituting
a Restricted Security to a QIB (excluding transfers to Non-U.S. Persons):
(i) the Registrar shall register the transfer if such transfer is
being made by a proposed transferor who has checked the box provided for on
the form of Security stating, or has otherwise advised the Company and the
Registrar in writing, that the sale has been made in compliance with the
provisions of Rule 144A to a transferee who has signed the certification
provided for on the form of Security stating, or has otherwise advised the
Company and the Registrar in writing, that it is purchasing the 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 QIB within the
meaning of Rule 144A, and is aware that
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the sale to it is being made in reliance on Rule 144A and acknowledges that
it has received such information regarding the Company as it has requested
pursuant to Rule 144A or has determined not to request such information and
that it is aware that the transferor is relying upon its foregoing
representations in order to claim the exemption from registration provided
by Rule 144A; and
(ii) if the proposed transferee is an Agent Member, and the Securities
to be transferred consist of Physical Securities which after transfer are
to be evidenced by an interest in a Global Security, upon receipt by the
Registrar of written instructions given in accordance with the Depository's
and the Registrar's procedures, the Registrar shall reflect on its books
and records the date and an increase in the principal amount of such Global
Security in an amount equal to the principal amount of the Physical
Securities to be transferred, and the Trustee shall cancel the Physical
Securities so transferred.
(c) Private Placement Legend. Upon the transfer, exchange or
replacement of Securities not bearing the Private Placement Legend, the
Registrar shall deliver Securities that do not bear the Private Placement
Legend. Upon the transfer, exchange or replacement of Securities bearing the
Private Placement Legend, the Registrar shall deliver only Securities that bear
the Private Placement Legend unless (i) 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 prior to or on the second
anniversary of the Issue Date), (ii) there is delivered to the Registrar an
Opinion of Counsel reasonably satisfactory to the Company and the Trustee to the
effect that neither such legend nor the related restrictions on transfer are
required in order to maintain compliance with the provisions of the Securities
Act, or (iii) such Securities are Initial Securities being exchanged for
Exchange Securities pursuant to the Registration Rights Agreement.
(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 Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.6 or this Section 2.14.
The Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time during the
Registrar's normal business hours upon the giving of reasonable written notice
to the Registrar.
(e) Transfers of Securities Held by Affiliates. Any certificate (i)
evidencing a Security that has been transferred to an Affiliate of the Company
within two years after the Issue Date, as evidenced by a notation on the
Assignment Form for such transfer or in the representation letter delivered in
respect thereof or (ii) evidencing a Security that has been acquired from an
Affiliate (other than by an Affiliate) in a transaction or a chain of
transactions not involving any public offering, shall, until two years after the
last date on which either the Company or any Affiliate of the Company was an
owner of such Security, in each case, bear a
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legend in substantially the form set forth in Section 2.13 hereof, unless
otherwise agreed by the Company (with written notice thereof to the Trustee).
ARTICLE 3
REDEMPTION
SECTION 3.1. Optional Redemption.
(a) Except as set forth in the following paragraph, the Securities
will not be redeemable at the option of the Company prior to August 15, 2001.
Thereafter, the Securities will be redeemable, at the Company's option, in whole
or in part at any time or from time to time, upon not less than 30 nor more than
60 days' prior notice mailed by first class mail to each Holder's registered
address, at the following redemption prices (expressed in percentages of
principal amount), plus accrued and unpaid interest, if any, to the redemption
date (subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date), if redeemed during
the twelve-month period commencing on August 15 of the years set forth below:
Year Percentage
---- ----------
2001........................................105.313%
2002........................................102.656%
2003 and thereafter.........................100.000%
(b) Notwithstanding the provisions of clause (a) of this Section 3.1,
at any time and from time to time, on or prior to August 15, 2000, the Company
may, at its option, on any one or more occasions, redeem in the aggregate up to
35% of the original principal mount of the Securities with the proceeds of one
or more Public Equity Offerings, at a redemption price (expressed as a
percentage of principal amount) of 110.625% plus accrued and unpaid interest, if
any, to the redemption date (subject to the right of Holders of record on the
relevant record date to receive of interest due on the relevant interest payment
date); provided, however, that at least 65% of the original aggregate principal
amount of the Securities must remain outstanding after each such redemption; and
provided further, however, that such redemption shall occur within 60 days of
the closing date of such Public Equity Offering.
SECTION 3.2. Notices to Trustee. If the Company elects to redeem
Securities pursuant to Section 3.1, it shall furnish the Trustee at least 45
days (or such shorter period as may be acceptable to the Trustee) but not more
than 60 days before a Redemption Date written notice of the redemption date, the
principal amount of Securities to be redeemed and the clause of the Indenture
pursuant to which the redemption will occur. Such notice shall be accompanied by
an Officers' Certificate from the Company to the effect that such redemption
will comply with the provisions herein.
SECTION 3.3. Selection of Securities to Be Redeemed. If fewer than all
the Securities are to be redeemed at any time, the Trustee shall select the
Securities to be
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redeemed pro rata or by lot or by such other method that complies with
applicable legal and securities exchange requirements, if any, and that the
Trustee in its sole discretion shall deem to be fair and appropriate and in
accordance with methods generally used at the time of selection by fiduciaries
in similar circumstances. The Trustee shall make the selection from outstanding
Securities not previously called for redemption. The Trustee may select for
redemption portions of the principal of Securities that have denominations
larger than $1,000. Securities and portions of them the Trustee selects shall be
in amounts of $1,000 or a whole multiple of $1,000; except that if all of the
Securities of a Holder are to be redeemed, the entire outstanding amount of
Securities held by such Holder, even if not a multiple of $1,000, shall be
redeemed. Provisions of this Indenture that apply to Securities called for
redemption also apply to portions of Securities called for redemption. The
Trustee shall notify the Company promptly of the Securities or portions of
Securities to be redeemed. In the event the Company is required to make an offer
to repurchase Securities pursuant to Sections 4.6 or 4.8 and the amount
available for such offer is not evenly divisible by $1,000, the Trustee shall
promptly refund to the Company any remaining funds, which in no event will
exceed $1,000.
SECTION 3.4. Notice of Redemption. At least 30 days but not more than
60 days before a date for redemption of Securities, the Company shall mail or
cause to be mailed a notice of redemption by first-class mail to the registered
address appearing in the Security Register of each Holder of Securities to be
redeemed. The notice shall identify the Securities (including CUSIP numbers, if
any) to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(5) if any Security is being redeemed in part, the portion of the
principal amount of such Security to be redeemed and that, after the
redemption date upon surrender of such Security, a new Security or
Securities in principal amount equal to the unredeemed portion shall be
issued upon cancellation of the original Security;
(6) that, unless the Company defaults in making such redemption
payment, interest on Securities (or portion thereof) called for redemption
ceases to accrue on and after the redemption date;
(7) the paragraph of the Securities and/or Section of this Indenture
pursuant to which the Securities called for redemption are being redeemed;
(8) the CUSIP number, if any, printed on the Securities being
redeemed; and
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(9) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Securities.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such event,
the Company shall provide the Trustee with the information required by this
Section.
SECTION 3.5. Effect of Notice of Redemption. Once notice of redemption
is mailed in accordance with Section 3.4 hereof, Securities called for
redemption become due and payable on the redemption date and at the redemption
price stated in the notice. Upon surrender to the Paying Agent, such Securities
shall be paid at the redemption price stated in the notice, plus accrued and
unpaid interest, if any, to the redemption date. Such notice if mailed in the
manner herein provided shall be conclusively presumed to have been given,
whether or not the Holder receives such notice. Failure to give notice or any
defect in the notice to any Holder shall not affect the validity of the notice
to any other Holder.
SECTION 3.6. Deposit of Redemption Price. Prior to 11:00 a.m. (New
York City time) on the redemption date, the Company shall deposit with the
Trustee or Paying Agent (or, if the Company or a Subsidiary is the Paying Agent,
shall segregate and hold in trust) money sufficient to pay the redemption price
of and accrued and unpaid interest (if any) on all Securities or portions
thereof to be redeemed on that date other than Securities or portions of
Securities called for redemption which have been delivered by the Company to the
Trustee for cancellation. The Trustee or the Paying Agent shall promptly return
to the Company any money deposited with the Trustee or the Paying Agent by the
Company in excess of the amounts necessary to pay the redemption price of, and
accrued and unpaid interest on, all Securities to be redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Securities or the portions of Securities called for redemption. If a
Security is redeemed on or after an interest record date but on or prior to the
related interest payment date, then any accrued and unpaid interest shall be
paid to the Person in whose name such Security was registered at the close of
business on such record date. If any Security called for redemption shall not be
so paid upon surrender for redemption because of the failure of the Company to
comply with the preceding paragraph, interest shall be paid on the unpaid
principal, from the redemption date until such principal is paid, and to the
extent lawful on any interest not paid on such unpaid principal, in each case at
the rate provided in the Securities and in Section 4.1 hereof.
SECTION 3.7. Securities Redeemed in Part. Upon surrender of a Security
that is redeemed in part (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), 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
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principal of the Security so surrendered, except that if a Global Security is so
surrendered, the Company shall execute, and the Trustee shall authenticate and
deliver to the Depository for such Global Security, without service charge, a
new Global Security in denomination equal to and in exchange for the unredeemed
portion of the principal of the Global Security so surrendered.
SECTION 3.8. Mandatory Redemption. Except as set forth under Sections
4.6 and 4.8 hereof, the Company shall not be required to make mandatory
redemption payments with respect to the Securities.
ARTICLE 4
COVENANTS
SECTION 4.1. Payment of Securities. The Company shall promptly pay or
cause to be paid the principal of and interest on the Securities on the dates
and in the manner provided in the Securities and in this Indenture. Principal
and interest shall be considered paid on the date due if on such date the
Trustee or the Paying Agent holds in accordance with this Indenture money
sufficient to pay all principal and interest then due. The Company shall pay
interest on overdue principal at the same rate per annum set forth in the
Securities, and it shall pay interest on overdue installments of interest at
such rate to the extent lawful.
SECTION 4.2. SEC Reports. Whether or not required by the rules and
regulations of the SEC, so long as any Securities are outstanding, the Company
shall furnish to Holders (i) all quarterly and annual financial information that
would be required to be contained in a filing with the SEC on Forms 10-Q and
10-K if the Company were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and,
with respect to the annual information only, a report thereon by the Company's
certified independent accountants and (ii) all current reports that would be
required to be filed with the SEC on Form 8-K if the Company were required to
file such reports. In addition, whether or not required by the rules and
regulations of the SEC, the Company will file a copy of all such information and
reports with the SEC for public availability (unless the SEC will not accept
such a filing) and make such information available to securities analysts and
prospective investors upon request. For so long as any Securities remain
outstanding, the Company shall furnish to the Holders and to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
SECTION 4.3. Limitation on Indebtedness.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, Incur, directly or indirectly, any Indebtedness unless,
immediately after giving effect to such Incurrence, the Consolidated Coverage
Ratio exceeds 2.25 to 1.
(b) Notwithstanding Section 4.3(a), the Company and its Restricted
Subsidiaries may Incur any or all of the following Indebtedness:
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(i) Indebtedness and other Obligations Incurred pursuant to the Senior
Credit Facility, to the extent that, after giving effect to any such
Incurrence, the aggregate principal amount of such Indebtedness then
outstanding does not exceed $300,000,000;
(ii) Indebtedness represented by $200,000,000 of the Securities;
(iii) Indebtedness outstanding on the Issue Date (other than
Indebtedness described in clause (i) of this Section 4.3(b));
(iv) Indebtedness of the Company owed to and held by any Wholly Owned
Subsidiary or Indebtedness of a Restricted Subsidiary owed to and held by
the Company or a Wholly Owned Subsidiary; provided, however, that any
subsequent issuance or transfer of any Capital Stock which results in any
such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any
subsequent transfer of such Indebtedness (other than to the Company or
Wholly Owned Subsidiary) shall be deemed, in each case, to constitute the
Incurrence of such Indebtedness by the issuer thereof;
(v) Refinancing Indebtedness, the net proceeds of which are used to
extend, refinance, renew, replace, defease or refund Indebtedness that was
permitted by the Indenture to be Incurred pursuant to paragraph (a) or
pursuant to clause (i), (ii), (iii) or this clause (v) of this Section
4.3(b);
(vi) Indebtedness in respect of performance bonds, bankers'
acceptances, letters of credit and surety or appeal bonds entered into by
the Company and the Restricted Subsidiaries in the ordinary course of their
business;
(vii) Hedging Obligations consisting of Interest Rate Agreements
entered into in the ordinary course of business and not for the purpose of
speculation; provided, however, that such Interest Rate Agreements do not
increase the Indebtedness of the Company outstanding at any time other than
as a result of fluctuations in interest rates or by reason of fees,
indemnities and compensation payable thereunder;
(viii) Indebtedness Incurred by the Company or any Restricted
Subsidiary in connection with the purchase or improvement of property (real
or personal) or other capital expenditures in the ordinary course of
business (including for the purchase of assets or stock of any Related
Business) or consisting of Capitalized Lease Obligations Incurred, in
either case subsequent to the Issue Date in an aggregate principal amount
which does not exceed 5% of aggregate total revenue of the Company and its
Restricted Subsidiaries during the most recently completed four fiscal
quarter period on a consolidated basis (measured at the time of
Incurrence);
(ix) Guarantees of Indebtedness Incurred pursuant to the Senior Credit
Facility; and
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(x) Indebtedness in an aggregate principal amount which, together with
all other Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the date of such Incurrence (other than Indebtedness
permitted by clauses (i) through (ix) above or paragraph (a)), does not
exceed $10 million.
(c) Notwithstanding the foregoing, the Company shall not, and shall
not permit any Restricted Subsidiary to, Incur any Indebtedness pursuant to the
foregoing Section 4.3(b) if the proceeds thereof are used, directly or
indirectly, to Refinance (i) any Subordinated Obligations unless such
Indebtedness shall be subordinated to the Securities to at least the same extent
as such Subordinated Obligations or (ii) any Senior Subordinated Indebtedness
unless such Indebtedness shall be Senior Subordinated Indebtedness or shall be
subordinated to the Securities.
(d) For purposes of determining compliance with this Section 4.3, (i)
in the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described above, the Company, in its sole discretion,
will classify such item of Indebtedness and only be required to include the
amount and type of such Indebtedness in one of the above clauses and (ii) an
item of Indebtedness may be divided and classified in more than one of the types
of Indebtedness described above.
SECTION 4.4. Limitation on Restricted Payments.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, make a Restricted Payment if at the time
the Company or such Restricted Subsidiary makes such Restricted Payment: (i) a
Default will have occurred and be continuing (or would result therefrom); (ii)
the Company is not able to Incur an additional $1.00 of Indebtedness under
Section 4.3(a); or (iii) the aggregate amount of such Restricted Payment
together with all other Restricted Payments (the amount of any payments made in
property other than cash to be valued at the fair market value of such property
as determined in good faith by the Board of Directors) declared or made since
the Issue Date would exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal
quarter immediately following the fiscal quarter in which the Issue
Date occurs to the end of the most recent fiscal quarter prior to the
date of such Restricted Payment for which financial statements of the
Company are available (or, in case such Consolidated Net Income
accrued during such period (treated as one accounting period) shall be
a deficit, minus 100% of such deficit);
(B) the aggregate Net Cash Proceeds received by the Company from
the issuance or sale of its Capital Stock (other than Disqualified
Stock) subsequent to the Issue Date (other than an issuance or sale to
a Subsidiary of the Company);
(C) the amount by which Indebtedness of the Company or its
Restricted Subsidiaries is reduced on the Company's balance sheet upon
the conversion or exchange (other than by a Subsidiary of the Company)
subsequent to the Issue
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Date, of any Indebtedness of the Company or its Restricted
Subsidiaries convertible or exchangeable for Capital Stock (other than
Disqualified Stock) of the Company (less the amount of any cash, or
the fair value of any other property, distributed by the Company or
any Restricted Subsidiary upon such conversion or exchange);
(D) an amount equal to the sum of (i) the net reduction in
Investments in Unrestricted Subsidiaries resulting from dividends,
repayments of loans or advances or other transfers of assets
subsequent to the Issue Date, in each case to the Company or any
Restricted Subsidiary from Unrestricted Subsidiaries, and (ii) the
portion (proportionate to the Company's equity interest in such
Subsidiary) of the fair market value of the net assets of an
Unrestricted Subsidiary at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary; provided, however, that the
foregoing sum shall not exceed, in the case of any Unrestricted
Subsidiary, the amount of Investments previously made (and treated as
a Restricted Payment) by the Company or any Restricted Subsidiary in
such Unrestricted Subsidiary; and
(E) $5.0 million.
(b) The provisions of Section 4.4(a) shall not prohibit, without
duplication:
(i) any acquisition of any shares of Capital Stock or the repurchase,
redemption, defeasance, or repayment of any Subordinated Obligations of the
Company or any Restricted Subsidiary made in exchange for, or out of the
proceeds of the substantially concurrent sale of, Capital Stock of the
Company (other than Disqualified Stock and other than Capital Stock issued
or sold to a Subsidiary of the Company); provided, however, that (A) the
Net Cash Proceeds that are utilized for any such acquisition, repurchase,
redemption, defeasance or repayment shall be excluded from the calculation
of the amount of Restricted Payments and (B) the Net Cash Proceeds from
such sale shall be excluded from the calculation of amounts under Section
4.4(a)(iii)(B);
(ii) any purchase or redemption of (A) Subordinated Obligations of the
Company made in exchange for, or out of the proceeds of the substantially
concurrent sale of, Indebtedness of the Company which is permitted to be
Incurred pursuant to Section 4.3(b) and (c) or (B) Subordinated Obligations
of a Restricted Subsidiary made in exchange for, or out of the proceeds of
the substantially concurrent sale of, Indebtedness of such Restricted
Subsidiary or the Company which is permitted to be Incurred pursuant to
Section 4.3(b) and (c); provided, however, that such purchase or redemption
shall be excluded from the calculation of the amount of Restricted
Payments;
(iii) any purchase or redemption of (A) Disqualified Stock of the
Company made in exchange for, or out of the proceeds of the substantially
concurrent sale of, Disqualified Stock of the Company or (B) Disqualified
Stock of a Restricted Subsidiary made in exchange for, or out of the
proceeds of the substantially concurrent sale of,
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Disqualified Stock of such Restricted Subsidiary or the Company; provided,
however, that (1) at the time of such exchange, no Default or Event of
Default shall have occurred and be continuing or would result therefrom and
(2) such purchase or redemption will be excluded from the calculation of
the amount of Restricted Payments; and
(iv) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with Section 4.4(a); provided, however, that at the time of payment of such
dividend, no Default shall have occurred and be continuing (or would result
therefrom); provided further, however, that such dividend shall be included
in the calculation of the amount of Restricted Payments.
SECTION 4.5. Limitation on Restrictions on Distributions from
Restricted Subsidiaries. The Company shall not, and shall not permit any
Restricted Subsidiary to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or consensual restriction on the ability of
any Restricted Subsidiary (a) to pay dividends or make any other distributions
on its Capital Stock to the Company or a Restricted Subsidiary or pay any
Indebtedness owed to the Company, (b) to make any loans or advances to the
Company or (c) to transfer any of its property or assets to the Company or any
Restricted Subsidiary, except:
(i) any encumbrance or restriction pursuant to an agreement in effect
at or entered into on the Issue Date;
(ii) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness Incurred
by such Restricted Subsidiary which was entered into on or prior to the
date on which such Restricted Subsidiary was acquired by the Company (other
than as consideration in, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by the Company) and outstanding on
such date;
(iii) any encumbrance or restriction pursuant to an agreement
effecting a Refinancing of Indebtedness Incurred pursuant to an agreement
referred to in clause (i) or (ii) of this Section 4.5 (or effecting a
Refinancing of such Refinancing Indebtedness pursuant to this clause (iii))
or contained in any amendment to an agreement referred to in clause (i) or
(ii) of this Section 4.5 or this clause (iii); provided, however, that the
encumbrances and restrictions with respect to such Restricted Subsidiary
contained in any such refinancing agreement or amendment are no more
restrictive in any material respect than encumbrances and restrictions with
respect to such Restricted Subsidiary contained in such agreements;
(iv) any such encumbrance or restriction consisting of customary
non-assignment provisions in leases governing leasehold interests to the
extent such provisions restrict the transfer of the lease or the property
leased thereunder;
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(v) in the case of this Section 4.5(c), restrictions contained in
security agreements or mortgages securing Indebtedness of a Restricted
Subsidiary to the extent such restrictions restrict the transfer of the
property subject to such security agreements or mortgages;
(vi) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition;
(vii) any encumbrance or restriction pursuant to the Senior Credit
Facility and any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings thereof,
provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings contain
encumbrances and restrictions with respect to such Restricted Subsidiary
that are no more restrictive in any material respect than the encumbrances
and restrictions with respect to such Restricted Subsidiary contained in
the Senior Credit Facility; and
(viii) any restrictions imposed by operation of applicable law.
SECTION 4.6. Limitation on Sales of Assets and Subsidiary Stock.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, consummate any Asset Disposition unless
the Company or such Restricted Subsidiary receives consideration at the time of
such Asset Disposition at least equal to the fair market value (including as to
the value of all non-cash consideration), as determined in good faith by the
Board of Directors, of the shares and assets subject to such Asset Disposition,
and at least 75% of the consideration therefor received by the Company or such
Restricted Subsidiary is in the form of cash or cash equivalents.
With respect to any Asset Disposition occurring on or after the Issue
Date from which the Company or any Restricted Subsidiary receives Net Available
Cash, the Company or such Restricted Subsidiary shall: (i) within 360 days after
the date such Net Available Cash is received and to the extent the Company or
such Restricted Subsidiary elects (or is required by the terms of any Senior
Indebtedness) to (A) apply an amount equal to such Net Available Cash to prepay,
repay or purchase Senior Indebtedness of the Company or such Restricted
Subsidiary, in each case owing to a Person other than the Company or any
Affiliate of the Company, or (B) invest an equal amount, or the amount not so
applied pursuant to clause (A), in Additional Assets (including by means of an
Investment in Additional Assets by a Restricted Subsidiary with Net Available
Cash received by the Company or another Restricted Subsidiary) and (ii) apply
such excess Net Available Cash (to the extent not applied pursuant to clause
(i)) as provided in the following paragraphs of this Section 4.6; provided,
however, that in connection with any prepayment, repayment or purchase of Senior
Indebtedness pursuant to clause (A) above, the Company or such Restricted
Subsidiary shall retire such Senior Indebtedness and shall cause the
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related loan commitment (if any) to be permanently reduced in an amount equal to
the principal amount so prepaid, repaid or purchased. The amount of Net
Available Cash required to be applied pursuant to clause (ii) above and not
theretofore so applied shall constitute "Excess Proceeds." Pending application
of Net Available Cash pursuant to this provision, such Net Available Cash shall
be invested in Temporary Cash Investments.
If at any time the aggregate amount of Excess Proceeds not theretofore
subject to an Excess Proceeds Offer (as defined below) totals at least $10
million, the Company shall, not later than 30 days after the end of the period
during which the Company is required to apply such Excess Proceeds pursuant to
clause (i) of the immediately preceding paragraph of this Section 4.6(a) (or, if
the Company so elects, at any time within such period), make an offer (an
"Excess Proceeds Offer") to purchase from the Holders on a pro rata basis an
aggregate principal amount of Securities equal to the Excess Proceeds (rounded
down to the nearest multiple of $1,000) on such date, at a purchase price equal
to 100% of the principal amount of such Securities, plus, in each case, accrued
interest (if any) to the date of purchase (the "Excess Proceeds Payment"). Upon
completion of an Excess Proceeds Offer the amount of Excess Proceeds remaining
after application pursuant to such Excess Proceeds Offer (including payment of
the purchase price for Securities duly tendered) may be used by the Company for
any corporate purpose (to the extent not otherwise prohibited by the Indenture)
and the amount of Excess Proceeds shall thereafter be reset at zero. Prior to
complying with the provisions of this paragraph, but in any event within 30 days
following the date on which the aggregate amount of Excess Proceeds not
theretofore subject to an Excess Proceeds Offer totals at least $10 million, the
Company will either repay all outstanding Senior Indebtedness or obtain the
requisite consents, if any, under all agreements governing outstanding Senior
Indebtedness to permit the repurchase of the Securities required by this
paragraph.
For the purposes of this Section 4.6, the following are deemed to be
cash or cash equivalents: (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
Disposition, and (y) securities received by the Company or any Restricted
Subsidiary from the transferee that are immediately converted by the Company or
such Restricted Subsidiary into cash.
(b) Promptly, and in any event within 30 days after the Company
becomes obligated to make an Excess Proceeds Offer, the Company shall be
obligated to deliver to the Trustee and send, by first-class mail to each
Holder, at the address appearing in the Security Register, a written notice
stating that the Holder may elect to have his Securities purchased by the
Company either in whole or in part (subject to prorationing as hereinafter
described in the event the Excess Proceeds Offer is oversubscribed) in integral
multiples of $1,000 of principal amount, at the applicable purchase price. The
notice, which shall govern the terms of the Excess Proceeds Offer, shall include
such disclosures as are required by law and shall specify (i) that the Excess
Proceeds Offer is being made pursuant to this Section 4.6; (ii) the purchase
price (including the amount of accrued interest, if any) for each Security and
the purchase date not less than 30 days nor more than 60 days after the date of
such notice (the "Purchase Date"); (iii) that any Security not tendered or
accepted for payment will continue to accrue interest in accordance with the
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terms thereof; (iv) that, unless the Company defaults on making the payment, any
Security accepted for payment pursuant to the Excess Proceeds Offer shall cease
to accrue interest on and after the Purchase Date; (v) that Securityholders
electing to have Securities purchased pursuant to an Excess Proceeds Offer will
be required to surrender their Securities to the Paying Agent at the address
specified in the notice at least three business days prior to the Purchase Date
and must complete any form letter of transmittal proposed by the Company and
acceptable to the Trustee and the Paying Agent; (vi) that Securityholders will
be entitled to withdraw their election if the Paying Agent receives, not later
than one business day prior to the Purchase Date, a telex, facsimile
transmission or letter setting forth the name of the Securityholder, the
principal amount of Securities the Securityholder delivered for purchase, the
Security certificate number (if any) and a statement that such Securityholder is
withdrawing its election to have such Securities purchased; (vii) that if
Securities in a principal amount in excess of the aggregate principal amount
which the Company has offered to purchase are tendered pursuant to the Excess
Proceeds Offer, the Company shall purchase Securities on a pro rata basis among
the Securities tendered (with such adjustments as may be deemed appropriate by
the Company so that only Securities in denominations of $1,000 or integral
multiples of $1,000 shall be acquired); (viii) that Securityholders whose
Securities are purchased only in part will be issued new Securities equal in
principal amount to the unpurchased portion of the Securities surrendered; and
(ix) the instructions that Security holders must follow in order to tender their
Securities.
(c) Not later than the date upon which written notice of an Excess
Proceeds Offer is delivered to the Trustee as provided below, the Company shall
deliver to the Trustee an Officers' Certificate as to (i) the amount of the
Excess Proceeds Offer (the "Excess Proceeds Offer Amount"), (ii) the allocation
of the Net Available Cash from the Asset Dispositions pursuant to which such
Excess Proceeds Offer is being made and (iii) the compliance of such allocation
with the provisions of Section 4.6(a). Upon the expiration of the period for
which the Excess Proceeds Offer remains open (the "Excess Proceeds Offer
Period"), the Company shall deliver to the Trustee for cancellation the
Securities or portions thereof which have been properly tendered to and are to
be accepted by the Company. Not later than 11:00 a.m. (New York City time) on
the Purchase Date, the Company shall irrevocably deposit with the Trustee or
with a paying agent (or, if the Company is acting as Paying Agent, segregate and
hold in trust) an amount in cash sufficient to pay the Excess Proceeds Offer
Amount for all Securities properly tendered to and accepted by the Company. The
Trustee shall, on the Purchase Date, mail or deliver payment to each tendering
Holder in the amount of the purchase price.
(d) Holders electing to have a Security purchased will be required to
surrender the Security, together with all necessary endorsements and other
appropriate materials duly completed, to the Company at the address specified in
the notice at least three Business Days prior to the Purchase Date. Holders will
be entitled to withdraw their election in whole or in part if the Trustee or the
Company receives not later than one Business Day prior to the Purchase Date, a
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Security (which shall be $1,000 or an integral multiple
thereof) which was delivered for purchase by the Holder, the aggregate principal
amount of such Security (if any) that remains subject to the original notice of
the Excess Proceeds Offer and that has been or will be delivered for purchase by
the Company and a statement that such Holder is withdrawing his election to have
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such Security purchased. If at the expiration of the Excess Proceeds Offer
Period the aggregate principal amount of Securities surrendered by Holders
exceeds the Excess Proceeds Offer Amount, the Company shall select the
Securities to be purchased on a pro rata basis (with such adjustments as may be
deemed appropriate by the Company so that only securities in denominations of
$1,000, or integral multiples thereof, shall be purchased). Holders whose
Securities are purchased only in part will be issued new Securities equal in
principal amount to the unpurchased portion of the Securities surrendered.
(e) A Security shall be deemed to have been accepted for purchase at
the time the Trustee, directly or through an agent, mails or delivers payment
therefor to the surrendering Holder.
(f) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section 4.6. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section 4.6, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this Section by virtue thereof.
SECTION 4.7. Limitation on Affiliate Transactions.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, enter into or permit to exist any transaction or series of
related transactions (including the purchase, sale, lease or exchange of any
property, employee compensation arrangements or the rendering of any service)
with any Affiliate of the Company (an "Affiliate Transaction") unless the terms
thereof: (1) are no less favorable to the Company or such Restricted Subsidiary
than those that could be obtained at the time of such transaction in
arm's-length dealings with a Person who is not such an Affiliate, (2) if such
Affiliate Transaction (or series of related Affiliate Transactions) involve
aggregate payments in an amount in excess of $1.0 million in any one year, (i)
are set forth in writing, (ii) comply with clause (1) of this Section 4.7 and
(iii) have been approved by a majority of the disinterested members of the Board
of Directors, and (3) if such Affiliate Transaction (or series of related
Affiliate Transactions) involves aggregate payments in an amount in excess of
$5.0 million in any one year, (i) comply with clause (2) and (ii) have been
determined by a nationally recognized consulting, accounting, appraisal or
investment banking firm to be fair, from a financial standpoint, to the Company
and its Restricted Subsidiaries.
(b) Section 4.7(a) shall not prohibit (i) any Restricted Payment
permitted to be paid pursuant to Section 4.4, (ii) any issuance of securities,
or other payments, awards or grants in cash, securities or otherwise, pursuant
to, or the funding of, employment arrangements, stock options and stock
ownership plans in the ordinary course of business and approved by the Board of
Directors, (iii) the grant of stock options or similar rights to employees and
directors of the Company in the ordinary course of business and pursuant to
plans approved by the Board of Directors, (iv) loans or advances to employees in
the ordinary course of business of the Company or its Restricted Subsidiaries,
(v) fees, compensation or employee benefit arrangements paid to and indemnity
provided for the benefit of directors, officers or employees of the Company or
any
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Subsidiary in the ordinary course of business, or (vi) any Affiliate Transaction
between the Company and a Restricted Subsidiary or between Restricted
Subsidiaries in the ordinary course of business (so long as the other
shareholders of any participating Restricted Subsidiaries which are not Wholly
Owned Restricted Subsidiaries are not themselves Affiliates of the Company).
SECTION 4.8. Change of Control.
(a) Upon the occurrence of a Change of Control, each Holder shall have
the right to require that the Company repurchase all or a portion (equal to
$1,000 or an integral multiple thereof) of such Holder's Securities at a
purchase price in cash equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of repurchase (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date), in accordance with the terms
contemplated in Section 4.8(b).
(b) Within 30 days following any Change of Control, the Company shall
mail a notice to each Holder with a copy to the Trustee stating:
(1) that a Change of Control has occurred and that such Holder has the
right to require the Company to purchase such Holder's Securities at a
purchase price in cash equal to 101% of the principal amount outstanding at
the repurchase date, plus accrued and unpaid interest, if any, to the date
of repurchase (subject to the right of Holders of record on the relevant
record date to receive interest on the relevant interest payment date);
(2) the circumstances and relevant facts and relevant financial
information regarding such Change of Control;
(3) the repurchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed); and
(4) the instructions determined by the Company, consistent with this
Section 4.8, that a Holder must follow in order to have its Securities
repurchased.
(c) Holders electing to have a Security purchased will be required to
surrender the Security, together with all necessary endorsements and other
appropriate materials duly completed, to the Company at the address specified in
the notice at least three Business Days prior to the repurchase date. Holders
will be entitled to withdraw their election if the Trustee or the Company
receives not later than one Business Day prior to the repurchase date, a
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Security which was delivered for repurchase by the
Holder as to which such notice of withdrawal is being submitted and a statement
that such Holder is withdrawing his election to have such Security purchased.
(d) On the repurchase date, the Company shall, to the extent lawful
(i) accept for payment all Securities or portions thereof properly tendered
pursuant to the immediately
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preceding paragraph (c), (ii) deposit with the Trustee (or Paying Agent) an
amount equal to the purchase price in respect of all Securities or portions
thereof tendered and (iii) deliver or cause to be delivered to the Trustee the
Securities so accepted together with an Officer's Certificate stating the
aggregate principal amount of Securities or portions thereof being repurchased
by the Company. The Trustee (or Paying Agent) shall promptly mail to each Holder
of Securities so tendered the purchase price, plus accrued and unpaid interest,
if any, for such Securities, and the Trustee shall promptly authenticate and
mail (or cause to be transferred by book entry) to each Holder a new Security
equal in principal amount to any unpurchased portion of the Securities
surrendered, if any; provided, however, that each such new Security shall be in
a principal amount of $1,000 or an integral multiple thereof.
(e) Prior to complying with the provisions of this covenant, but in
any event within 90 days following a Change of Control, the Company shall either
repay all outstanding Senior Indebtedness or obtain the requisite consents, if
any, under all agreements governing outstanding Senior Indebtedness to permit
the repurchase of the Securities required by this covenant.
(f) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section. To the extent that the provisions of any securities laws or regulations
conflict with provisions of this Section, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this Section by virtue thereof.
(g) Notwithstanding the occurrence of a Change of Control, the Company
shall not be obligated to repurchase the Securities or otherwise comply with
this Section if the Company has irrevocably elected to redeem all the Securities
in accordance with Article Three; provided that the Company does not default in
its redemption obligations pursuant to such election.
SECTION 4.9. Compliance Certificate. The Company shall deliver to the
Trustee within 120 days after the end of each fiscal year of the Company an
Officers' Certificate, one of the signers of which shall be the principal
executive, financial or accounting officer of the Company, stating that in the
course of the performance by the signers of their duties as Officers of the
Company they would normally have knowledge of any Default and whether or not the
signers know of any Default that occurred during such period. If they do, the
certificate shall describe the Default, its status and what action the Company
is taking or proposes to take with respect thereto. The Company also shall
comply with TIA Section 314(a)(4).
SECTION 4.10. Further Instruments and Acts. Upon request of the
Trustee, the Company shall execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
SECTION 4.11. Limitation on Liens. Except for Permitted Liens, the
Company shall not, and shall not permit any Restricted Subsidiary to, directly
or indirectly, Incur
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or permit to exist any Lien of any nature whatsoever on any property of the
Company or any Restricted Subsidiary (including Capital Stock of a Restricted
Subsidiary), whether owned at the Issue Date or thereafter acquired, which
secures Indebtedness that ranks pari passu with or is subordinated to the
Securities or any Subsidiary Guaranties unless
(i) if such Lien secures Indebtedness that ranks pari passu with the
Securities, the Securities are secured on an equal and ratable basis with
the obligation so secured until such time as such obligation is no longer
secured by a Lien; or
(ii) if such Lien secures Indebtedness that is subordinated to the
Securities, such Lien shall be subordinated to a Lien granted to the
Holders on the same collateral as that securing such Lien to the same
extent as such subordinated Indebtedness is subordinated to the Security.
SECTION 4.12. Limitation on Issuance or Sale of Capital Stock of
Restricted Subsidiaries. The Company shall not (i) sell, pledge, hypothecate or
otherwise dispose of any shares of Capital Stock of a Restricted Subsidiary
(other than pledges of Capital Stock securing Senior Indebtedness), or (ii)
permit any Restricted Subsidiary, directly or indirectly, to issue or sell or
otherwise dispose of any shares of its Capital Stock other than (A) to the
Company or a Wholly Owned Subsidiary, (B) directors' qualifying shares, or (C)
if, immediately after giving effect to such issuance or sale, such Restricted
Subsidiary would no longer constitute a Restricted Subsidiary.
SECTION 4.13. Payment of Taxes and Other Claims. The Company shall,
and shall cause each of its Subsidiaries to, pay or discharge or cause to be
paid or discharged, before the same shall become delinquent, all taxes,
assessments and governmental charges levied or imposed upon its or its
Subsidiaries' income, profits or property; provided, however, that neither the
Company nor any of its Subsidiaries shall be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by
appropriate negotiations or proceedings and for which disputed amounts adequate
reserves have been made in accordance with GAAP.
SECTION 4.14. Future Guarantors. The Company shall cause each
Restricted Subsidiary that at any time becomes an obligor or guarantor with
respect to any obligations under the Senior Credit Facility to execute and
deliver to the Trustee a supplemental indenture pursuant to which such
Restricted Subsidiary will Guarantee payment of the Securities on the same terms
and conditions as those set forth in this Indenture. Any such Guarantee shall be
subordinated in a manner similar to that of the Securities. Each Subsidiary
Guaranty will be limited in amount to an amount not to exceed the maximum amount
that can be Guaranteed by the applicable Subsidiary Guarantor without rendering
such Subsidiary Guaranty voidable under applicable law relating to fraudulent
conveyance or fraudulent transfer or similar laws affecting the rights of
creditors generally. Each Subsidiary which is required to become a Subsidiary
Guarantor pursuant to this Section 4.14 shall, and the Company shall cause each
such Subsidiary to, promptly execute and deliver to the Trustee a supplemental
indenture in the form of Exhibit F hereto pursuant to which such Subsidiary
shall become a Subsidiary Guarantor and shall
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guarantee the Obligations. Concurrently with the execution and delivery of such
supplemental indenture, the Company shall deliver to the Trustee an Opinion of
Counsel to the effect that such supplemental indenture has been duly authorized,
executed and delivered by such Subsidiary and that, subject to the application
of bankruptcy, insolvency, moratorium, fraudulent conveyance or transfer and
other similar laws relating to creditors' rights generally and to the principles
of equity, whether considered in a proceeding at law or in equity, the
Subsidiary Guaranty of such Subsidiary Guarantor is a legal, valid and binding
obligation of such Subsidiary Guarantor, enforceable against such Subsidiary
Guarantor in accordance with its terms.
SECTION 4.15. Maintenance of Office or Agency. The Company shall
maintain in the Borough of Manhattan, The City of New York, an office or agency
(which may be an office or agency of the Trustee, Registrar or co-Registrar),
where Securities may be surrendered for registration of transfer or exchange or
for presentation for payment 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 such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the address of the Trustee's office
in New York City as set forth in Section 11.2.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, The City of New York, for such purposes. The Company will
give prompt written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other office or agency.
The Company hereby initially designates the Trustee's office in New
York City, currently situated at 114 West 47th Street, New York, New York 10036,
Attn: Corporate Trust Administration, as an agency of the Company in accordance
with Section 2.3.
SECTION 4.16. Corporate Existence. Subject to Article 5 and Section
4.6, the Company shall do or cause to be done, at its own cost and expense, all
things necessary to, and will cause each of its Restricted Subsidiaries to,
preserve and keep in full force and effect the corporate or partnership
existence and rights (charter and statutory), licenses and/or franchises of the
Company and each of its Restricted Subsidiaries; provided, however, that the
Company or any of its Restricted Subsidiaries shall not be required to preserve
any such rights, licenses or franchises if the Board of Directors shall
reasonably determine that the preservation thereof is no longer desirable in the
conduct of the business of the Company and the Subsidiaries, taken as a whole.
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ARTICLE 5
SUCCESSOR COMPANY
SECTION 5.1. Merger, Consolidation and Sale of Assets. The Company
shall not consolidate with or merge with or into, or convey, transfer or lease,
in one transaction or a series of related transactions, all or substantially all
its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor
Company") shall be a Person organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and
the Successor Company (if not the Company) will expressly assume, by an
indenture supplemental hereto, executed and delivered to the Trustee, in
form satisfactory to the Trustee, all the obligations of the Company under
the Securities and this Indenture;
(ii) immediately after giving effect to such transaction on a pro
forma basis (and treating any Indebtedness which becomes an obligation of
such Successor Company or any Subsidiary as a result of such transaction as
having been Incurred by such Successor Company or such Subsidiary at the
time of such transaction), no Default shall have occurred and be
continuing;
(iii) except in the case of a merger with or into a Wholly Owned
Subsidiary or a merger, the sole purpose of which is to change the
Company's jurisdiction of incorporation, immediately after giving effect to
such transaction on a pro forma basis, the Successor Company would be able
to Incur an additional $1.00 of Indebtedness pursuant to Section 4.3(a);
(iv) immediately after giving effect to such transaction on a pro
forma basis, the Successor Company shall have a Consolidated Net Worth in
an amount that is not less than the Consolidated Net Worth of the Company
immediately prior to such transaction; and
(v) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with this Indenture.
Opinions of Counsel required to be delivered under this Section or
elsewhere in this Indenture 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.
The Successor Company shall be the successor to the Company and
succeed to, and be substituted for, and may exercise every right and power of,
the Company under this
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Indenture, but the predecessor Company in the case of a conveyance, transfer or
lease, shall not be released from the obligation to pay the principal of and
interest on the Securities.
Notwithstanding the foregoing clauses (ii), (iii) and (iv) of this
Section 5.1, any Restricted Subsidiary may consolidate with, merge into or
transfer all or part of its properties and assets to the Company.
To the extent applicable, the Company shall not permit any Subsidiary
Guarantor to consolidate with or merge with or into, or convey, transfer or
lease, in one transaction or a series of transactions, all or substantially all
its assets to, any Person, unless: (i) the resulting, surviving or transferee
Person (if not such Subsidiary) shall be a Person organized and existing under
the laws of the United States of America, any State thereof or the District of
Columbia and the Successor Company (if not such Subsidiary) shall expressly
assume, by a Guaranty Agreement, in form satisfactory to the Trustee, all the
obligations of such Subsidiary under its Subsidiary Guaranty; (ii) immediately
after giving effect to such transaction on a pro forma basis (and treating any
Indebtedness which becomes an obligation of the resulting, surviving or
transferee Person as a result of such transaction as having been Incurred by
such Person at the time of such transaction), no Default shall have occurred and
be continuing; and (iii) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such Guaranty Agreement comply with the
Indenture. The provisions of clauses (i) and (iii) above shall not apply to any
transactions which constitute an Asset Disposition if the Company has complied
with the applicable provisions of Section 4.6.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.1. Events of Default. An "Event of Default" occurs if:
(i) the Company defaults in the payment of interest on any Security
when the same becomes due and payable (whether or not such payment is
prohibited by the provisions of Article 10 hereof), and such default
continues for a period of 30 days;
(ii) the Company defaults in the payment of the principal, or premium,
if any, of any Security when the same becomes due and payable at its Stated
Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise (whether or not such payment is prohibited by the
provisions of in Article 10 hereof);
(iii) the Company fails to comply for 30 days after notice with any
obligations under Sections 4.3, 4.4, 4.6 or 5.1;
(iv) the Company fails to comply with any of its agreements in the
Securities or this Indenture (other than those referred to in (i), (ii), or
(iii) above) and such failure continues for 60 days after the notice
specified below;
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(v) the Company or any Restricted Subsidiary of the Company fails to
pay any Indebtedness within any applicable grace period after final
maturity or there occurs any acceleration of any such Indebtedness by the
holders thereof because of a default and the total amount of such
Indebtedness unpaid or accelerated exceeds $5.0 million and in either case,
such default is not cured or waived and such acceleration, if any,
rescinded or the Indebtedness is not paid in 30 days;
(vi) the Company or any Restricted Subsidiary of the Company pursuant
to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in an
involuntary case in which it is the debtor;
(C) consents to the appointment of a Custodian of it or for any
substantial part of its property; or
(D) makes a general assignment for the benefit of its creditors;
or takes any comparable action under any foreign laws relating to
insolvency;
(vii) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Company or any Restricted
Subsidiary of the Company in an involuntary case;
(B) appoints a Custodian of the Company or any Restricted
Subsidiary of the Company or for any substantial part of the property
of the Company or Restricted Subsidiary;
(C) orders the winding up or liquidation of the Company or any
Restricted Subsidiary of the Company;
(or any similar relief is granted under any foreign laws) and the order or
decree remains unstayed and in effect for 60 days; or
(viii) the rendering of any judgment or decree for the payment of
money in excess of $5.0 million against the Company or any Restricted
Subsidiary if such judgment or decree remains unpaid and outstanding for a
period of 60 days following such judgment and is not discharged, waived or
stayed within 60 days after such judgment or decree thereof.
The foregoing will constitute Events of Default whatever the reason for any such
Event of Default and whether it is voluntary or involuntary or is effected by
operation of law or pursuant to any
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judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body.
The term "Bankruptcy Law" means Title 11, United States Code, as
amended, or any similar federal or state law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator, custodian or
similar official under any Bankruptcy Law.
A Default under clause (iii) or (iv) of this Section 6.1 is not an
Event of Default until the Trustee or the Holders of at least 25% in aggregate
principal amount of the outstanding Securities notify the Company of the Default
and the Company does not cure such Default within the time specified after
receipt of such notice. Such notice must specify the Default, demand that it be
remedied and state that such notice is a "Notice of Default".
The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any Event of Default under clause (v) of this Section 6.1 and any event which
with the giving of notice or the lapse of time would become an Event of Default
under clause (iii), (iv) or (viii) of this Section 6.1, its status and what
action the Company is taking or proposes to take with respect thereto.
SECTION 6.2. Acceleration. If an Event of Default occurs and is
continuing, the Trustee by notice to the Company, or the Holders of at least 25%
in aggregate principal amount of the outstanding Securities by notice to the
Company and the Trustee, may declare the principal of and accrued but unpaid
interest on all the Securities to be due and payable. Upon such a declaration,
such principal and interest shall be due and payable immediately. If an Event of
Default specified in Section 6.1(vi) or (vii) with respect to the Company occurs
and is continuing, the principal of and interest on all the Securities will ipso
facto become and be immediately due and payable without any declaration or other
act on the part of the Trustee or any Securityholders. The Holders of a majority
in aggregate principal amount of the outstanding Securities by notice to the
Trustee may rescind an acceleration and its consequences if the rescission would
not conflict with any judgment or decree and if all existing Events of Default
have been cured or waived except nonpayment of principal or interest that has
become due solely because of acceleration. No such rescission shall affect any
subsequent Default or impair any right consequent thereto.
SECTION 6.3. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are, to the extent
permitted by law, cumulative.
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SECTION 6.4. Waiver of Past Defaults. The Holders of a majority in
aggregate principal amount of the Securities then outstanding by notice to the
Trustee may waive any past or existing Default and its consequences except (i) a
Default in the payment of the principal of or interest on a Security or (ii) a
Default in respect of a provision that under Section 9.2 cannot be amended
without the consent of each Securityholder affected. When a Default is waived,
it is deemed cured, and any Event of Default arising therefrom shall be deemed
to have been cured, but no such waiver shall extend to any subsequent or other
Default or impair any consequent right.
SECTION 6.5. Control by Majority. The Holders of a majority in
aggregate principal amount of the Securities then outstanding may direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or of exercising any trust or power conferred on the Trustee.
However, the Trustee may refuse to follow any direction that conflicts with law
or this Indenture or, subject to Section 7.1, that the Trustee determines is
unduly prejudicial to the rights of other Securityholders or would involve the
Trustee in personal liability; provided, however, that the Trustee may take any
other action deemed proper by the Trustee that is not inconsistent with such
direction. Prior to taking any action hereunder, the Trustee shall be entitled
to indemnification from the Securityholders satisfactory to it in its sole
discretion against all losses and expenses caused by taking or not taking such
action.
SECTION 6.6. Limitation on Suits. A Securityholder may not pursue any
remedy with respect to this Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice stating that an
Event of Default is continuing;
(2) the Holders of at least 25% in aggregate principal amount of the
Securities then outstanding make a written request to the Trustee to pursue
the remedy;
(3) such Holder or Holders offer to the Trustee reasonable security or
indemnity against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of security or indemnity; and
(5) the Holders of a majority in aggregate principal amount of the
Securities then outstanding do not give the Trustee a direction
inconsistent with the request during such 60-day period.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over another
Securityholder.
SECTION 6.7. Rights of Holders to Receive Payment. Notwithstanding any
other provision of this Indenture, the right of any Holder to receive payment of
principal,
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premium (if any) or interest on the Securities held by such Holder, on or after
the respective due dates expressed in the Securities, or to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of such Holder.
SECTION 6.8. Collection Suit by Trustee. If an Event of Default
specified in Section 6.1(i) or (ii) occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company for the whole amount then due and owing (together with interest on any
unpaid interest to the extent lawful) and the amounts provided for in Section
7.7.
SECTION 6.9. Trustee May File Proofs of Claim. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee and the Securityholders
allowed in any judicial proceedings relative to the Company, its creditors or
its property and, unless prohibited by law or applicable regulations, may vote
on behalf of the Holders in any election of a trustee in bankruptcy or other
Person performing similar functions, and any Custodian in any such judicial
proceeding is hereby authorized by each Holder to make payments to the Trustee
and, in the event that the Trustee shall consent to the making of such payments
directly to the Holders, to pay to the Trustee any amount due it for the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and its counsel, and any other amounts due the Trustee under Section
7.7.
SECTION 6.10. Priorities. If the Trustee collects any money or
property pursuant to this Article 6, it shall pay out the money or property in
the following order, subject to applicable law:
FIRST: to the Trustee for amounts due under Section 7.7;
SECOND: to Securityholders for amounts due and unpaid on the
Securities for principal (including any premium) and interest, ratably,
without preference or priority of any kind, according to the amounts due
and payable on the Securities for principal (including any premium) and
interest, respectively; and
THIRD: to the Company.
The Trustee may, upon prior written notice to the Company, fix a
record date and payment date for any payment to Securityholders pursuant to this
Section. At least 15 days before such record date, the Company shall mail to
each Securityholder and the Trustee a notice that states the record date, the
payment date and amount to be paid.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement
of any right or remedy under this Indenture (except any suit brought by the
Trustee as provided in the immediately succeeding sentence) or in any suit
against the Trustee for any action taken or omitted by it as Trustee, a court in
its discretion may require the filing by any party litigant in the suit of an
undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including attorneys' fees and expenses, against any
party litigant in the suit,
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having due regard to the merits and good faith of the claims or defenses made by
the party litigant. This Section does not apply to a suit by the Trustee, a suit
by a Holder pursuant to Section 6.7 or a suit by Holders of more than 10% in
aggregate principal amount of the outstanding Securities.
SECTION 6.12. Waiver of Stay or Extension Laws. The Company (to the
extent it may lawfully do so) shall not at any time insist upon, or plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Indenture; and the Company (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and shall not hinder, delay or impede the execution
of any power herein granted to the Trustee, but shall suffer and permit the
execution of every such power as though no such law had been enacted.
ARTICLE 7
TRUSTEE
SECTION 7.1. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise the rights and powers vested in it by this Indenture and use the
same degree of care and skill in their exercise as a prudent Person would
exercise or use under the circumstances in the conduct of such Person's own
affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only such duties
as are expressly and specifically set forth in this Indenture and no
implied covenants or obligations whatsoever shall be read into this
Indenture against the Trustee; and
(2) the Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture. However, in the case of any such
certificates or opinions which by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall examine the
certificates and opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(1) this paragraph does not limit the effect of paragraph (b) of this
Section;
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(2) the Trustee shall not be liable for any error of judgment made in
good faith by it or a Trust Officer unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.5 hereof.
(d) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur 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 believe that repayment of such funds or adequate indemnity
against such risk or liability is not assured to it.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section and to
the provisions of the TIA.
(f) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(g) The Trustee shall have no responsibility whatsoever to examine or
review and shall have no liability for the contents of any documents submitted
to or delivered to any Holder of Securities by the Company in the nature of a
solicitation or an official statement or offering circular, whether preliminary
or final; provided, however, that should the Trustee request further
information, no implied duty on the part of the Trustee shall be imposed on the
Trustee therefrom.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
SECTION 7.2. Rights of Trustee. Subject to Section 7.1,
(a) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in the document; provided, however, that
should the Trustee request further information, no implied duty on the part of
the Trustee shall be imposed on the Trustee therefrom.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable
for any action it takes or omits to take in reliance on the Officers'
Certificate or Opinion of Counsel. The Trustee's counsel shall not be deemed to
be counsel to the Holders under any circumstances unless such counsel, the
Trustee and the respective Holders otherwise agree in writing.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care.
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(d) The Trustee shall not be liable for any action it takes or omits
to take which it believes to be authorized or within its rights or powers;
provided, however, that the Trustee's conduct does not constitute willful
misconduct or negligence.
(e) The Trustee may consult with counsel of its selection, and the
advice or opinion of counsel with respect to legal matters relating to this
Indenture and the Securities shall be full and complete authorization and
protection from liability in respect to any action taken, omitted or suffered by
it hereunder in accordance with the advice or opinion of such counsel.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request or direction.
(g) Except with respect to Section 4.1, the Trustee shall have no duty
to inquire as to the performance of the Company's covenants in Article 4. In
addition, the Trustee shall not be deemed to have knowledge of any Default of
Event of Default except (i) any Default or Event of Default occurring pursuant
to Sections 6.1(i), 6.1(ii) and 4.1 or (ii) any Default or Event of Default of
which a Responsible Officer of the Trustee shall have received written
notification or obtained actual knowledge.
SECTION 7.3. Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or its respective Affiliates with the
same rights it would have if it were not Trustee. However, upon the terms stated
in Section 310 of the TIA, in the event that the Trustee acquires any
conflicting interest (as defined in Section 310(b) of the TIA), it must
eliminate such conflict within 90 days, apply to the SEC for permission to
continue as Trustee or resign. Any Paying Agent, Registrar, co-registrar or
co-paying agent may do the same with like rights. However, the Trustee must
comply with Sections 7.10 and 7.11.
SECTION 7.4. Trustee's Disclaimer. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the Company's
use of the proceeds from the Securities, and it shall not be responsible for any
statement of the Company in this Indenture or in any document issued in
connection with the sale of the Securities or in the Securities other than the
Trustee's certificate of authentication.
SECTION 7.5. Notice of Defaults. If a Default or Event of Default
occurs and is continuing and if it is known to a Responsible Officer of the
Trustee, the Trustee shall mail to each Securityholder notice of the Default or
Event of Default within 30 days after it is known by a Trust Officer or written
notice is received by the Trustee. Except in the case of a Default or Event of
Default in payment of principal of or interest on any Security (including
payments pursuant to the mandatory redemption provisions of such Security, if
any), the Trustee may
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withhold the notice if and so long as a committee of its Responsible Officers in
good faith determines that withholding the notice is in the interests of
Securityholders.
SECTION 7.6. Reports by Trustee to Holders. As promptly as practicable
after each May 15 beginning with the May 15 following the date of this
Indenture, and in any event prior to July 15 in each year, the Trustee shall
mail to each Securityholder a brief report dated as of such reporting date that
complies with TIA ss. 313(a). The Trustee also shall comply with TIA ss. 313(b).
Prior to delivery to the Holders, the Trustee shall deliver to the Company a
copy of any report it delivers to Holders pursuant to this Section 7.6.
A copy of each report at the time of its mailing to Securityholders
shall be filed with the SEC and each stock exchange (if any) on which the
Securities are listed. The Company agrees to notify promptly the Trustee
whenever the Securities become listed on any stock exchange and of any delisting
thereof.
SECTION 7.7. Compensation and Indemnity. Except as otherwise agreed,
the Company shall pay to the Trustee from time to time such reasonable
compensation for acceptance of this Indenture and its services hereunder as the
Company and the Trustee shall from time to time agree in writing. The Trustee's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The Company shall reimburse the Trustee upon request for all
reasonable out-of-pocket expenses incurred or made by it, including costs of
collection, in addition to such compensation for its services, except any such
expense, disbursement or advance as may arise from its negligence, willful
misconduct or bad faith. Such expenses shall include the compensation and
expenses, disbursements and advances of the Trustee's agents, counsel,
accountants and experts. The Trustee shall provide the Company reasonable notice
of any expenditure not in the ordinary course of business. The Company shall
indemnify each of the Trustee and any predecessor Trustees against any and all
loss, damage, claim, liability or expense (including attorneys' fees and
expenses) (other than taxes applicable to the Trustee's compensation hereunder)
incurred by it in connection with the acceptance or administration of this trust
and the performance of its duties hereunder. The Trustee shall defend the claim.
The Company need not reimburse any expense or indemnify against any loss,
liability or expense incurred by the Trustee through the Trustee's own willful
misconduct or negligence. The Company need not pay for any settlement made
without its written consent, which shall not be unreasonably withheld.
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee other than money or property held in trust to pay
principal of and interest on particular Securities.
The Company's payment obligations pursuant to this Section shall
survive the discharge of this Indenture. When the Trustee incurs expenses after
the occurrence of a Default specified in Section 6.1(vi) or (vii) with respect
to the Company, the expenses are intended to constitute expenses of
administration under the Bankruptcy Law. The Trustee shall comply with the
provisions of TIA Section 313(b)(2) to the extent applicable.
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SECTION 7.8. Replacement of Trustee. No resignation or removal of the
Trustee and no appointment of a successor Trustee pursuant to this Article 7
shall become effective until the acceptance of appointment by the successor
Trustee under this Section 7.8.
The Trustee may resign at any time upon 30 days written notice to the
Company. The Holders of a majority in principal amount of the Securities then
outstanding may remove the Trustee by so notifying the Trustee and Company in
writing. The Company shall remove the Trustee if:
(1) the Trustee fails to satisfy the provisions of Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(3) a receiver or other public officer takes charge of the Trustee or
its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns, is removed by the Company or by the Holders of
a majority in principal amount of the Securities and such Holders do not
reasonably promptly appoint a successor Trustee, or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), the Company shall promptly appoint a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.7.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or any
Holder who has been a bona fide Holder for at least six months may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
If, after written request by any Holder who has been a bona fide
Holder for at least six months, the Trustee fails to satisfy the provisions of
Section 7.10, any Securityholder may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
Notwithstanding the replacement of the Trustee pursuant to this
Section, the Company's obligations under Section 7.7 shall continue for the
benefit of the retiring Trustee.
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SECTION 7.9. Successor Trustee by Merger. If the Trustee consolidates
with, merges or converts into, or transfers all or substantially all its
corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee, provided that such corporation shall
be eligible under this Article 7 and TIA ss. 3.10(a).
In case at the time such successor or successors by merger, conversion
or consolidation 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 to the Trustee; and in
all such cases such certificates shall have the full force which it is anywhere
in the Securities or in this Indenture provided that the certificate of the
Trustee shall have.
SECTION 7.10. Eligibility; Disqualification. There shall at all times
be a Trustee hereunder which shall be a financial institution, commercial bank
with trust powers or a trust company, which shall have (or, in the care of a
financial institution, commercial bank with trust powers or a trust company
included in a bank holding company system, the related bank holding company
shall have) a combined capital and surplus of at least $50,000,000, be subject
to supervision or examination by a federal or state authority so long as any
Notes are outstanding, be eligible pursuant to the TIA to act as such and
maintain (or, in the case of a financial institution, commercial bank with trust
powers or a trust company included in a bank holding company system, the related
bank holding company or other financial institution, bank or trust company
included in such bank holding company system shall maintain) an office or access
within its corporate structure to an office in the Borough of Manhattan, The
City of New York. If such financial institution, commercial bank or trust
company 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 Person shall
be deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time the Trustee shall case to be
eligible in accordance with the provision of this Section, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA ss. 310(a)(1), (2) and (5). The Trustee is subject to TIA
ss. 310(b).
SECTION 7.11. Preferential Collection of Claims Against Company. The
Trustee shall comply with TIA ss. 311(a), excluding any creditor relationship
listed in TIA ss. 311(b). A Trustee who has resigned or been removed shall be
subject to TIA ss. 311(a) to the extent indicated.
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ARTICLE 8
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.1. Discharge of Liability on Securities; Defeasance.
(a) When (i) the Company delivers to the Trustee all outstanding
Securities (other than Securities replaced pursuant to Section 2.7) for
cancellation or (ii) all outstanding Securities have become due and payable,
whether at maturity or as a result of the mailing of a notice of redemption
pursuant to Article 3 hereof, and, in each case of this clause (ii), the Company
irrevocably deposits or causes to be deposited with the Trustee United States
dollars or U.S. Government Obligations sufficient to pay and discharge the
entire indebtedness on the Securities not heretofore delivered to the Trustee
for cancellation, for the principal of, premium, if any, and interest to the
date of deposit (other than Securities replaced pursuant to Section 2.7), and if
in either case the Company pays all other sums payable hereunder by the Company,
then this Indenture shall, subject to Section 8.1(c), cease to be of further
effect. The Trustee shall acknowledge satisfaction and discharge of this
Indenture on demand of the Company accompanied by an Officers' Certificate from
the Company that all conditions precedent provided for herein relating to
satisfaction and discharge of this Indenture have been complied with and at the
cost and expense of the Company.
(b) Subject to Sections 8.1(c) and 8.2, the Company at any time may
terminate (i) all of its obligations under the Securities and this Indenture
("legal defeasance option") or (ii) its obligations under Article 4 and the
operation of Sections 6.1(iii), 6.1(iv), 6.1(v), 6.1(vi) and 6.1(vii) (but only
with respect to a Restricted Subsidiary), or 6.1(viii) and 5.1(iii) and 5.1(iv)
("covenant defeasance option"). The Company may exercise its legal defeasance
option notwithstanding its prior exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the
Securities may not be accelerated because of an Event of Default with respect
thereto. If the Company exercises its covenant defeasance option, payment of the
Securities may not be accelerated due to a failure to comply with Article 4 or
the operation of Sections 6.1(iii) (but, only with respect to a failure to
comply with Sections 4.3, 4.4, 4.6, 5.1(iii) and 5.1(iv)), 6.1(iv), 6.1(v),
6.1(vi) and 6.1(vii) (but only with respect to a Restricted Subsidiary), or
6.1(viii) or because of the failure of the Company to comply with 5.1(iii) and
5.1(iv). If the Company exercises its legal defeasance option or its covenant
defeasance option, each Subsidiary Guarantor, to the extent applicable, will be
released from all of its obligations under any Supplemental Indenture entered
into pursuant to Section 4.14.
Upon satisfaction of the conditions set forth herein and upon request
of the Company, the Trustee shall acknowledge in writing the discharge of those
obligations that the Company terminates.
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(c) Notwithstanding clauses (a) and (b) above, the Company's
obligations in Sections 2.3, 2.4, 2.5, 2.6, 2.7, 7.7, 7.8, 8.3, 8.4, 8.5 and 8.6
shall survive until the Securities have been paid in full. Thereafter, the
Company's obligations in Sections 7.7, 8.4 and 8.5 shall survive.
SECTION 8.2. Conditions to Defeasance. The Company may exercise its
legal defeasance option or its covenant defeasance option only if:
(1) the Company irrevocably deposits or causes to be deposited in
trust (the "defeasance trust") with the Trustee money or U.S. Government
Obligations which through the scheduled payment of principal and interest
in respect thereof in accordance with their terms will provide cash at such
times and in such amounts as will be sufficient to pay principal and
interest when due on all outstanding Securities (except Securities replaced
pursuant to Section 2.7) to maturity or redemption, as the case may be;
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their
opinion that the payments of principal and interest when due and without
reinvestment on the deposited U.S. Government Obligations plus any
deposited money without investment will provide cash at such times and in
such amounts as will be sufficient to pay principal and interest when due
on all outstanding Securities (except Securities replaced pursuant to
Section 2.7) to maturity or redemption, as the case may be;
(3) 91 days pass after the deposit is made and during the 91-day
period no Default specified in Section 6.1(vi) or (vii) with respect to the
Company occurs which is continuing at the end of the period;
(4) the deposit does not result in a breach of, or otherwise
constitute a default under any other agreement or investment with respect
to any Senior Indebtedness and no default exists under any Indebtedness;
(5) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or is
qualified as, a regulated investment company under the Investment Company
Act of 1940;
(6) the Company shall have delivered to the Trustee an Opinion of
Counsel stating that the Securityholders will not recognize income, gain or
loss for federal income tax purposes as a result of such deposit and
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 deposit and defeasance had not occurred;
(7) in the case of the covenant defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Securityholders 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
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same manner and at the same times as would have been the case if such
deposit and covenant defeasance had not occurred;
(8) the Company delivers to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent to the
defeasance and discharge of the Securities as contemplated by this Article
8 have been complied with; and
(9) the Company shall have paid or duly provided for payment under
terms mutually satisfactory to the Company and the Trustee all amounts then
due to the Trustee pursuant to Section 7.7 hereof.
Opinions of Counsel required to be delivered under this Section 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.
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date in
accordance with Article 3.
SECTION 8.3. Application of Trust Money. The Trustee shall hold in
trust money or U.S. Government Obligations deposited with it pursuant to this
Article 8. It shall apply the deposited money and the money from U.S. Government
Obligations either directly or through the Paying Agent (including the Company
acting as its own Paying Agent as the Trustee may determine) and in accordance
with this Indenture to the payment of principal of and interest on the
Securities.
Anything in Article 8 to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon the request of the
Company any money or U.S. Government Obligations held by it as provided in
Section 8.2 hereof which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee (which may be the opinion delivered under Section
8.2(1) hereof), are in excess of the amount thereof that would then be required
to be deposited to effect and equivalent legal defeasance or covenant
defeasance.
SECTION 8.4. Repayment to Company. The Trustee and the Paying Agent
shall notify the Company of any excess money or Securities held by them at any
time and shall promptly turn over to the Company upon request any excess money
or securities held by them at any time.
Subject to any applicable abandoned property law, the Trustee and the
Paying Agent shall pay to the Company upon written request any money held by
them for the payment of principal or interest that remains unclaimed for two
years, and, thereafter, Securityholders entitled to the money must look to the
Company for payment as general creditors.
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SECTION 8.5. Indemnity for Government Obligations. The Company shall
pay and shall indemnify the Trustee against any tax, fee or other charge imposed
on or assessed against deposited U.S. Government Obligations or the principal
and interest received on such U.S. Government Obligations other than any such
tax, fee or other charge which by law is for the account of the Holders of the
defeased Securities; provided that the Trustee shall be entitled to charge any
such tax, fee or other charge to such Holder's account.
SECTION 8.6. Reinstatement. If the Trustee or Paying Agent is unable
to apply any money or U.S. Government Obligations in accordance with this
Article 8 by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to this Article 8 until such time as the Trustee
or Paying Agent is permitted to apply all such money or U.S. Government
Obligations in accordance with this Article 8; provided, however, that, (a) if
the Company has made any payment of interest on or principal of any Securities
following the reinstatement of their obligations, the Company shall be
subrogated to the rights of the Holders of such Securities to receive such
payment from the money or U.S. Government Obligations held by the Trustee or
Paying Agent and (b) unless otherwise required by any legal proceeding or any
order or judgment of any court or governmental authority, the Trustee or Paying
Agent shall return all such money and U.S. Government Obligations to the Company
promptly after receiving a written request therefor at any time, if such
reinstatement of the Company's obligations has occurred and continues to be in
effect.
ARTICLE 9
AMENDMENTS
SECTION 9.1. Without Consent of Holders. The Company and the Trustee
may amend this Indenture or the Securities without notice to or consent of any
Securityholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article 5;
(3) to provide for the issuance of additional Securities up to an
aggregate principal amount of $250,000,000 issuable hereunder;
(4) to provide for uncertificated Securities in addition to or in
place of certificated Securities; provided, however, that the
uncertificated Securities are issued in registered form for purposes of
Section 163(f) of the Code or in a manner such that the uncertificated
Securities are as described in Section 163(f)(2)(B) of the Code;
(5) to add Guarantees with respect to the Securities;
61.
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(6) to secure the Securities;
(7) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company;
(8) to make any change that does not adversely affect the rights of
any Securityholder; or
(9) to comply with any requirements of the SEC in connection with
qualifying this Indenture under the TIA.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this section.
SECTION 9.2. With Consent of Holders. The Company and the Trustee may
amend this Indenture or the Securities without notice to any Securityholder but
with the written consent of the Holders of at least a majority in principal
amount of the Securities then outstanding. However, without the consent of each
Securityholder affected, an amendment may not:
(1) reduce the amount of Securities whose Holders must consent to an
amendment;
(2) reduce the rate of or extend the time for payment of interest on
any Security;
(3) reduce the principal of or extend the Stated Maturity of any
Security;
(4) reduce the premium payable upon the redemption of any Security or
change the time at which any Security may be redeemed in accordance with
Article 3;
(5) make any Security payable in money other than that stated in the
Security;
(6) impair the right of any Holder to institute suit for the
enforcement of any payment on or with respect to such Holder's Securities
or, if applicable, any Subsidiary Guaranty;
(7) make any change in the amendment provisions which require each
Holder's consent or in the waiver provisions; or
(8) make any change to the subordination provisions of this Indenture
that would adversely affect the securityholders.
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It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent approves the substance thereof.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
SECTION 9.3. Compliance with Trust Indenture Act. Every amendment to
this Indenture or the Securities shall comply with the TIA as then in effect.
SECTION 9.4. Revocation and Effect of Consents and Waivers. A consent
to an amendment or a waiver by a Holder of a Security shall bind the Holder and
every subsequent Holder of that Security or portion of the Security that
evidences the same debt as the consenting Holder's Security, even if notation of
the consent or waiver is not made on the Security. An amendment or waiver
becomes effective once the requisite number of consents are received by the
Company or the Trustee. After an amendment or waiver becomes effective, it shall
bind every Securityholder.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Securityholders entitled to give their consent or
take any other action described above or required or permitted to be taken
pursuant to this Indenture. If a record date is fixed, then notwithstanding the
immediately preceding paragraph, those Persons who were Securityholders at such
record date (or their duly designated proxies), and only those Persons, shall be
entitled to give such consent or to revoke any consent previously given or to
take any such action, whether or not such Persons continue to be Holders after
such record date. No such consent shall be valid or effective for more than 120
days after such record date.
SECTION 9.5. Notation on or Exchange of Securities. If an amendment
changes the terms of a Security, the Trustee may require the Holder of the
Security to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Security regarding the changed terms and return it to the
Holder.
Alternatively, if the Company or the Trustee so determine, the Company
in exchange for the Security shall issue and the Trustee shall authenticate a
new Security that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Security shall not affect the validity of such
amendment.
SECTION 9.6. Trustee to Sign Amendments. The Trustee shall sign any
amendment authorized pursuant to this Article 9 if the amendment does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may but need not sign it. In signing such amendment the
Trustee shall be entitled to receive indemnity reasonably satisfactory to it and
to receive, and (subject to Section 7.1) shall be fully protected in relying
63.
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upon, an Officers' Certificate and an Opinion of Counsel stating that such
amendment complies with the provisions of Article 9 of this Indenture.
ARTICLE 10
SUBORDINATION OF THE SECURITIES
SECTION 10.1. Agreement to Subordinate. Notwithstanding any other
provision to the contrary in this Indenture, the Company covenants and agrees,
and each Holder by accepting a Security covenants and agrees, that the payment
of principal of, premium (if any) and interest on and all other Obligations
under or in connection with the Indebtedness now or hereafter evidenced by the
Securities, any Subsidiary Guaranties, this Indenture and/or related agreements,
documents or instruments is subordinate in right of payment, to the extent and
in the manner provided in this Article, to the prior payment in full of all
Senior Indebtedness of the Company or the relevant Subsidiary Guarantor, if
applicable, whether outstanding on the Issue Date or thereafter incurred,
including all Obligations of the Company and any such Subsidiary Guarantor under
the Senior Credit Facility. The subordination provisions set forth in this
Article are for the benefit of, and shall be enforceable directly by, the
holders of Senior Indebtedness.
Each Holder authorizes and directs the Trustee on such Holder's behalf
to take such action as may be necessary or appropriate, in the sole discretion
of the Trustee, to acknowledge or effectuate the subordination between the
Holders and the holders of Senior Indebtedness of the Company as provided in
this Article and appoints the Trustee as such Holder's attorney-in-fact for any
and all such purposes, including, in the event of any voluntary or involuntary
liquidation or dissolution of the Company, whether total or partial, or in a
bankruptcy, reorganization, insolvency, receivership, dissolution, assignment
for the benefit of creditors, marshalling of assets or similar proceeding
relating to the Company or its property, the timely filing of a claim for the
unpaid balance of such Holder's Securities in the form required in said
proceeding and cause said claim to be approved. If the Trustee does not file a
proper claim or proof of debt in the form required in such proceeding prior to
20 days before the expiration of the time to file such claim or claims, then the
Representative is hereby authorized to have the right to file and is hereby
authorized to file an appropriate claim for and on behalf of the Holders;
provided, however, that any such claim filed by the Representative shall be
superseded by the claim, if any, subsequently filed by the Trustee.
Each Holder by accepting a Security acknowledges and agrees that the
subordination provisions set forth in this Article are, and are intended to be,
an inducement and consideration to each holder of any Senior Indebtedness of the
Company, whether such Senior Indebtedness was created before or after the
issuance of the Securities, to acquire and continue to hold, or to continue to
hold, such Senior Indebtedness, and such holder of Senior Indebtedness shall be
deemed conclusively to have relied upon such subordination provisions in
acquiring and continuing to hold, or in continuing to hold, such Senior
Indebtedness, and such holder is made an obligee hereunder and may enforce
directly such subordination provisions.
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SECTION 10.2. Liquidation; Dissolution; Bankruptcy. Upon any payment
or distribution of the assets of the Company of any kind or character, whether
in cash, property or securities, to creditors upon a total or partial
liquidation or dissolution or reorganization of or similar proceeding relating
to the Company or its property or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding:
(a) the holders of Senior Indebtedness of the Company shall be
entitled to receive payment in full of such Senior Indebtedness before Holders
are entitled to receive any payment; and
(b) until the Senior Indebtedness of the Company is paid in full any
payment or distribution to which Holders would be entitled but for this Article
shall be made to holders of such Senior Indebtedness, as their interests may
appear.
Upon any prepayment, payment or distribution referred to in this
Article, the Trustee and the Holders shall be entitled to rely upon any order or
decree of a court of competent jurisdiction in which such proceedings are
pending for the purpose of ascertaining the identity of Persons entitled to
participate in such payment or distribution, the holders of Senior Indebtedness,
the amount thereof or payable thereon and all other facts pertinent thereto or
to this Article, and the Trustee and the Holders shall be entitled to rely upon
a certificate of the liquidating trustee or agent or other Person (including any
Representative of holders of Senior Indebtedness of the Company) making any
payment or distribution to the Trustee or to the Holders for the purpose of
ascertaining the identity of Persons entitled to participate in such payment or
distribution, the holders of Senior Indebtedness, the amount thereof or payable
thereon, the amount or amounts paid or distributed thereon and all other facts
pertinent thereto or to this Article. 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 Section, the Trustee may require such Person (at
the expense of the Holders) to furnish evidence to the reasonable satisfaction
of the Trustee, acting in good faith, as to the amount of such Senior
Indebtedness held by such Person, as to the extent to which such Person is
entitled to participate in such payment or distribution, and as to other facts
pertinent to the rights of such Person under this Section, 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 payment.
The consolidation or merger of the Company with or into any Person, or
the sale, assignment, transfer, lease, conveyance or other disposition of all or
substantially all of the Company's assets to any Person, upon the terms and
conditions set forth in Article 5, shall not be deemed to be liquidation,
dissolution or reorganization or similar proceeding relating to the Company for
purposes of this Section if the Person formed by or surviving such consolidation
or merger, or to which such sale, assignment, transfer, lease, conveyance or
other disposition is made, shall, as a part of such consolidation, merger, sale,
assignment, transfer, lease, conveyance or other disposition, comply with the
conditions set forth in Article 5.
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If a payment or distribution is made to Holders that, due to the
subordination provisions, should not have been made to them, such Holders are
required to hold it in trust for the holders of Senior Indebtedness of the
Company and pay it over to them as their interests may appear.
SECTION 10.3. Default on Senior Indebtedness.
(a) If any Senior Indebtedness of the Company is not paid when due,
the Company may not: (i) pay, directly or indirectly, principal of, premium (if
any) or interest on the Securities or any other Obligations under or in
connection with the Securities, this Indenture and/or any related agreements,
documents or instruments; (ii) make any deposit pursuant to Article 8; or (iii)
repurchase, redeem or otherwise retire any Securities (collectively "pay the
Subordinated Debt") unless the default shall have been cured or waived or such
Senior Indebtedness has been paid in full in cash.
(b) If any default on any Senior Indebtedness of the Company (other
than as set forth in Section 10.3(a)) occurs and such Senior Indebtedness is
accelerated in accordance with its terms, the Company may not pay the
Subordinated Debt, unless the default shall have been cured or waived and any
such acceleration has been rescinded or such Senior Indebtedness has been paid
in full in cash.
(c) Notwithstanding Sections 10.3(a) and (b), the Company may pay the
Subordinated Debt without regard to the foregoing if the Company and the Trustee
receive written notice approving such payment from the Representative of the
Senior Indebtedness with respect to which either of the events set forth in
Sections 10.3(a) and (b) has occurred and is continuing. During the continuance
of any default (other than a default described in Sections 10.3(a) and (b)) with
respect to any Designated Senior Indebtedness of the Company pursuant to which
the maturity thereof may be accelerated immediately without further notice
(except such notice as may be required to effect such acceleration) or the
expiration of any applicable grace periods, the Company may not pay the
Subordinated Debt for a period (a "Payment Blockage Period") commencing upon the
receipt by the Trustee (with a copy to the Company) of written notice (a
"Blockage Notice") of such default from the Representative of the holders of
such Designated Senior Indebtedness specifying an election to effect a Payment
Blockage Period and ending 179 days thereafter (or earlier if such Payment
Blockage Period is terminated (i) by written notice to the Trustee and the
Company from the Person or Persons who gave such Blockage Notice, (ii) because
the default giving rise to such Blockage Notice has been waived in writing or
(iii) because such Designated Senior Indebtedness has been repaid in full).
Notwithstanding the provisions described in the immediately preceding sentence,
unless the holders of such Designated Senior Indebtedness or the Representative
of such holders has accelerated the maturity of such Designated Senior
Indebtedness, the Company may resume payments on the Securities after the end of
such Payment Blockage Period. The Securities shall not be subject to more than
one Payment Blockage Period in any consecutive 365-day period, irrespective of
the number of such nonpayment defaults with respect to Designated Senior
Indebtedness during such period.
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(d) The Company covenants that it will, upon request of the Trustee,
deliver an Officers' Certificate (with copies thereof to the Representative of
each class of Senior Indebtedness of the Company) showing in reasonable detail
the Senior Indebtedness outstanding as of the date of such Officers' Certificate
and the Representative of each class of Senior Indebtedness. The Trustee may
conclusively rely thereon except to the extent that it shall have received, from
the Representative of any class of Senior Indebtedness, notice in writing
controverting any of the statements made therein. Not less than 10 days prior to
making any distribution in respect of Senior Indebtedness pursuant to this
Section, the Trustee shall deliver to each Representative of any class of Senior
Indebtedness copies of the most recent Officers' Certificate filed with it by
the Company pursuant to this subsection (d).
(e) In the event that the Securities are declared due and payable
before their Stated Maturity in accordance with Article 6, then and in such
event the holders of Senior Indebtedness outstanding at the time the Securities
so become due and payable shall be entitled to receive payment in full in cash
of all amounts due or to become due on or in respect of such Senior Indebtedness
(whether or not an event of default has occurred thereunder or such Senior
Indebtedness is, or has been declared to be, due and payable prior to the date
on which it otherwise would have become due and payable) before the Holders
shall be entitled to receive any payment in respect of the Securities.
SECTION 10.4. Payment of Subordinated Debt Permitted if No Default.
Nothing contained in this Article or elsewhere in this Indenture, or in any of
the Securities, shall prevent the Company or any Person acting on behalf of the
Company at any time, except as otherwise provided in Sections 10.2 and 10.3 from
paying the Subordinated Debt.
SECTION 10.5. When Subordinated Debt Must Be Paid Over. In the event
that any payment on the Subordinated Debt is made to the Trustee or the Holders
that, because of this Article, should not have been so made or may not be paid
over to the Holders, such payment shall be held by the Trustee or the Holders
who receive such payment, as the case may be, for the benefit of, and shall
forthwith be paid over or delivered to, the holders of the Senior Indebtedness
of the Company remaining unpaid or their Representatives, as their interests may
appear, to the extent necessary to irrevocably and indefeasibly pay such Senior
Indebtedness in full in cash in accordance with its terms, after giving effect
to any concurrent payment or distribution to or for the holders of such Senior
Indebtedness.
SECTION 10.6. Notices by the Company. The Company shall promptly
notify the Trustee, each Paying Agent and the Representative of any facts known
to the Company that would cause a payment on the Subordinated Debt to violate
this Article, but failure to give such notice shall not affect the subordination
provided in this Article of the Securities to Senior Indebtedness. Without
limiting the foregoing, if payment of the Securities is accelerated because of
an Event of Default, the Company shall promptly notify the Representative of the
acceleration.
SECTION 10.7. Subrogation. After all Senior Indebtedness is
irrevocably and indefeasibly paid in full in cash and until the Securities are
paid in full, Holders shall be subrogated to the rights of holders of Senior
Indebtedness to receive distributions applicable to
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Senior Indebtedness to the extent that distributions otherwise payable to
Holders have been applied to the payment of Senior Indebtedness. A distribution
made under this Article to holders of Senior Indebtedness which otherwise would
have been made to Holders is not, as between the Company and the Holders,
payment by the Company on the Securities.
SECTION 10.8. Relative Rights. This Article defines the relative
rights of Holders and holders of Senior Indebtedness. Nothing in this Indenture
shall:
(a) impair, as between the Company and the Holders, the obligation of
the Company, which is absolute and unconditional, to pay the principal of,
premium (if any) and interest on the Securities in accordance with their terms;
(b) affect the relative rights of Holders and creditors of the Company
other than holders of Senior Indebtedness; or
(c) prevent the Trustee or any Holder from exercising its available
remedies upon a Default or Event of Default, subject to the rights of holders of
Senior Indebtedness to receive prepayment, payments and distributions otherwise
payable to Holders.
If the Company fails because of this Article to pay the principal of,
premium (if any) or interest on a Security on the due date or upon the
acceleration thereof, the failure is still a Default or Event of Default.
SECTION 10.9. Subordination May Not Be Impaired by the Company. No
right of any holder of Senior Indebtedness of the Company to enforce the
subordination of the Indebtedness evidenced by the Securities shall be impaired
by (a) any act or failure to act by the Company or by its failure to comply with
this Indenture, (b) any release of any collateral or any guarantor or any Person
of the Company's obligations under the Senior Indebtedness, (c) any amendment,
supplement, extension, renewal, restatement or other modification of the Senior
Indebtedness, (d) any settlement or compromise of any Senior Indebtedness, (e)
the unenforceability of any of the Senior Indebtedness or (f) the failure of any
holder of Senior Indebtedness to pursue claims against the Company. The terms of
the subordination provisions contained in this Article 10 will not apply to
payments from money or the proceeds of U.S. Government Obligations held in trust
by the Trustee for the payment of principal of and interest on the Securities
pursuant to and in accordance with the provisions described in Article 8.
SECTION 10.10. Distribution of Notice to Representative. Whenever a
distribution is to be made or a notice given to holders of Senior Indebtedness
of the Company, the distribution may be made and the notice given to their
Representative (if any).
SECTION 10.11. Rights of Trustee and Paying Agent. The Trustee or any
Payment Agent may continue to make payments in respect of the Securities and
shall not be charged with knowledge of the existence of facts that would
prohibit the making of any such payment unless, not less than three Business
Days prior to the date of any such payment, a Responsible Officer of the Trustee
receives written notice reasonably satisfactory to it that
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payments in respect of the Securities may not be made under this Article. Only
the Company, a Representative (satisfactorily identified to the Trustee) or a
holder of a class of Senior Indebtedness that has no Representative
(satisfactorily identified to the Trustee) may give the notice. Prior to the
receipt of such notice, the Trustee and any Paying Agent shall be entitled in
all respects to assume that no such facts exist. In any case, the Trustee shall
have no responsibility to the holders of Senior Indebtedness for payments made
to Holders by the Company or any Paying Agent unless cash payments are made at
the direction of the Trustee after receipt of such notice referred to above.
Neither the Trustee nor any Payment Agent shall be deemed to owe any
fiduciary duty to the holders of Senior Indebtedness.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness with the same rights it would have if it were not Trustee. 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 10, and no implied covenants or obligations with respect
to the holders of Senior Indebtedness shall be read into this Indenture against
the Trustee. The Trustee shall not be liable to any holder of Senior
Indebtedness if it shall mistakenly 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 10 or otherwise.
SECTION 10.12. Consent of Holders of Senior Indebtedness. The
provisions of this Article (including the definitions contained in this Article
and references to this Article contained in this Indenture) shall not be
amended, waived or modified in a manner that would adversely affect the rights
of the holders of any Senior Indebtedness of the Company, and no such amendment,
waiver or modification shall become effective, unless the holders of such Senior
Indebtedness shall have consented in writing (in accordance with the provisions
of the agreement governing such Senior Indebtedness) to such amendment, waiver
or modification.
SECTION 10.13. Contractual Subordination. This Article 10 represents a
bona fide agreement of contractual subordination pursuant to Section 510(b) of
the United States Bankruptcy Code.
ARTICLE 11
MISCELLANEOUS
SECTION 11.1. Trust Indenture Act Controls. If any provision of this
Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the TIA, the required provision
shall control. If this Indenture excludes any provision of the TIA that is
required to be included, such provision shall be deemed included herein.
69.
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SECTION 11.2. Notices. Any notice or communication shall be in writing
and delivered in person, by overnight courier or facsimile (if to the Company,
with receipt confirmed by an Officer) or mailed by first-class mail addressed as
follows:
If to the Company:
Hollywood Entertainment Corporation
25600 SW Parkway Center Drive
Wilsonville, Oregon 97070
Attention: Chief Financial Officer
With copies to:
Gregory K. Miller, Esq.
Latham & Watkins
505 Montgomery Street, Suite 1900
San Francisco, CA 94111
Robert J. Moorman, Esq.
Stoel Rivers LLP
900 S.W. Fifth Avenue, Suite 2300
Portland, Oregon 97204
If to the Trustee:
U.S. Trust Company of California, N.A.
515 South Flower Street, Suite 2700
Los Angeles, California 90071
Telecopier No.: (213) 488-1370
Attention: Corporate Trust Administration
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to
Securityholders) shall be deemed to have been duly given: at the time delivered
by hand, if personally delivered; five Business Days after being deposited in
the mail, postage prepaid, if mailed; when answered back, if telexed; when
receipt acknowledged, if telecopied; and the next Business Day after timely
delivery to the courier, if sent by overnight air courier guaranteeing next day
delivery.
Any notice or communication mailed or sent by overnight courier or
facsimile to a Securityholder shall be sent to the Securityholder at the
Securityholder's address as it appears on
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the registration books of the Registrar and shall be sufficiently given if so
sent within the time prescribed.
Failure to send a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is sent in the manner provided
above, it is duly given, whether or not the addressee receives it.
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.
SECTION 11.3. Communication by Holders with Other Holders.
Securityholders may communicate pursuant to TIA ss. 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA ss. 312(c).
SECTION 11.4. Certificate and Opinion as to Conditions Precedent. Upon
any request or application by the Company to the Trustee to take or refrain from
taking any action under this Indenture, the Company shall furnish to the Trustee
to the extent required by the TIA or this Indenture:
(1) an Officers' Certificate (which in connection with the original
issuance of the Securities need only be executed by one Officer for the
Company) in form and substance reasonably satisfactory to the Trustee
stating that, in the opinion of the signers, all conditions precedent, if
any, provided for in this Indenture relating to the proposed action have
been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
SECTION 11.5. Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
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(4) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with; provided,
that an Opinion of Counsel can rely as to matters of fact on an Officers'
Certificate or a certificate of a public official.
SECTION 11.6. When Securities Disregarded. In determining whether the
Holders of the required principal amount of Securities have concurred in any
direction, waiver or consent, Securities owned by the Company or by any Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company shall be disregarded and deemed not to be
outstanding, except that, for the purpose of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Securities which the Trustee actually knows are so owned shall be so
disregarded. Also, subject to the foregoing, only Securities outstanding at the
time shall be considered in any such determination.
SECTION 11.7. Rules by Trustee, Paying Agent and Registrar. The
Trustee may make reasonable rules for action by or a meeting of Securityholders.
The Trustee shall provide the Company reasonable notice of such rules. The
Registrar and the Paying Agent may make reasonable rules for their functions.
SECTION 11.8. Legal Holidays. If a payment date is a Legal Holiday,
payment shall be made on the next succeeding day that is not a Legal Holiday,
and no interest shall accrue for the intervening period. If a regular record
date is a Legal Holiday, the record date shall not be affected.
SECTION 11.9. Governing Law. This Indenture and the Securities shall
be governed by, and construed in accordance with, the laws of the State of New
York without giving effect to applicable principles of conflict of laws to the
extent that the application of the laws of another jurisdiction would be
required thereby.
SECTION 11.10. No Recourse Against Others. No recourse for the payment
of the principal of, premium, if any, or interest or other Obligations on any of
the Securities or for any claim based thereon or otherwise in respect thereof,
and no recourse under or upon any Obligation, covenant or agreement of the
Company in this Indenture, or in any of the Securities or because of the
creation of any Indebtedness represented hereby and thereby, shall be had
against any incorporator, shareholder, officer, director, employee or
controlling person of the Company or any Successor Person thereof. Each Holder,
by accepting a Security, waives and releases all such liability. The waiver and
release shall be part of the consideration for the issuance of the Securities.
SECTION 11.11. Successors. All agreements of the Company in this
Indenture and the Securities shall bind the Company's successors. All agreements
of the Trustee in this Indenture shall bind its successors.
SECTION 11.12. Multiple Originals. The parties may sign any number of
copies of this Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement. One signed copy is enough to prove this
Indenture.
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SECTION 11.13. Table of Contents; Headings. The table of contents,
cross-reference sheet and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not intended
to be considered a part hereof and shall not modify or restrict any of the terms
or provisions hereof.
SECTION 11.14. Severability Clause. In case any provision in this
Indenture or in the Securities 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.
73.
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IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed as of the date first written above.
THE COMPANY:
HOLLYWOOD ENTERTAINMENT
CORPORATION
By: DONALD J. EKMAN
-------------------------------------
Name:
Title:
TRUSTEE:
U.S. TRUST COMPANY OF
CALIFORNIA, N.A., a national association
organized under the laws of the United
States of America,
as Trustee
By: SANDRA H. LEESS
-------------------------------------
Name: Sandra H. Leess
Title: Senior Vice President
<PAGE>
EXHIBIT A
FACE OF SECURITY
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW
YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS 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. TRANSFERS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF
DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND LIMITED TO
TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE
REFERRED TO ON THE REVERSE HEREOF.
THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED
IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE NOTE
EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE NOTE EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE
RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT
PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE NOTE EVIDENCED HEREBY AGREES
FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH NOTE MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED ONLY (1) BY THE INITIAL PURCHASER (a) TO A PERSON WHO THE
SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT) PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, (b) OUTSIDE THE UNITED
STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 903
OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (c) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER (IF APPLICABLE) OR IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF
COUNSEL IF THE COMPANY SO REQUESTS), (d) TO THE COMPANY, (e) PURSUANT
A-1
<PAGE>
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (f) TO AN
INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, AND (2) BY SUBSEQUENT PURCHASERS, AS SET
FORTH IN (1)(a) THROUGH (e) ABOVE, AND IN EACH CASE IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS
REQUIRED TO, NOTIFY ANY PURCHASER OF THE NOTE EVIDENCED HEREBY OF THE RESALE
RESTRICTIONS SET FORTH IN (A) ABOVE. NO REPRESENTATION CAN BE MADE AS TO THE
AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 FOR RESALE OF THE SECURITY
EVIDENCED HEREBY.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF THE
DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH SUCCESSOR DEPOSITORY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO AN ISSUER OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE 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 NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.14 OF THE INDENTURE.
A-2
<PAGE>
No.
10 5/8% Senior Subordinated Notes Due 2004
CUSIP No. 436141 AA 3
HOLLYWOOD ENTERTAINMENT CORPORATION, an Oregon corporation, promises
to pay to Cede & Co., or registered assigns, the principal sum set forth from
time to time on Schedule A hereto on August 15, 2004.
Interest Payment Dates: February 15 and August 15
Record Dates: February 1 and August 1.
Additional provisions of this Security are set forth on the reverse
side of this Security.
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officers.
HOLLYWOOD ENTERTAINMENT CORPORATION
By:
-------------------------------------
Name:
Title:
Dated: ____________, 1997
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
U.S. TRUST COMPANY OF CALIFORNIA, N.A., as Trustee, certifies that this is one
of the Securities referred to in the within-mentioned Indenture.
By: U.S. TRUST COMPANY OF CALIFORNIA,
N.A., as Trustee
-----------------------------------------
Authorized Signatory
Date of Authentication:
____________, 1997
A-3
<PAGE>
REVERSE OF SECURITY
10 5/8% SENIOR SUBORDINATED SECURITY DUE 2004
1. Interest
HOLLYWOOD ENTERTAINMENT CORPORATION, an Oregon corporation (such
entity, and its successors and assigns under the Indenture hereinafter referred
to, and each other entity which is required to become the Company pursuant to
the Indenture, and its successors and assigns under the Indenture, being herein
called the "Company"), promises to pay interest on the principal amount of this
Security at the rate per annum shown above. The Company will pay interest
semiannually on February 15 and August 15 of each year, commencing February 15,
1998. Interest on the Securities will accrue from the most recent date on which
interest has been paid or, if no interest has been paid, from August 13, 1997.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The Company shall pay interest on overdue principal at the same rate
borne by the Securities, and it shall pay interest on overdue installments of
interest at such rate to the extent lawful.
2. Method of Payment
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered holders of Securities at the close
of business on the February 1 and August 1 immediately preceding the interest
payment date even if Securities are canceled on registration of transfer or
registration of exchange (including pursuant to an Exchange Offer (as defined in
the applicable Registration Rights Agreement)) after the record date. Holders
must surrender Securities to a Paying Agent to collect principal payments. The
Company will pay principal and interest in money of the United States that at
the time of payment is legal tender for payment of public and private debts
("U.S. Legal Tender"). However, the Company may pay principal and interest by
its check payable in such U.S. Legal Tender. The Company may deliver any such
interest payment to the Paying Agent or to a Holder's registered address.
3. Paying Agent and Registrar
Initially, U.S. Trust Company of California, N.A., a national banking
corporation ("Trustee"), will act as Paying Agent and Registrar. The Company may
appoint and change any Paying Agent, Registrar or co-registrar without notice.
The Company may act as Paying Agent, Registrar, co-Registrar or transfer agent.
4. Indenture
The Company issued the Securities under an Indenture dated as of
August 13, 1997 (the "Indenture"), between the Company and the Trustee. This
Security is one of a duly authorized issue of Initial Securities of the Company
designated as its 10 5/8% Senior Subordinated Notes due 2004 (the "Initial
Securities"). The Securities include the Initial Securities and the Exchange
Securities (as defined in the Indenture), issued in exchange for the
A-4
<PAGE>
Initial Securities pursuant to the Registration Rights Agreement. The Initial
Securities and the Exchange Securities are treated as a single class of
securities under the Indenture. The terms of the Securities include those stated
in the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S.C. ss. 77aaa-77bbbb) as in effect on the date of
the Indenture (the "TIA"). Terms defined in the Indenture and not defined herein
have the meanings ascribed thereto in the Indenture. The Securities are subject
to all such terms, and Securityholders are referred to the Indenture and the TIA
for a statement of those terms. Any conflict between this Security and the
Indenture will be governed by the Indenture.
The Securities are unsecured senior subordinated obligations of the
Company limited to $250,000,000 aggregate principal amount (subject to Section
2.7 of the Indenture). The Indenture imposes certain limitations on the
Incurrence of Indebtedness by the Company and its Restricted Subsidiaries, the
existence of liens, the payment of dividends on, and redemption of, the Capital
Stock of the Company and its Subsidiaries, restricted payments, the sale or
transfer of assets and Subsidiary stock, the issuance or sale of Capital Stock
of Restricted Subsidiaries, the investments of the Company and its Restricted
Subsidiaries, consolidations, mergers and transfers of all or substantially all
the assets of the Company, and transactions with Affiliates. In addition, the
Indenture limits the ability of the Company and certain of its Subsidiaries to
restrict distributions and dividends from Restricted Subsidiaries.
5. Optional Redemption
Except as set forth in the next paragraph, the Securities may not be
redeemed at the option of the Company prior to August 15, 2001. Thereafter, the
Securities will be redeemable, at the Company's option, in whole or in part, at
any time or from time to time, at the following redemption prices (expressed in
percentages of principal amount), plus accrued and unpaid interest, if any, to
the redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date) if
redeemed during the 12-month period commencing on August 15 of the years set
forth below:
Period Percentage
------ ----------
2001 ........................................... 105.313%
2002 ........................................... 102.656%
2003 and thereafter ............................ 100.000%
In addition, at any time and from time to time prior to August 15,
2000, the Company may redeem in the aggregate up to 35% of the original
principal amount of the Securities with the proceeds of one or more Public
Equity Offerings at a redemption price (expressed as a percentage of principal
amount) of 110.625% plus accrued and unpaid interest, if any, to the redemption
date (subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date); provided, however,
that at least 65% of the original aggregate principal amount of the Securities
must remain outstanding after each such redemption; and provided further,
however, that such redemption shall occur within 60 days of the closing date of
such Public Equity Offering.
A-5
<PAGE>
6. Notice of Redemption
Notice of redemption will be mailed by first-class mail at least 30
days but not more than 60 days before the redemption date to each Holder of
Securities to be redeemed at such Holder's registered address. Securities in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000 (except as otherwise set forth in the Indenture). If money
sufficient to pay the redemption price of and accrued interest on all Securities
(or portions thereof) to be redeemed on the redemption date is deposited with
the Paying Agent on or before the redemption date and certain other conditions
are satisfied, on and after such date interest ceases to accrue on such
Securities (or such portions thereof) called for redemption. If a notice or
communication is sent in the manner provided in the Indenture, it is duly given,
whether or not the addressee receives it. Failure to send a notice or
communication to a Securityholder or any defect in it shall not affect its
sufficiency with respect to other Securityholders.
In addition, in the event of certain Asset Dispositions, the Company
will be required to make an offer to purchase Securities at a purchase price of
100% of their principal amount plus accrued interest to the date of purchase
(subject to the rights of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date) as provided in, and
subject to the terms of, the Indenture.
7. Change of Control
Upon a Change of Control, each Holder of Securities will have the
right to require the Company to repurchase all or any part of the Securities of
such Holder at a repurchase price in cash equal to 101% of the principal amount
of the Securities to be repurchased plus accrued and unpaid interest to the date
of repurchase (subject to the right of Holders of record on the relevant record
date to receive interest due on the related interest payment date) as provided
in, and subject to the terms of, the Indenture.
8. The Registration Rights Agreement
The holder of this Security is entitled to the benefits of a
Registration Rights Agreement, dated as of August 13, 1997, among the Company
and the Initial Purchasers named therein (as such may be amended from time to
time, the "Registration Rights Agreement"). Capitalized terms used in this
subsection but not defined herein have the meanings assigned to them in the
Registration Rights Agreement.
If (i) within 30 days after the Closing Date, neither the Exchange
Offer Registration Statement nor the Shelf Registration Statement has been filed
with the Commission; (ii) within 90 days after the Closing Date, the Exchange
Offer Registration Statement has not been declared effective; (iii) within 120
days after the Closing Date, the Registered Exchange Offer has not been
consummated; (iv) within 120 days after the Closing Date, the Shelf Registration
Statement has not been declared effective if a Shelf Registration Statement is
required to be filed; or (v) after either the Exchange Offer Registration
Statement or the Shelf Registration Statement
A-6
<PAGE>
has been declared effective, such Registration Statement thereafter ceases to be
effective or usable (subject to certain exceptions) in connection with resales
of Securities in accordance with and during the periods specified in the
Registration Rights Agreement (each such event referred to in clauses (i)
through (iv), a "Registration Default"), interest ("Additional Interest") will
accrue on the Securities (in addition to the stated interest on the Securities)
from and including the date on which any such Registration Default shall occur
to but excluding the date on which all Registration Defaults have been cured.
Additional Interest will accrue at a rate of 0.25% per annum during the 90-day
period immediately following the occurrence of any Registration Default and
shall increase by 0.25% per annum at the end of each subsequent 90-day period,
but in no event shall such increase exceed 1.00% per annum.
9. Subordination
The Securities are subordinated to Senior Indebtedness of the Company,
as defined in the Indenture. To the extent provided in the Indenture, Senior
Indebtedness of the Company must be paid before the Securities may be paid. In
addition, to the extent applicable, each Subsidiary Guaranty shall be
subordinated to Senior Indebtedness of the relevant Subsidiary Guarantor, as
defined in the Indenture (or the relevant supplement thereto). The Company and,
to the extent applicable, each Subsidiary Guarantor, agrees, and each Holder by
accepting a Security agrees, to the subordination provisions contained in the
Indenture and authorizes the Trustee to give such provisions effect and appoints
the Trustee as attorney-in-fact for such purpose.
10. Denominations; Transfer; Exchange
The Securities are in registered form, without coupons, and in
denominations of $1,000 and integral multiples of $1,000. A Holder may transfer
or exchange Securities in accordance with the Indenture. The Registrar may
require a Holder, among other things, to furnish appropriate endorsements or
transfer documents and to pay any taxes and fees required by law or permitted by
the Indenture, including any transfer tax or other similar governmental charge
payable in connection therewith. The Registrar need not register the transfer of
or exchange any Securities selected for redemption (except, in the case of a
Security to be redeemed in part, the portion of the Security not to be redeemed)
or any Securities for a period of 15 days before a selection of Securities to be
redeemed or 15 days before an interest payment date.
11. Persons Deemed Owners
The registered Holder of this Security may be treated as the owner of
it for all purposes.
12. Unclaimed Money
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its written request
A-7
<PAGE>
unless an abandoned property law designates another Person. After any such
payment, Holders entitled to the money must look only to the Company and not to
the Trustee for payment.
13. Discharge and Defeasance
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for the
payment of principal and interest on the Securities to redemption or maturity,
as the case may be.
14. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the consent of the Holders of at
least a majority in principal amount outstanding of the Securities and (ii) any
past default or compliance with any provision may be waived with the consent of
the Holders of a majority in principal amount outstanding of the Securities.
Subject to certain exceptions set forth in the Indenture, without the consent of
any Securityholder, the Company and the Trustee may amend the Indenture or the
Securities to cure any ambiguity, omission, defect or inconsistency, to comply
with Article 5 of the Indenture, to provide for uncertificated Securities in
addition to or in place of certificated Securities, to add guarantees with
respect to the Securities, to secure the Securities, to add additional covenants
or surrender rights and powers conferred on the Company, to make any change that
does not adversely affect the rights of any Securityholder or to comply with any
request of the SEC in connection with qualifying the Indenture under the TIA.
15. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for 30 days
in payment of interest on the Securities; (ii) default in payment of principal
or premium, if any, on any Security when due at its Stated Maturity, upon
optional redemption, upon required repurchase, upon declaration or otherwise,
(iii) failure by the Company to comply for 30 days after notice with Sections
4.3, 4.4, 4.6 or Article 5 of the Indenture; (iv) failure by the Company to
comply with other agreements in the Indenture or the Securities, for 60 days
after notice; (iv) failure by the Company or any Restricted Subsidiary to pay
any Indebtedness within any applicable grace period after final maturity or
acceleration by the Holders thereof because of a default and the total amount of
such Indebtedness unpaid or accelerated exceeds $5.0 million and in either case,
such default is not cured or waived and such acceleration, if any, rescinded or
the Indebtedness is not paid in 30 days; (v) certain events of bankruptcy,
insolvency or reorganization of the Company or any Restricted Subsidiary; and
(vi) the rendering of any judgments or decrees against the Company or any
Restricted Subsidiary for the payment of money in excess of $5.0 million, if any
such judgment or decree is not discharged, waived or stayed within 60 days after
entry of such judgment or decree.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the Securities then outstanding
may declare all the Securities to
A-8
<PAGE>
be due and payable. Certain events of bankruptcy or insolvency are Events of
Default which will result in the Securities being due and payable immediately
upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the Securities except
as provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Securities unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in principal amount of the Securities
may direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Securityholders notice of any continuing Default (except a Default
in payment of principal or interest) if it determines that withholding notice is
in the interest of the Holders.
16. Trustee Dealings with the Company
Subject to certain limitations imposed by the TIA, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or any of its Affiliates and may otherwise deal with the
Company or any of its Affiliates with the same rights it would have if it were
not Trustee.
17. No Recourse Against Others
No recourse for the payment of the principal of, premium, if any, or
interest or other Obligations on any of the Securities or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in the Indenture, or in any of
the Securities or because of the creation of any Indebtedness represented hereby
and thereby, shall be had against any incorporator, stockholder, officer,
director, employee or controlling person of the Company, a Subsidiary Guarantor
or any Successor Person thereof. Each Holder, by accepting a Security, waives
and releases all such liability.
18. Guarantees
This Security may be entitled to the benefits of certain Guarantees,
if any, which may be made after the original issuance of this Security for the
benefit of the Holders. Reference is hereby made to the Indenture for a
statement of the respective rights, limitations of rights, duties and
obligations thereunder of any such Subsidiary Guarantors, the Trustee and the
Holders.
19. Governing Law
The Indenture and the Securities shall be governed by, and construed
in accordance with, the laws of the State of New York without giving effect to
applicable principles of conflict of laws to the extent that the application of
the laws of another jurisdiction would be required thereby.
A-9
<PAGE>
20. Authentication
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
21. Abbreviations
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with rights of survivorship and not as
tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gift to Minors
Act).
22. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and have directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Securityholder upon written request
and without charge to the Securityholder a copy of the Indenture. Requests may
be made as follows:
If to the Company:
Hollywood Entertainment Corporation
25600 SW Parkway Center Drive
Wilsonville, Oregon 97070
Attention: Secretary
If to the Trustee:
U.S. Trust Company of California, N.A.
555 South Flower Street, Suite 2700
Los Angeles, California 90071
Attention: Corporate Trust Trustee Administration
A-10
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint ____________ agent to transfer this Security on the
books of the Company. The agent may substitute another to act for him.
Date: _______________ Your Signature: ___________________________________
Sign exactly as your name appears on the other
side of this Security.
Signature Guarantee: ______________________________
(Signature must be guaranteed)
In connection with any transfer of this Security occurring prior to
the date which is the earlier of (i) the date of the declaration by the
Commission of the effectiveness of a registration statement under the Securities
Act of 1933, as amended (the "Securities Act") covering resales of this Security
(which effectiveness shall not have been suspended or terminated at the date of
the transfer) and (ii) 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 this Security, or a portion thereof, at any time on or
prior to the second anniversary of the Issue Date and the undersigned confirms
that it has not utilized any general solicitation or general advertising in
connection with the transfer:
[Check One]
(1) __ to the Company or a subsidiary thereof; or
(2) __ pursuant to and in compliance with Rule 144A under the Securities
Act of 1933, as amended; or
(3) __ to an institutional "accredited investor" (as defined in Rule 501(a)
(1), (2), (3) or (7) under the Securities Act of 1933, as amended)
that has furnished to the Trustee a signed letter containing certain
representations and agreements (the form of which letter can be
obtained from the Trustee); or
A-11
<PAGE>
(4) __ outside the United States to a "foreign person" in compliance with
Rule 904 of Regulation S under the Securities Act of 1933, as
amended; or
(5) __ pursuant to the exemption from registration provided by Rule 144
under the Securities Act of 1933, as amended; or
(6) __ pursuant to an effective registration statement under the Securities
Act of 1933, as amended; or
(7) __ pursuant to another available exemption from the registration
requirements of the Securities Act of 1933, as amended.
and unless the box below is checked, the undersigned confirms that such Note is
not being transferred to an "affiliate" of the Company as defined in Rule 144
under the Securities Act of 1933, as amended (an "Affiliate"):
[ ] The transferee is an Affiliate of the Company.
Unless one of the items is checked, the Trustee will refuse to register any
of the Securities evidenced by this certificate in the name of any person other
than the registered Holder thereof; provided, however, that if item (3), (4),
(5) or (7) is checked, the Company or the Trustee may require, prior to
registering any such transfer of the Securities, in their sole discretion, such
written legal opinions, certifications (including an investment letter in the
case of box (3) or (4)) and other information as the Trustee or the Company has
reasonably requested to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933, as amended.
If none of the foregoing items are checked, the Trustee or 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 2.14 of the Indenture shall have
been satisfied.
Date: _______________ Your Signature: ___________________________________
Sign exactly as your name appears on the other
side of this Security.
Signature Guarantee: ______________________________
(Signature must be guaranteed)
A-12
<PAGE>
TO BE COMPLETED BY PURCHASER IF (2) 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
Issuer as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated: ______________
NOTICE: To be executed by an executive officer
A-13
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.6 or 4.8 of the Indenture, check the box: If you want to
elect to have only part of this Security purchased by the Company pursuant to
Section 4.6 or 4.8 of the Indenture, state the amount: $
Date: _______________ Your Signature: ___________________________________
Sign exactly as your name appears on the other
side of this Security.
Signature Guarantee: ______________________________
(Signature must be guaranteed)
A-14
<PAGE>
SCHEDULE A
PRINCIPAL AMOUNT: ______________________________
The following increases or decreases in the principal amount of this
Global Security have been made:
<TABLE>
<CAPTION>
Amount of Amount of Principal Signature of
decrease in increase in Amount of this authorized
Principal Principal Global Security signatory of
Amount of this Amount of this following such Trustee or
Date of Global Global decrease (or Securities
Exchange Security Security increase) Custodian
<S> <C> <C> <C> <C>
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</TABLE>
A-15
<PAGE>
EXHIBIT B
FACE OF SECURITY
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW
YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS 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. TRANSFERS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF
DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND LIMITED TO
TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE
REFERRED TO ON THE REVERSE HEREOF.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF THE
DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH SUCCESSOR DEPOSITORY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO AN ISSUER OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE 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 NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.14 OF THE INDENTURE.
B-1
<PAGE>
No.
10 5/8% Senior Subordinated Notes Due 2004
CUSIP No. 436141 AB 1
HOLLYWOOD ENTERTAINMENT CORPORATION, an Oregon corporation, promises
to pay to Cede & Co., or registered assigns, the principal sum set forth from
time to time on Schedule A hereto on August 15, 2004.
Interest Payment Dates: February 15 and August 15.
Record Dates: February 1 and August 1.
Additional provisions of this Security are set forth on the reverse
side of this Security.
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officers.
HOLLYWOOD ENTERTAINMENT
CORPORATION
By:
-------------------------------------
Name:
Title:
Dated: ____________, 1997
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
U.S. TRUST COMPANY OF CALIFORNIA, N.A., as Trustee, certifies that this is one
of the Securities referred to in the within-mentioned Indenture.
By: U.S. TRUST COMPANY OF
CALIFORNIA, N.A., as Trustee
-----------------------------------------
Authorized Signatory
Date of Authentication:
____________, 1997
B-2
<PAGE>
REVERSE OF SECURITY
10 5/8% SENIOR SUBORDINATED SECURITY DUE 2004
1. Interest
HOLLYWOOD ENTERTAINMENT CORPORATION, an Oregon corporation (such
entity, and its successors and assigns under the Indenture hereinafter referred
to, and each other entity which is required to become the Company pursuant to
the Indenture, and its successors and assigns under the Indenture, being herein
called the "Company"), promises to pay interest on the principal amount of this
Security at the rate per annum shown above. The Company will pay interest
semiannually on February 15 and August 15 of each year, commencing February 15,
1998. Interest on the Securities will accrue from the most recent date on which
interest has been paid or, if no interest has been paid, from, August 13, 1997.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The Company shall pay interest on overdue principal at the same rate
borne by the Securities, and it shall pay interest on overdue installments of
interest at such rate to the extent lawful.
2. Method of Payment
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered holders of Securities at the close
of business on the February 1 and August 1 immediately preceding the interest
payment date even if Securities are canceled on registration of transfer or
registration of exchange (including pursuant to an Exchange Offer (as defined in
the applicable Registration Rights Agreement)) after the record date. Holders
must surrender Securities to a Paying Agent to collect principal payments. The
Company will pay principal and interest in money of the United States that at
the time of payment is legal tender for payment of public and private debts
("U.S. Legal Tender"). However, the Company may pay principal and interest by
its check payable in such U.S. Legal Tender. The Company may deliver any such
interest payment to the Paying Agent or to a Holder's registered address.
3. Paying Agent and Registrar
Initially, U.S. Trust Company of California, N.A., a national banking
corporation ("Trustee"), will act as Paying Agent and Registrar. The Company may
appoint and change any Paying Agent, Registrar or co-registrar without notice.
The Company may act as Paying Agent, Registrar, co-Registrar or transfer agent.
4. Indenture
The Company issued the Securities under an Indenture dated as of
August 13, 1997 (the "Indenture"), between the Company and the Trustee. This
Security is one of a duly authorized issue of Exchange Securities of the Company
designated as its 10 5/8% Senior Subordinated Notes due 2004 (the "Exchange
Securities"). The Securities include the _____% Senior Subordinated Notes due
2004 (the "Initial Securities"), and the Exchange Securities issued
B-3
<PAGE>
in exchange for the Initial Securities pursuant to the Registration Rights
Agreement. The Initial Securities and the Exchange Securities are treated as a
single class of securities under the Indenture. The terms of the Securities
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 (15 U.S.C. ss. 77aaa-77bbbb) as in
effect on the date of the Indenture (the "TIA"). Terms defined in the Indenture
and not defined herein have the meanings ascribed thereto in the Indenture. The
Securities are subject to all such terms, and Securityholders are referred to
the Indenture and the TIA for a statement of those terms. Any conflict between
this Security and the Indenture will be governed by the Indenture.
The Securities are unsecured senior subordinated obligations of the
Company limited to $250,000,000 aggregate principal amount. The Indenture
imposes certain limitations on the Incurrence of Indebtedness by the Company and
its Restricted Subsidiaries, the existence of liens, the payment of dividends
on, and redemption of, the Capital Stock of the Company and its Subsidiaries,
restricted payments, the sale or transfer of assets and Subsidiary stock, the
issuance or sale of Capital Stock of Restricted Subsidiaries, the investments of
the Company and its Restricted Subsidiaries, consolidations, mergers and
transfers of all or substantially all the assets of the Company, and
transactions with Affiliates. In addition, the Indenture limits the ability of
the Company and certain of its Subsidiaries to restrict distributions and
dividends from Restricted Subsidiaries.
5. Optional Redemption
Except as set forth in the next paragraph, the Securities may not be
redeemed at the option of the Company prior to August 15, 2001. Thereafter, the
Securities will be redeemable, at the Company's option, in whole or in part, at
any time or from time to time, at the following redemption prices (expressed in
percentages of principal amount), plus accrued and unpaid interest, if any, to
the redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date) if
redeemed during the 12-month period commencing on August 15 of the years set
forth below:
Period Percentage
------ ----------
2001......................................... 105.313%
2002......................................... 102.656%
2003 and thereafter.......................... 100.000%
In addition, at any time and from time to time prior to August 15,
2000, the Company may redeem in the aggregate up to 35% of the original
principal amount of the Securities with the proceeds of one or more Public
Equity Offerings at a redemption price (expressed as a percentage of principal
amount) of 110.625% plus accrued and unpaid interest, if any, to the redemption
date (subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date); provided, however,
that at least 65% of the original aggregate principal amount of the Securities
must remain outstanding after each such redemption; and provided further,
however, that such redemption shall occur within 60 days of the closing date of
such Public Equity Offerings.
B-4
<PAGE>
6. Notice of Redemption
Notice of redemption will be mailed by first-class mail at least 30
days but not more than 60 days before the redemption date to each Holder of
Securities to be redeemed at such Holder's registered address. Securities in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000 (except as otherwise provided in the Indenture). If money
sufficient to pay the redemption price of and accrued interest on all Securities
(or portions thereof) to be redeemed on the redemption date is deposited with
the Paying Agent on or before the redemption date and certain other conditions
are satisfied, on and after such date interest ceases to accrue on such
Securities (or such portions thereof) called for redemption. If a notice or
communication is sent in the manner provided in the Indenture, it is duly given,
whether or not the addressee receives it. Failure to send a notice or
communication to a Securityholder or any defect in it shall not affect its
sufficiency with respect to other Securityholders.
In addition, in the event of certain Asset Dispositions, the Company
will be required to make an offer to purchase Securities at a purchase price of
100% of their principal amount plus accrued interest to the date of purchase
(subject to the rights of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date) as provided in, and
subject to the terms of, the Indenture.
7. Change of Control
Upon a Change of Control, each Holder of Securities will have the
right to require the Company to repurchase all or any part of the Securities of
such Holder at a repurchase price in cash equal to 101% of the principal amount
of the Securities to be repurchased plus accrued and unpaid interest to the date
of repurchase (subject to the right of Holders of record on the relevant record
date to receive interest due on the related interest payment date) as provided
in, and subject to the terms of, the Indenture.
8. Subordination
The Securities are subordinated to Senior Indebtedness of the Company,
as defined in the Indenture. To the extent provided in the Indenture, Senior
Indebtedness of the Company must be paid before the Securities may be paid. In
addition, to the extent applicable, each Subsidiary Guaranty is subordinated to
Senior Indebtedness of the relevant Subsidiary Guarantor, as defined in the
Indenture (or the relevant supplement thereto). The Company and, to the extent
applicable, each Subsidiary Guarantor, agrees, and each Holder by accepting a
Security agrees, to the subordination provisions contained in the Indenture and
authorizes the Trustee to give such provisions effect and appoints the Trustee
as attorney-in-fact for such purpose.
B-5
<PAGE>
9. Denominations; Transfer; Exchange
The Securities are in registered form, without coupons, and in
denominations of $1,000 and integral multiples of $1,000. A Holder may transfer
or exchange Securities in accordance with the Indenture. The Registrar may
require a Holder, among other things, to furnish appropriate endorsements or
transfer documents and to pay any taxes and fees required by law or permitted by
the Indenture, including any transfer tax or other similar governmental charge
payable in connection therewith. The Registrar need not register the transfer of
or exchange any Securities selected for redemption (except, in the case of a
Security to be redeemed in part, the portion of the Security not to be redeemed)
or any Securities for a period of 15 days before a selection of Securities to be
redeemed or 15 days before an interest payment date.
10. Persons Deemed Owners
The registered Holder of this Security may be treated as the owner of
it for all purposes.
11. Unclaimed Money
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its written request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the money must look
only to the Company and not to the Trustee for payment.
12. Discharge and Defeasance
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for the
payment of principal and interest on the Securities to redemption or maturity,
as the case may be.
13. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the consent of the Holders of at
least a majority in principal amount outstanding of the Securities and (ii) any
past default or compliance with any provision may be waived with the consent of
the Holders of a majority in principal amount outstanding of the Securities.
Subject to certain exceptions set forth in the Indenture, without the consent of
any Securityholder, the Company and the Trustee may amend the Indenture or the
Securities to cure any ambiguity, omission, defect or inconsistency, to comply
with Article 5 of the Indenture, to provide for uncertificated Securities in
addition to or in place of certificated Securities, to add guarantees with
respect to the Securities, to secure the Securities, to add additional covenants
or surrender rights and powers conferred on the Company, to make any change that
does not adversely affect the rights of any Securityholder or to comply with any
request of the SEC in connection with qualifying the Indenture under the TIA.
B-6
<PAGE>
14. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for 30 days
in payment of interest on the Securities; (ii) default in payment of principal
or premium, if any, on any Security when due at its Stated Maturity, upon
optional redemption, upon required repurchase, upon declaration or otherwise,
(iii) failure by the Company to comply for 30 days after notice with Sections
4.3., 4.4, 4.6 or Article 5 of the Indenture; (iv) failure by the Company to
comply with other agreements in the Indenture or the Securities, for 60 days
after notice; (iv) failure by the Company or any Restricted Subsidiary to pay
any Indebtedness within any applicable grace period after final maturity or
acceleration by the Holders thereof because of a default and the total amount of
such Indebtedness unpaid or accelerated exceeds $5.0 million and in either case,
such default is not cured or waived and such acceleration, if any, rescinded or
the Indebtedness is not paid in 30 days; (v) certain events of bankruptcy,
insolvency or reorganization of the Company or any Restricted Subsidiary; and
(vi) the rendering of any judgments or decrees against the Company or any
Restricted Subsidiary for the payment of money in excess of $5.0 million, if any
such judgment or decree is not discharged, waived or stayed within 60 days after
entry of such judgment or decree.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the Securities then outstanding
may declare all the Securities to be due and payable. Certain events of
bankruptcy or insolvency are Events of Default which will result in the
Securities being due and payable immediately upon the occurrence of such Events
of Default.
Securityholders may not enforce the Indenture or the Securities except
as provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Securities unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in principal amount of the Securities
may direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Securityholders notice of any continuing Default (except a Default
in payment of principal or interest) if it determines that withholding notice is
in the interest of the Holders.
15. Trustee Dealings with the Company
Subject to certain limitations imposed by the TIA, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or any of its Affiliates and may otherwise deal with the
Company or any of its Affiliates with the same rights it would have if it were
not Trustee.
16. No Recourse Against Others
No recourse for the payment of the principal of, premium, if any, or
interest or other Obligations on any of the Securities or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the
B-7
<PAGE>
Company in the Indenture, or in any of the Securities or because of the creation
of any Indebtedness represented hereby and thereby, shall be had against any
incorporator, stockholder, officer, director, employee or controlling person of
the Company, a Subsidiary Guarantor or any Successor Person thereof. Each
Holder, by accepting a Security, waives and releases all such liability.
17. Guarantees
This Security may be entitled to the benefits of certain Guarantees,
if any, which may be made after the original issuance of this Security for the
benefit of the Holders. Reference is hereby made to the Indenture for a
statement of the respective rights, limitations of rights, duties and
obligations thereunder of any such Subsidiary Guarantors, the Trustee and the
Holders.
18. Governing Law
The Indenture and the Securities shall be governed by, and construed
in accordance with, the laws of the State of New York without giving effect to
applicable principles of conflict of laws to the extent that the application of
the laws of another jurisdiction would be required thereby.
19. Authentication
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
20. Abbreviations
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with rights of survivorship and not as
tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gift to Minors
Act).
21. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and have directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Securityholder upon written request
and without charge to the Securityholder a copy of the Indenture. Requests may
be made as follows:
B-8
<PAGE>
If to the Company:
Hollywood Entertainment Corporation
25600 SW Parkway Center Drive
Wilsonville, Oregon 97070
Attention: Secretary
If to the Trustee:
U.S. Trust Company of California, N.A.
555 South Flower Street, Suite 2700
Los Angeles, California 90071
Attention: Corporate Trust Trustee Administration
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<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint ____________ agent to transfer this Security on the
books of the Company. The agent may substitute another to act for him.
Date: _______________ Your Signature: ___________________________________
Sign exactly as your name appears on the other
side of this Security.
Signature Guarantee: ______________________________
(Signature must be guaranteed)
B-10
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.6 or 4.8 of the Indenture, check the box: If you want to
elect to have only part of this Security purchased by the Company pursuant to
Section 4.6 or 4.8 of the Indenture, state the amount: $
Date: _______________ Your Signature: ___________________________________
Sign exactly as your name appears on the other
side of this Security.
Signature Guarantee: ______________________________
(Signature must be guaranteed)
B-11
<PAGE>
SCHEDULE A
PRINCIPAL AMOUNT: ______________________________
The following increases or decreases in the principal amount of this
Global Security have been made:
<TABLE>
<CAPTION>
Amount of Amount of Principal Signature of
decrease in increase in Amount of this authorized
Principal Principal Global Security signatory of
Amount of this Amount of this following such Trustee or
Date of Global Global decrease (or Securities
Exchange Security Security increase) Custodian
<S> <C> <C> <C> <C>
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</TABLE>
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<PAGE>
EXHIBIT C
Form of Certificate To Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
[ ], [ ]
[ ]
[ ]
[ ]
Ladies and Gentlemen:
In connection with our proposed purchase of 10 5/8% Senior
Subordinated Notes due 2004 (the "Securities") of Hollywood Entertainment
Corporation, a Michigan corporation (the "Company"), we confirm that:
1. We have received a copy of the Offering Memorandum (the
"Offering Memorandum"), dated August 7, 1997, relating to the Securities
and such other information as we deem necessary in order to make our
investment decision. We acknowledge that we have read and agreed to the
matters stated in the section entitled "Transfer Restrictions" of such
Offering Memorandum.
2. We understand that any subsequent transfer of the Securities
is subject to certain restrictions and conditions set forth in the
Indenture relating to the Securities (the "Indenture") as described in the
Offering Memorandum and the undersigned agrees to be bound by, and not to
resell, pledge or otherwise transfer the Securities except in compliance
with, such restrictions and conditions and the Securities Act of 1933, as
amended (the "Securities Act"), and all applicable State securities laws.
3. We understand that the offer and sale of the Securities have
not been registered under the Securities Act, and that the Securities may
not be offered or sold within the United States or to, or for the account
or benefit of, U.S. persons except as permitted in the following sentence.
We agree, on our own behalf and on behalf of any accounts for which we are
acting as hereinafter stated, that if we should sell any Securities, we
will do so only (i) to the Company or any subsidiary thereof, (ii) inside
the United States in accordance with Rule 144A under the Securities Act to
a "qualified institutional buyer" (as defined in Rule 144A promulgated
under the Securities Act), (iii) outside the United States in accordance
with Rule 904 of Regulation S promulgated under the Securities Act to
non-U.S. persons, (iv) pursuant to the exemption from registration provided
by Rule 144 under the Securities Act (if available), or (v) pursuant to an
effective registration statement under the Securities Act, and we further
agree to provide to any person purchasing any of the Securities from us a
notice advising such purchaser that resales of the Securities are
restricted as stated herein.
C-1
<PAGE>
4. We understand that, on any proposed resale of any Securities,
we will be required to furnish to the Trustee and the Company such
certification, legal opinions and other information as the Trustee and the
Company may reasonably require to confirm that the proposed sale complies
with the foregoing restrictions. We further understand that the Securities
purchased by us will bear a legend to the foregoing effect.
5. We are an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act)
and have such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of our investment in the
Securities, and we and any accounts for which we are acting are each able
to bear the economic risk of our or their investment, as the case may be.
6. We are acquiring the Securities purchased by us for our
account or for one or more accounts (each of which is an institutional
"accredited investor") as to each of which we exercise sole investment
discretion.
You, the Company, the Trustee and others are entitled to rely
upon this letter and are irrevocably authorized to produce this letter or a copy
hereof to any interested party in any administrative or legal proceeding or
official inquiry with respect to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By:
-------------------------------------
Name:
Title:
C-2
<PAGE>
EXHIBIT D
Form of Certificate To Be Delivered
in Connection with Transfers
Pursuant to Regulation S
[ ], [ ]
[ ]
[ ]
[ ]
[ ]
Re: Hollywood Entertainment Corporation (the
"Company") 10 5/8% Senior Subordinated Notes
due 2004 (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 (the "Securities Act"), 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 offer was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United
States, or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we nor
any person acting on our behalf 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;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer restrictions
applicable to the Securities.
D-1
<PAGE>
You, the Company and counsel for 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 Transferee]
By:
-------------------------------------
Name:
Title:
D-2
<PAGE>
EXHIBIT E
GUARANTEE
For value received, the undersigned hereby unconditionally
guarantees, as principal obligor and not only as a surety, to the Holder of this
Security the cash payments in United States dollars of principal of, premium, if
any, and interest on this Security (and including Additional Interest payable
thereon) in the amounts and at the times when due and interest on the overdue
principal, premium, if any, and interest, if any, of this Security, if lawful,
and the payment or performance of all other obligations of the Company under the
Indenture (as defined below) 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, the Indenture (as supplemented) and this Guarantee. The
validity and enforceability of any Guarantee shall not be affected by the fact
that it is not affixed to any particular Security. Capitalized terms used but
not defined herein shall have the meanings ascribed to them in the Indenture
dated as of August 13, 1997, among Hollywood Entertainment Corporation, an
Oregon corporation, as issuer (the "Company"), and U.S. Trust Company of
California, N.A., as trustee (the "Trustee"), as the same may be amended or
supplemented (the "Indenture").
The Guarantor hereunder shall be released and discharged from
this Guarantee automatically and unconditionally upon either (i) the release or
discharge of the guarantee or similar obligation under the Senior Credit
Facility giving rise to the Guarantor's obligation to become a Guarantor
hereunder, except a discharge by or as a result of payment under such guarantee,
or (ii) 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 Guarantor, which sale, exchange or transfer is made in
compliance with the applicable provisions of the Indenture.
THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF
CONFLICTS OF LAW. Each Guarantor hereby agrees to submit to the jurisdiction of
the courts of the State of New York in any action or proceeding arising out of
or relating to this Guarantee. This Guarantee is subject to release upon the
terms set forth in the Indenture.
IN WITNESS WHEREOF, each Guarantor has caused its Guarantee to be
duly executed.
GUARANTOR
By:
-------------------------------------
Name:
Title:
E-1
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EXHIBIT F
FORM OF SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
_______________, among [Subsidiary Guarantor] (the "Subsidiary Guarantor"), a
subsidiary of Hollywood Entertainment Corporation (or its successor), an Oregon
corporation (the "Company"), the Company and U.S. Trust Company of California,
N.A., a national banking corporation, as trustee under the Indenture referred to
below (the "Trustee").
W I T N E S S E T H :
WHEREAS the Company has heretofore executed and delivered to the
Trustee an Indenture (as such may be amended from time to time, the
"Indenture"), dated as of August 13, 1997, providing for the issuance of an
aggregate principal amount of up to $250,000,000 of 10 5/8% Senior Subordinated
Notes due 2004 (the "Securities");
WHEREAS Section 4.14 of the Indenture provides that under certain
circumstances the Company is required to cause the Subsidiary Guarantor to
execute and deliver to the Trustee a supplemental indenture pursuant to which
the Subsidiary Guarantor shall unconditionally guarantee all of the Company's
obligations under the Securities pursuant to a Subsidiary Guaranty on the terms
and conditions set forth herein; and
WHEREAS pursuant to Section 9.1 of the Indenture, the Trustee and the
Company are authorized to execute and deliver this Supplemental Indenture;
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Subsidiary Guarantor, the Company and the Trustee mutually covenant and agree
for the equal and ratable benefit of the holders of the Securities as follows:
1. Definitions. Capitalized terms used herein without definition shall
have the meanings assigned to them in the Indenture. For all purposes of this
Supplemental Indenture, except as otherwise herein expressly provided or unless
the context otherwise requires: (i) the terms and expressions used herein shall
have the same meanings as corresponding terms and expressions used in the
Indenture; and (ii) the words "herein," "hereof" and "hereby" and other words of
similar import used in this Supplemental Indenture refer to this Supplemental
Indenture as a whole and not to any particular section hereof.
2. Agreement to Guarantee. The Subsidiary Guarantor hereby agrees,
jointly and severally with all other Subsidiary Guarantors, to guarantee the
Company's obligations under the Securities on the terms and subject to the
conditions set forth herein and to be bound by all other applicable provisions
of the Indenture. From and after the date hereof, the Subsidiary Guarantor shall
be a Subsidiary Guarantor for all purposes under the Indenture and the
Securities.
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The Subsidiary Guarantor hereby unconditionally and irrevocably guarantees,
jointly and severally, to each Holder and to the Trustee and its successors and
assigns (a) the full and punctual payment of principal of, premium, if any, and
interest on the Securities when due, whether at maturity, by acceleration, by
redemption or otherwise, and all other monetary obligations of the Company under
the Indenture and the Securities and (b) the full and punctual performance
within applicable grace periods of all other obligations of the Company under
the Indenture and the Securities (all the foregoing being hereinafter
collectively called the "Guaranteed Obligations"). The Subsidiary Guarantor
further agrees that the Guaranteed Obligations may be extended or renewed, in
whole or in part, without notice or further assent from such Subsidiary
Guarantor and that such Subsidiary Guarantor will remain bound under this
Supplemental Indenture notwithstanding any extension or renewal of any
Guaranteed Obligation.
The Subsidiary Guarantor waives presentation to, demand of, payment
from and protest to the Company of any of the Guaranteed Obligations and also
waives notice of protest for nonpayment. The Subsidiary Guarantor waives notice
of any default under the Securities or the Guaranteed Obligations. The
obligations of the Subsidiary Guarantor hereunder shall not be affected by (a)
the failure of any Holder or the Trustee to assert any claim or demand or to
enforce any right or remedy against the Company or any other Person under the
Indenture, the Securities or any other agreement or otherwise; (b) any extension
or renewal of any thereof; (c) any rescission, waiver, amendment or modification
of any of the terms or provisions of the Indenture, the Securities or any other
agreement; (d) the release of any security held by any Holder or the Trustee for
the Guaranteed Obligations or any of them; (e) the failure of any Holder or the
Trustee to exercise any right or remedy against any other guarantor of the
Guaranteed Obligations; or (f) any change in the ownership of such Subsidiary
Guarantor.
The Subsidiary Guarantor further agrees that its Subsidiary Guaranty
herein constitutes a guarantee of payment, performance and compliance when due
(and not a guarantee of collection) and waives any right to require that any
resort be had by any Holder or the Trustee to any security held for payment of
the Guaranteed Obligations.
The Subsidiary Guaranty is, to the extent and in the manner set forth
in this Supplemental Indenture, subordinated and subject in right of payment to
the prior payment in full of the principal of and premium, if any, and interest
on all Senior Indebtedness of the Subsidiary Guarantor giving such Subsidiary
Guaranty and each Subsidiary Guaranty is made subject to such provisions of this
Indenture.
Except as expressly set forth in Sections 8.2 of the Indenture and in
this Supplemental Indenture, the obligations of the Subsidiary Guarantor
hereunder shall not be subject to any reduction, limitation, impairment or
termination for any reason, including any claim of waiver, release, surrender,
alteration or compromise, and shall not be subject to any defense of setoff,
counterclaim, recoupment or termination whatsoever or by reason of the
invalidity, illegality or unenforceability of the Guaranteed Obligations or
otherwise. Without limiting the generality of the foregoing, the obligations of
the Subsidiary Guarantor herein shall not be discharged or impaired or otherwise
affected by the failure of any Holder or the Trustee to assert any claim or
demand or to enforce any remedy under this Indenture, the Securities or any
other
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agreement, by any waiver or modification of any thereof, by any default, failure
or delay, willful or otherwise, in the performance of the Guaranteed
Obligations, or by any other act or thing or omission or delay to do any other
act or thing which may or might in any manner or to any extent vary the risk of
such Subsidiary Guarantor or would otherwise operate as a discharge of such
Subsidiary Guarantor as a matter of law or equity.
The Subsidiary Guarantor further agrees that its Subsidiary Guaranty
herein shall continue to be effective or be reinstated, as the case may be, if
at any time payment, or any part thereof, of principal of, premium, if any, or
interest on any Guaranteed Obligation is rescinded or must otherwise be restored
by any Holder or the Trustee upon the bankruptcy or reorganization of the
Company or otherwise.
In furtherance of the foregoing and not in limitation of any other
right which any Holder or the Trustee has at law or in equity against any
Subsidiary Guarantor by virtue hereof, upon the failure of the Company to pay
the principal of, premium, if any, or interest on any Obligation when and as the
same shall become due, whether at maturity, by acceleration, by redemption or
otherwise, or to perform or comply with any other Guaranteed Obligation, the
Subsidiary Guarantor hereby promises to and will, upon receipt of written demand
by the Trustee, forthwith pay, or cause to be paid, in cash, to the Holders or
the Trustee an amount equal to the sum of (i) the unpaid amount of such
Guaranteed Obligations, (ii) accrued and unpaid interest on such Guaranteed
Obligations (but only to the extent not prohibited by law) and (iii) all other
monetary Guaranteed Obligations of the Company to the Holders and the Trustee.
The Subsidiary Guarantor agrees that it shall not be entitled to any
right of subrogation in respect of any Guaranteed Obligations guaranteed hereby
until payment in full of all Guaranteed Obligations and all obligations to which
the Guaranteed Obligations are subordinated as provided in this Supplemental
Indenture. The Subsidiary Guarantor further agrees that, as between it, on the
one hand, and the Holders and the Trustee, on the other hand, (x) the maturity
of the Guaranteed Obligations hereby may be accelerated as provided in Article 6
of the Indenture for the purposes of such Subsidiary Guarantor's Subsidiary
Guaranty, notwithstanding any stay, injunction or other prohibition preventing
such acceleration in respect of the Obligations guaranteed hereby, and (y) in
the event of any declaration of acceleration of such Obligations as provided in
Article 6 of the Indenture, such Obligations (whether or not due and payable)
shall forthwith become due and payable by such Subsidiary Guarantor for the
purposes of this Section.
Each Subsidiary Guarantor also agrees to pay any and all costs and
expenses (including reasonable attorneys' fees) incurred by the Trustee or any
Holder in enforcing any rights under this Section.
3. Limitation on Liability. Any term or provision of the Indenture to
the contrary notwithstanding, the maximum aggregate amount of the obligations
guaranteed hereunder by the Subsidiary Guarantor shall not exceed the maximum
amount that can be hereby guaranteed without rendering the Indenture, as it
relates to such Subsidiary Guarantor, voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws
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affecting the rights of creditors generally. To effectuate the foregoing
intention, the obligations of the Subsidiary Guarantor shall be limited to the
maximum amount as will, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
its Subsidiary Guaranty or pursuant to its contribution obligations hereunder,
result in the obligations of such Subsidiary Guarantor under its Subsidiary
Guaranty not constituting a fraudulent conveyance or fraudulent transfer under
federal, state or foreign law. The Subsidiary Guarantor that makes a payment or
distribution under a Subsidiary Guaranty shall be entitled to a contribution
from each other Subsidiary Guarantor in an amount based on the consolidated net
worth of each Subsidiary Guarantor.
4. Successors and Assigns. This Supplemental Indenture shall be
binding upon the Subsidiary Guarantor and its successors and assigns and shall
enure to the benefit of the successors and assigns of the Trustee and the
Holders and, in the event of any transfer or assignment of rights by any Holder
or the Trustee, the rights and privileges conferred upon that party in the
Indenture and this Supplemental Indenture and in the Securities shall
automatically extend to and be vested in such transferee or assignee, all
subject to the terms and conditions of the Indenture.
5. No Waiver. Neither a failure nor a delay on the part of either the
Trustee or the Holders in exercising any right, power or privilege under this
Supplemental Indenture shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise of any right,
power or privilege. The rights, remedies and benefits of the Trustee and the
Holders herein expressly specified are cumulative and not exclusive of any other
rights, remedies or benefits which either may have under this Supplemental
Indenture at law, in equity, by statute or otherwise.
6. Modification. No modification, amendment or waiver of any provision
of this Supplemental Indenture, nor the consent to any departure by any
Subsidiary Guarantor therefrom, shall in any event be effective unless the same
shall be in writing and signed by the Trustee, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. No notice to or demand on the Subsidiary Guarantor in any case shall
entitle such Subsidiary Guarantor to any other or further notice or demand in
the same, similar or other circumstances.
7. Release of Subsidiary Guarantor. A Subsidiary Guarantor shall be
released and discharged from its Guarantee automatically and unconditionally
upon either (i) the release or discharge of the guarantee or similar obligation
under the Senior Credit Facility giving rise to such Subsidiary Guarantor's
obligation to become a Subsidiary Guarantor hereunder, except a discharge by or
as a result of payment under such guarantee, or (ii) 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 Subsidiary
Guarantor, which sale, exchange or transfer is made in compliance with the
applicable provisions of the Indenture and this Supplemental Indenture.
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8. Agreement to Subordinate. Notwithstanding any other provision to
the contrary in this Supplemental Indenture, the Subsidiary Guarantor covenants
and agrees, and each Holder by accepting a Security covenants and agrees, that
all payments by such Subsidiary Guarantor in respect of its Subsidiary Guarantee
are subordinated in right of payment, to the extent and in the manner provided
in this Supplemental Indenture, to the prior payment in full of all Senior
Indebtedness of such Subsidiary Guarantor, whether outstanding on the Issue Date
or thereafter incurred, including all Obligations of the Company and such
Subsidiary Guarantor under the Senior Credit Facility. The subordination
provisions set forth in this Supplemental Indenture, are for the benefit of, and
shall be enforceable directly by, the holders of Senior Indebtedness.
Each Holder authorizes and directs the Trustee on such Holder's behalf
to take such action as may be necessary or appropriate, in the sole discretion
of the Trustee, to acknowledge or effectuate the subordination between the
Holders and the holders of Senior Indebtedness of each Subsidiary Guarantor as
provided in this Supplemental Indenture, and appoints the Trustee as such
Holder's attorney-in-fact for any and all such proposes, including, in the event
of any voluntary or involuntary liquidation or dissolution of a Subsidiary
Guarantor, whether total or partial, or in a bankruptcy, reorganization,
insolvency, receivership, dissolution, assignment for the benefit of creditors,
marshalling of assets or similar proceeding relating to a Subsidiary Guarantor
or its property, the timely filing of a claim for the unpaid balance of such
Holder's Securities in the form required in said proceeding and cause said claim
to be approved. If the Trustee does not file a property claim or proof to debt
in the form required in such proceeding prior to 20 days before the expiration
of the time to exile such claim or claims, then the Representative is hereby
authorized to have the right to file and is hereby authorized to file an
appropriate claim for and on behalf of the Holders; provided, however, that any
such claim filed by such Representative shall be superseded by the claim, if
any, subsequently filed by the Trustee.
Each Holder by accepting a Security acknowledges and agrees that the
subordination provisions set forth in this Supplemental Indenture are, and are
intended to be, an inducement and consideration to the holder of Senior
Indebtedness of each Subsidiary Guarantor, whether such Senior Indebtedness was
created before or after the issuance of the Securities, to acquire and continue
to hold, or to continue to hold, such Senior Indebtedness, and such holder of
Senior Indebtedness shall be deemed conclusively to have relied upon such
subordination provisions in acquiring and continuing to hold, or in continuing
to hold, such Senior Indebtedness, and such holder is made an obligee hereunder
and may enforce directly such subordination provisions.
9. Liquidation; Dissolution; Bankruptcy. Upon any payment or
distribution of the assets of the Subsidiary Guarantor of any kind or character,
whether in cash, property or securities, to creditors upon a total or partial
liquidation or dissolution or reorganization or similar proceeding relating to
such Subsidiary Guarantor or its property or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding:
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(a) the holders of Senior Indebtedness of such Subsidiary
Guarantor shall be entitled to receive payment in full in cash of such Senior
Indebtedness before Holders are entitled to receive any payment; and
(b) until the Senior Indebtedness of such Subsidiary Guarantor is
paid in full, any payment or distribution to which Holders would otherwise be
entitled pursuant to this Supplemental Indenture shall be made to holders of
Senior Indebtedness of such Subsidiary Guarantor, as their interests may appear.
Upon any payment or distribution referred to in this Supplemental
Indenture, the Trustee and the Holders shall be entitled to rely upon any order
or decree of a court of competent jurisdiction in which such proceedings are
pending for the purpose of ascertaining the identity of Persons entitled to
participate in such payment or distribution, the holders of Senior Indebtedness,
the amount thereof or payable thereon and all other facts pertinent thereto or
to this Supplemental Indenture, and the Trustee and the Holders shall be
entitled to rely upon a certificate of the liquidating trustee or agent or other
Person (including any Representative of holders of Senior Indebtedness of such
Subsidiary Guarantor) making any payment or distribution to the Trustee or to
the Holders for the purpose of ascertaining the identity of Persons entitled to
participate in such payment or distribution, the holders of Senior Indebtedness,
the amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Supplemental Indenture.
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
Section, the Trustee may request such Person (at the expense of the Holders) to
furnish evidence to the reasonable satisfaction of the Trustee, acting in good
faith, as to the amount of such Senior Indebtedness held by such Person, as to
the extent to which such Person is entitled to participate in such payment or
distribution, and as to the other facts pertinent to the rights of such Person
under this Section, 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 payment.
The consolidation or merger of the Subsidiary Guarantor with or into
any Person, or the sale, assignment, transfer, lease, conveyance or other
disposition of all or substantially all of such Subsidiary Guarantor's assets to
any Person, in compliance with the terms and conditions set forth in Sections
5.1 and 5.2 of the Indenture, shall not be deemed to be a liquidation,
dissolution or reorganization or similar proceeding relating to such Subsidiary
Guarantor for purposes of this Section.
10. Default on Senior Indebtedness.
(a) If any Senior Indebtedness of the Subsidiary Guarantor is not
paid when due, the Subsidiary Guarantor may not pay the Subordinated Debt unless
the default shall have been cured or waived or such Senior Indebtedness has been
paid in full.
(b) If any default on any Senior Indebtedness of a Subsidiary
Guarantor (other than as set forth in Section 10(a) hereof occurs and such
Senior Indebtedness is
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accelerated in accordance with its terms, the Subsidiary Guarantor may not pay
the Subordinated Debt unless the default shall have been cured or waived and any
such acceleration has been rescinded or such Senior Indebtedness has been paid
in full in cash.
(c) Notwithstanding the foregoing Sections 10(a) and (b), the
Subsidiary Guarantor may pay the Subordinated Debt without regard to the
foregoing if the Subsidiary Guarantor and the Trustee receive written notice
approving such payment from the Representative of the Senior Indebtedness with
respect to which either of the events set forth in Sections 10(a) and (b) has
occurred and is continuing. During the continuance of any default (other than a
default described in Sections 10(a) and (b)) with respect to any Senior
Indebtedness of the Subsidiary Guarantor pursuant to which the maturity thereof
may be accelerated immediately without further notice (except such notice as may
be required to effect such acceleration) or the expiration of any applicable
grace periods, the Subsidiary Guarantor may not pay the Subordinated Debt for
the Payment Blockage Period commencing upon the receipt by the Trustee (with a
copy to the Subsidiary Guarantor) of a Blockage Notice from the Representative
of the holders of such Designated Senior Indebtedness specifying an election to
effect a Payment Blockage Period and ending 179 days thereafter (or earlier if
such Payment Blockage Period is terminated (i) by written notice to the Trustee
and the Subsidiary Guarantor from the Person or Persons who gave such Blockage
Notice, (ii) because the default giving rise to such Blockage Notice has been
waived in writing or (iii) because such Designated Senior Indebtedness has been
repaid in full in cash). Notwithstanding the provisions described in the
immediately preceding sentence, unless the holders of such Designated Senior
Indebtedness or the Representative of such holders has accelerated the maturity
of such Designated Senior Indebtedness, the Subsidiary Guarantor may resume
payments on the Securities after the end of such Payment Blockage Period. The
Securities shall not be subject to more than one Payment Blockage Period in any
consecutive 365-day period, irrespective of the number of such nonpayment
defaults with respect to Designated Senior Indebtedness during such period.
(d) The Subsidiary Guarantor covenants that it will, upon request
of the Trustee, deliver an Officers' Certificate (with copies thereof to the
Representative of each class of Senior Indebtedness of such Subsidiary
Guarantor) showing in reasonable detail the Senior Indebtedness outstanding as
of the date of such Officers' Certificate and the Representative of each class
of such Senior Indebtedness. The Trustee may conclusively rely thereon except to
the extent that it shall have received, from the Representative of any class of
such Senior Indebtedness, notice in writing controverting any of the statements
made therein. Not less than 10 days prior to making any distribution in respect
of Senior Indebtedness pursuant to this Section, the Trustee shall deliver to
each Representative of any class of such Senior Indebtedness copies of the most
recent Officers' Certificate filed with it by such Subsidiary Guarantor pursuant
to this subsection (d).
(e) In the event that the Securities are declared due and payable
before their Stated Maturity in accordance with Article 6 of the Indenture, then
and in such event the holders of Senior Indebtedness of any Subsidiary Guarantor
outstanding at the time the Securities so become due and payable shall be
entitled to receive payment in full in cash of all amounts due or to become due
on or in respect of such Senior Indebtedness (whether or not an
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Event of Default has occurred thereunder or the Senior Indebtedness of such
Subsidiary Guarantor is, or has been declared to be, due and payable prior to
the date on which it otherwise would have become due and payable) before the
Holders shall be entitled to receive any payment in respect of the Securities.
11. Payments of Subordinated Debt Permitted if No Default. Nothing
contained in this Supplemental Indenture or elsewhere in the Indenture, or in
any of the Securities, shall prevent the Subsidiary Guarantor or any Person
acting on behalf of the Subsidiary Guarantor, at any time except as otherwise
provided in Sections 9 and 10, from paying the Subordinated Debt.
12. When Subordinated Debt Must Be Paid Over. In the event that any
payment is made on the Subordinated Debt to the Trustee or the Holders that,
because of the provisions of this Supplemental Indenture, should not have been
so made or may not be paid over to the Holders, such payment shall be held by
the Trustee or the Holders who receive such payment, as the case may be, for the
benefit of, and shall forthwith be paid over or delivered to, the holders of the
Senior Indebtedness of the Subsidiary Guarantor remaining unpaid or their
Representatives, as their interests may appear, to the extent necessary to
irrevocably and indefeasibly pay such Senior Indebtedness in full in cash or in
accordance with its terms, after giving effect to any concurrent payment or
distribution to or for the holders of such Senior Indebtedness.
13. Notices by the Subsidiary Guarantor. The Subsidiary Guarantor
shall promptly notify the Trustee, each Paying Agent and the Representative of
any facts known to the Subsidiary Guarantor that would cause a payment on the
Subordinated Debt to violate the foregoing provisions of this Supplemental
Indenture, but failure to give such notice shall not affect the subordination
provided in this Supplemental Indenture of any Subsidiary Guarantee to holders
of Senior Indebtedness of the Subsidiary Guarantor. Without limiting the
foregoing, if payment of the Securities is accelerated because of an Event of
Default, the Subsidiary Guarantor shall promptly notify the Representative of
the acceleration.
14. Subrogation. After all Senior Indebtedness is irrevocably and
indefeasibly paid in full in cash and until the Securities are paid in full,
Holders shall be subrogated to the rights of holders of Senior Indebtedness of
the Subsidiary Guarantor to receive distributions applicable to Senior
Indebtedness to the extent that distributions otherwise payable to Holders have
been applied to the payment of Senior Indebtedness. A distribution made under
this Supplemental Indenture to holders of Senior Indebtedness which otherwise
should have been made to Holders is not, as between the Subsidiary Guarantor and
the Holders, payment by the Subsidiary Guarantor on Senior Indebtedness.
15. Relative Rights. This Supplemental Indenture defines the relative
rights of Holders and holders of Senior Indebtedness of the Subsidiary
Guarantor. Nothing in this Indenture shall:
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(a) impair, as between a Subsidiary Guarantor and the Holders,
the obligation of a Subsidiary Guarantor, which is absolute and
unconditional, to make any payment in accordance with the terms of its
Subsidiary Guaranty;
(b) affect the relative rights of Holders and creditors of a
Subsidiary Guarantor other than holders of Senior Indebtedness of such
Subsidiary Guarantor; or
(c) prevent the Trustee or any Holder from exercising its
available remedies upon a Default or Event of Default, subject to the
rights of holders of Senior Indebtedness to receive prepayment, payments
and distributions otherwise payable to Holders.
If the Subsidiary Guarantor fails because of the foregoing provisions
of this Supplemental Indenture to pay the principal of (or premium, if any) or
interest on a Security on the due date or upon the acceleration thereof, the
failure is still a Default or Event of Default.
16. Subordination May Not Be Impaired by the Subsidiary Guarantor. No
right of any holder of Senior Indebtedness to enforce the subordination of the
Obligation of the Subsidiary Guarantor pursuant to its Subsidiary Guaranty shall
be impaired by (a) any act or failure to act by the Subsidiary Guarantor or by
its failure to comply with this Supplemental Indenture or the Indenture, (b) any
release of any collateral or any guarantor or any Person or the Subsidiary
Guarantor's obligations under Senior Indebtedness, (c) any amendment,
supplement, extension, renewal, restatement or other modification of any Senior
Indebtedness, (d) any settlement or compromise of any Senior Indebtedness, (e)
the unenforceability of any of the Senior Indebtedness or (f) the failure of any
holder of Senior Indebtedness to pursue claims against the Subsidiary Guarantor.
The terms of the subordination provisions contained in this Supplemental
Indenture will not apply to payments from money or the proceeds of U.S.
Government Obligations held in trust by the Trustee for the payment of principal
of and interest on the Securities pursuant to and in accordance with the
provisions described in Article 8 of the Indenture.
17. Distribution or Notice to Representative. Whenever a distribution
is to be made or a notice given to holders of Senior Indebtedness, the
distribution may be made and the notice given to their Representative (if any).
18. Rights of Trustee and Paying Agent. The Trustee or any Paying
Agent may continue to make payments in respect of the Securities and shall not
be charged with knowledge of the existence of facts that would prohibit the
making of any such payment unless, not less than three Business Days prior to
the date of any such payment, a Responsible Officer of the Trustee receives
written notice reasonably satisfactory to it that payments in respect of the
Securities may not be made under this Article. Only the Subsidiary Guarantor, a
Representative (satisfactorily identified to the Trustee) or a holder of a class
of Senior Indebtedness that has no Representative (satisfactorily identified to
the Trustee) may give the notice. Prior to the receipt of such notice, the
Trustee and any Paying Agent shall be entitled in all respects to assume that no
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such facts exist. In any case, the Trustee shall have no responsibility to the
holders of Senior Indebtedness for payments made to Holders by a Subsidiary
Guarantor or any Paying Agent unless such payments are made at the direction of
the Trustee after receipt of such notice referred to above.
Neither the Trustee nor any Paying Agent shall be deemed to owe any
fiduciary duty to the holders of 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
Supplemental Indenture, and no implied covenants or obligations with respect to
the holders of Senior Indebtedness shall be read into this Indenture against the
Trustee. The Trustee shall not be liable to any holders of Senior Indebtedness
if it shall mistakenly 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 Supplemental Indenture or otherwise.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness with the same rights it would have if it were not Trustee.
This Section is solely for the benefit of the Trustee and any Paying
Agents and shall not limit the obligations of the Holders under Section 12
hereof.
19. Consent of Holders of Senior Indebtedness. The provisions of this
Supplemental Indenture (including the definitions contained in this Supplemental
Indenture and references to this Supplemental Indenture contained in the
Indenture) shall not be amended, waived or modified in a manner that would
adversely affect the rights of the holders of any Senior Indebtedness of the
Subsidiary Guarantor, and no such amendment, waiver or modification shall become
effective, unless the holders of such Senior Indebtedness shall have consented
in writing (in accordance with the provisions of the Agreement governing such
Senior Indebtedness) to such amendment, waiver or modification.
20. Contractual Subordination. This Supplemental Indenture represents
a bona fide agreement of contractual subordination pursuant to Section 510(b) of
the United States Bankruptcy Code.
21. Ratification of Indenture; Supplemental Indentures Part of
Indenture. Except as expressly amended hereby, the Indenture is in all respects
ratified and confirmed and all the terms, conditions and provisions thereof
shall remain in full force and effect. This Supplemental Indenture shall form a
part of the Indenture for all purposes, and every holder of Securities
heretofore or hereafter authenticated and delivered shall be bound hereby.
22. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
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23. Trustee Makes No Representation. The Trustee makes no
representation as to the validity or sufficiency of this Supplemental Indenture.
24. Counterparts. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
25. Effect of Headings. The Section headings herein are for
convenience only and shall not affect the construction thereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.
[Subsidiary Guarantor]
By:
------------------------------------
Name:
Title:
HOLLYWOOD ENTERTAINMENT
CORPORATION
By:
------------------------------------
Name:
Title:
U.S. TRUST COMPANY OF
CALIFORNIA, N.A., as Trustee
By:
------------------------------------
Name:
Title:
F-12
FACE OF SECURITY
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW
YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS 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. TRANSFERS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF
DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND LIMITED TO
TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE
REFERRED TO ON THE REVERSE HEREOF.
THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED
IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE NOTE
EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE NOTE EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE
RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT
PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE NOTE EVIDENCED HEREBY AGREES
FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH NOTE MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED ONLY (1) BY THE INITIAL PURCHASER (a) TO A PERSON WHO THE
SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT) PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, (b) OUTSIDE THE UNITED
STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 903
OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (c) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER (IF APPLICABLE) OR IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF
COUNSEL IF THE COMPANY SO REQUESTS), (d) TO THE COMPANY, (e) PURSUANT
<PAGE>
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (f) TO AN
INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, AND (2) BY SUBSEQUENT PURCHASERS, AS SET
FORTH IN (1)(a) THROUGH (e) ABOVE, AND IN EACH CASE IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS
REQUIRED TO, NOTIFY ANY PURCHASER OF THE NOTE EVIDENCED HEREBY OF THE RESALE
RESTRICTIONS SET FORTH IN (A) ABOVE. NO REPRESENTATION CAN BE MADE AS TO THE
AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 FOR RESALE OF THE SECURITY
EVIDENCED HEREBY.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF THE
DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH SUCCESSOR DEPOSITORY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO AN ISSUER OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE 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 NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.14 OF THE INDENTURE.
2
<PAGE>
No.
10 5/8% Senior Subordinated Notes Due 2004
CUSIP No. 436141 AA 3
HOLLYWOOD ENTERTAINMENT CORPORATION, an Oregon corporation, promises
to pay to Cede & Co., or registered assigns, the principal sum set forth from
time to time on Schedule A hereto on August 15, 2004.
Interest Payment Dates: February 15 and August 15
Record Dates: February 1 and August 1.
Additional provisions of this Security are set forth on the reverse
side of this Security.
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officers.
HOLLYWOOD ENTERTAINMENT CORPORATION
By:
-------------------------------------
Name:
Title:
Dated: ____________, 1997
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
U.S. TRUST COMPANY OF CALIFORNIA, N.A., as Trustee, certifies that this is one
of the Securities referred to in the within-mentioned Indenture.
By: U.S. TRUST COMPANY OF CALIFORNIA,
N.A., as Trustee
-----------------------------------------
Authorized Signatory
Date of Authentication:
____________, 1997
3
<PAGE>
REVERSE OF SECURITY
10 5/8% SENIOR SUBORDINATED SECURITY DUE 2004
1. Interest
HOLLYWOOD ENTERTAINMENT CORPORATION, an Oregon corporation (such
entity, and its successors and assigns under the Indenture hereinafter referred
to, and each other entity which is required to become the Company pursuant to
the Indenture, and its successors and assigns under the Indenture, being herein
called the "Company"), promises to pay interest on the principal amount of this
Security at the rate per annum shown above. The Company will pay interest
semiannually on February 15 and August 15 of each year, commencing February 15,
1998. Interest on the Securities will accrue from the most recent date on which
interest has been paid or, if no interest has been paid, from August 13, 1997.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The Company shall pay interest on overdue principal at the same rate
borne by the Securities, and it shall pay interest on overdue installments of
interest at such rate to the extent lawful.
2. Method of Payment
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered holders of Securities at the close
of business on the February 1 and August 1 immediately preceding the interest
payment date even if Securities are canceled on registration of transfer or
registration of exchange (including pursuant to an Exchange Offer (as defined in
the applicable Registration Rights Agreement)) after the record date. Holders
must surrender Securities to a Paying Agent to collect principal payments. The
Company will pay principal and interest in money of the United States that at
the time of payment is legal tender for payment of public and private debts
("U.S. Legal Tender"). However, the Company may pay principal and interest by
its check payable in such U.S. Legal Tender. The Company may deliver any such
interest payment to the Paying Agent or to a Holder's registered address.
3. Paying Agent and Registrar
Initially, U.S. Trust Company of California, N.A., a national banking
corporation ("Trustee"), will act as Paying Agent and Registrar. The Company may
appoint and change any Paying Agent, Registrar or co-registrar without notice.
The Company may act as Paying Agent, Registrar, co-Registrar or transfer agent.
4. Indenture
The Company issued the Securities under an Indenture dated as of
August 13, 1997 (the "Indenture"), between the Company and the Trustee. This
Security is one of a duly authorized issue of Initial Securities of the Company
designated as its 10 5/8% Senior Subordinated Notes due 2004 (the "Initial
Securities"). The Securities include the Initial Securities and the Exchange
Securities (as defined in the Indenture), issued in exchange for the
4
<PAGE>
Initial Securities pursuant to the Registration Rights Agreement. The Initial
Securities and the Exchange Securities are treated as a single class of
securities under the Indenture. The terms of the Securities include those stated
in the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S.C. ss. 77aaa-77bbbb) as in effect on the date of
the Indenture (the "TIA"). Terms defined in the Indenture and not defined herein
have the meanings ascribed thereto in the Indenture. The Securities are subject
to all such terms, and Securityholders are referred to the Indenture and the TIA
for a statement of those terms. Any conflict between this Security and the
Indenture will be governed by the Indenture.
The Securities are unsecured senior subordinated obligations of the
Company limited to $250,000,000 aggregate principal amount (subject to Section
2.7 of the Indenture). The Indenture imposes certain limitations on the
Incurrence of Indebtedness by the Company and its Restricted Subsidiaries, the
existence of liens, the payment of dividends on, and redemption of, the Capital
Stock of the Company and its Subsidiaries, restricted payments, the sale or
transfer of assets and Subsidiary stock, the issuance or sale of Capital Stock
of Restricted Subsidiaries, the investments of the Company and its Restricted
Subsidiaries, consolidations, mergers and transfers of all or substantially all
the assets of the Company, and transactions with Affiliates. In addition, the
Indenture limits the ability of the Company and certain of its Subsidiaries to
restrict distributions and dividends from Restricted Subsidiaries.
5. Optional Redemption
Except as set forth in the next paragraph, the Securities may not be
redeemed at the option of the Company prior to August 15, 2001. Thereafter, the
Securities will be redeemable, at the Company's option, in whole or in part, at
any time or from time to time, at the following redemption prices (expressed in
percentages of principal amount), plus accrued and unpaid interest, if any, to
the redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date) if
redeemed during the 12-month period commencing on August 15 of the years set
forth below:
Period Percentage
------ ----------
2001 ........................................... 105.313%
2002 ........................................... 102.656%
2003 and thereafter ............................ 100.000%
In addition, at any time and from time to time prior to August 15,
2000, the Company may redeem in the aggregate up to 35% of the original
principal amount of the Securities with the proceeds of one or more Public
Equity Offerings at a redemption price (expressed as a percentage of principal
amount) of 110.625% plus accrued and unpaid interest, if any, to the redemption
date (subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date); provided, however,
that at least 65% of the original aggregate principal amount of the Securities
must remain outstanding after each such redemption; and provided further,
however, that such redemption shall occur within 60 days of the closing date of
such Public Equity Offering.
5
<PAGE>
6. Notice of Redemption
Notice of redemption will be mailed by first-class mail at least 30
days but not more than 60 days before the redemption date to each Holder of
Securities to be redeemed at such Holder's registered address. Securities in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000 (except as otherwise set forth in the Indenture). If money
sufficient to pay the redemption price of and accrued interest on all Securities
(or portions thereof) to be redeemed on the redemption date is deposited with
the Paying Agent on or before the redemption date and certain other conditions
are satisfied, on and after such date interest ceases to accrue on such
Securities (or such portions thereof) called for redemption. If a notice or
communication is sent in the manner provided in the Indenture, it is duly given,
whether or not the addressee receives it. Failure to send a notice or
communication to a Securityholder or any defect in it shall not affect its
sufficiency with respect to other Securityholders.
In addition, in the event of certain Asset Dispositions, the Company
will be required to make an offer to purchase Securities at a purchase price of
100% of their principal amount plus accrued interest to the date of purchase
(subject to the rights of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date) as provided in, and
subject to the terms of, the Indenture.
7. Change of Control
Upon a Change of Control, each Holder of Securities will have the
right to require the Company to repurchase all or any part of the Securities of
such Holder at a repurchase price in cash equal to 101% of the principal amount
of the Securities to be repurchased plus accrued and unpaid interest to the date
of repurchase (subject to the right of Holders of record on the relevant record
date to receive interest due on the related interest payment date) as provided
in, and subject to the terms of, the Indenture.
8. The Registration Rights Agreement
The holder of this Security is entitled to the benefits of a
Registration Rights Agreement, dated as of August 13, 1997, among the Company
and the Initial Purchasers named therein (as such may be amended from time to
time, the "Registration Rights Agreement"). Capitalized terms used in this
subsection but not defined herein have the meanings assigned to them in the
Registration Rights Agreement.
If (i) within 30 days after the Closing Date, neither the Exchange
Offer Registration Statement nor the Shelf Registration Statement has been filed
with the Commission; (ii) within 90 days after the Closing Date, the Exchange
Offer Registration Statement has not been declared effective; (iii) within 120
days after the Closing Date, the Registered Exchange Offer has not been
consummated; (iv) within 120 days after the Closing Date, the Shelf Registration
Statement has not been declared effective if a Shelf Registration Statement is
required to be filed; or (v) after either the Exchange Offer Registration
Statement or the Shelf Registration Statement
6
<PAGE>
has been declared effective, such Registration Statement thereafter ceases to be
effective or usable (subject to certain exceptions) in connection with resales
of Securities in accordance with and during the periods specified in the
Registration Rights Agreement (each such event referred to in clauses (i)
through (iv), a "Registration Default"), interest ("Additional Interest") will
accrue on the Securities (in addition to the stated interest on the Securities)
from and including the date on which any such Registration Default shall occur
to but excluding the date on which all Registration Defaults have been cured.
Additional Interest will accrue at a rate of 0.25% per annum during the 90-day
period immediately following the occurrence of any Registration Default and
shall increase by 0.25% per annum at the end of each subsequent 90-day period,
but in no event shall such increase exceed 1.00% per annum.
9. Subordination
The Securities are subordinated to Senior Indebtedness of the Company,
as defined in the Indenture. To the extent provided in the Indenture, Senior
Indebtedness of the Company must be paid before the Securities may be paid. In
addition, to the extent applicable, each Subsidiary Guaranty shall be
subordinated to Senior Indebtedness of the relevant Subsidiary Guarantor, as
defined in the Indenture (or the relevant supplement thereto). The Company and,
to the extent applicable, each Subsidiary Guarantor, agrees, and each Holder by
accepting a Security agrees, to the subordination provisions contained in the
Indenture and authorizes the Trustee to give such provisions effect and appoints
the Trustee as attorney-in-fact for such purpose.
10. Denominations; Transfer; Exchange
The Securities are in registered form, without coupons, and in
denominations of $1,000 and integral multiples of $1,000. A Holder may transfer
or exchange Securities in accordance with the Indenture. The Registrar may
require a Holder, among other things, to furnish appropriate endorsements or
transfer documents and to pay any taxes and fees required by law or permitted by
the Indenture, including any transfer tax or other similar governmental charge
payable in connection therewith. The Registrar need not register the transfer of
or exchange any Securities selected for redemption (except, in the case of a
Security to be redeemed in part, the portion of the Security not to be redeemed)
or any Securities for a period of 15 days before a selection of Securities to be
redeemed or 15 days before an interest payment date.
11. Persons Deemed Owners
The registered Holder of this Security may be treated as the owner of
it for all purposes.
12. Unclaimed Money
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its written request
7
<PAGE>
unless an abandoned property law designates another Person. After any such
payment, Holders entitled to the money must look only to the Company and not to
the Trustee for payment.
13. Discharge and Defeasance
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for the
payment of principal and interest on the Securities to redemption or maturity,
as the case may be.
14. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the consent of the Holders of at
least a majority in principal amount outstanding of the Securities and (ii) any
past default or compliance with any provision may be waived with the consent of
the Holders of a majority in principal amount outstanding of the Securities.
Subject to certain exceptions set forth in the Indenture, without the consent of
any Securityholder, the Company and the Trustee may amend the Indenture or the
Securities to cure any ambiguity, omission, defect or inconsistency, to comply
with Article 5 of the Indenture, to provide for uncertificated Securities in
addition to or in place of certificated Securities, to add guarantees with
respect to the Securities, to secure the Securities, to add additional covenants
or surrender rights and powers conferred on the Company, to make any change that
does not adversely affect the rights of any Securityholder or to comply with any
request of the SEC in connection with qualifying the Indenture under the TIA.
15. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for 30 days
in payment of interest on the Securities; (ii) default in payment of principal
or premium, if any, on any Security when due at its Stated Maturity, upon
optional redemption, upon required repurchase, upon declaration or otherwise,
(iii) failure by the Company to comply for 30 days after notice with Sections
4.3, 4.4, 4.6 or Article 5 of the Indenture; (iv) failure by the Company to
comply with other agreements in the Indenture or the Securities, for 60 days
after notice; (iv) failure by the Company or any Restricted Subsidiary to pay
any Indebtedness within any applicable grace period after final maturity or
acceleration by the Holders thereof because of a default and the total amount of
such Indebtedness unpaid or accelerated exceeds $5.0 million and in either case,
such default is not cured or waived and such acceleration, if any, rescinded or
the Indebtedness is not paid in 30 days; (v) certain events of bankruptcy,
insolvency or reorganization of the Company or any Restricted Subsidiary; and
(vi) the rendering of any judgments or decrees against the Company or any
Restricted Subsidiary for the payment of money in excess of $5.0 million, if any
such judgment or decree is not discharged, waived or stayed within 60 days after
entry of such judgment or decree.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the Securities then outstanding
may declare all the Securities to
8
<PAGE>
be due and payable. Certain events of bankruptcy or insolvency are Events of
Default which will result in the Securities being due and payable immediately
upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the Securities except
as provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Securities unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in principal amount of the Securities
may direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Securityholders notice of any continuing Default (except a Default
in payment of principal or interest) if it determines that withholding notice is
in the interest of the Holders.
16. Trustee Dealings with the Company
Subject to certain limitations imposed by the TIA, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or any of its Affiliates and may otherwise deal with the
Company or any of its Affiliates with the same rights it would have if it were
not Trustee.
17. No Recourse Against Others
No recourse for the payment of the principal of, premium, if any, or
interest or other Obligations on any of the Securities or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in the Indenture, or in any of
the Securities or because of the creation of any Indebtedness represented hereby
and thereby, shall be had against any incorporator, stockholder, officer,
director, employee or controlling person of the Company, a Subsidiary Guarantor
or any Successor Person thereof. Each Holder, by accepting a Security, waives
and releases all such liability.
18. Guarantees
This Security may be entitled to the benefits of certain Guarantees,
if any, which may be made after the original issuance of this Security for the
benefit of the Holders. Reference is hereby made to the Indenture for a
statement of the respective rights, limitations of rights, duties and
obligations thereunder of any such Subsidiary Guarantors, the Trustee and the
Holders.
19. Governing Law
The Indenture and the Securities shall be governed by, and construed
in accordance with, the laws of the State of New York without giving effect to
applicable principles of conflict of laws to the extent that the application of
the laws of another jurisdiction would be required thereby.
9
<PAGE>
20. Authentication
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
21. Abbreviations
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with rights of survivorship and not as
tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gift to Minors
Act).
22. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and have directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Securityholder upon written request
and without charge to the Securityholder a copy of the Indenture. Requests may
be made as follows:
If to the Company:
Hollywood Entertainment Corporation
25600 SW Parkway Center Drive
Wilsonville, Oregon 97070
Attention: Secretary
If to the Trustee:
U.S. Trust Company of California, N.A.
555 South Flower Street, Suite 2700
Los Angeles, California 90071
Attention: Corporate Trust Trustee Administration
10
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint ____________ agent to transfer this Security on the
books of the Company. The agent may substitute another to act for him.
Date: _______________ Your Signature: ___________________________________
Sign exactly as your name appears on the other
side of this Security.
Signature Guarantee: ______________________________
(Signature must be guaranteed)
In connection with any transfer of this Security occurring prior to
the date which is the earlier of (i) the date of the declaration by the
Commission of the effectiveness of a registration statement under the Securities
Act of 1933, as amended (the "Securities Act") covering resales of this Security
(which effectiveness shall not have been suspended or terminated at the date of
the transfer) and (ii) 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 this Security, or a portion thereof, at any time on or
prior to the second anniversary of the Issue Date and the undersigned confirms
that it has not utilized any general solicitation or general advertising in
connection with the transfer:
[Check One]
(1) __ to the Company or a subsidiary thereof; or
(2) __ pursuant to and in compliance with Rule 144A under the Securities
Act of 1933, as amended; or
(3) __ to an institutional "accredited investor" (as defined in Rule 501(a)
(1), (2), (3) or (7) under the Securities Act of 1933, as amended)
that has furnished to the Trustee a signed letter containing certain
representations and agreements (the form of which letter can be
obtained from the Trustee); or
11
<PAGE>
(4) __ outside the United States to a "foreign person" in compliance with
Rule 904 of Regulation S under the Securities Act of 1933, as
amended; or
(5) __ pursuant to the exemption from registration provided by Rule 144
under the Securities Act of 1933, as amended; or
(6) __ pursuant to an effective registration statement under the Securities
Act of 1933, as amended; or
(7) __ pursuant to another available exemption from the registration
requirements of the Securities Act of 1933, as amended.
and unless the box below is checked, the undersigned confirms that such Note is
not being transferred to an "affiliate" of the Company as defined in Rule 144
under the Securities Act of 1933, as amended (an "Affiliate"):
[ ] The transferee is an Affiliate of the Company.
Unless one of the items is checked, the Trustee will refuse to register any
of the Securities evidenced by this certificate in the name of any person other
than the registered Holder thereof; provided, however, that if item (3), (4),
(5) or (7) is checked, the Company or the Trustee may require, prior to
registering any such transfer of the Securities, in their sole discretion, such
written legal opinions, certifications (including an investment letter in the
case of box (3) or (4)) and other information as the Trustee or the Company has
reasonably requested to confirm that such transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act of 1933, as amended.
If none of the foregoing items are checked, the Trustee or 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 2.14 of the Indenture shall have
been satisfied.
Date: _______________ Your Signature: ___________________________________
Sign exactly as your name appears on the other
side of this Security.
Signature Guarantee: ______________________________
(Signature must be guaranteed)
12
<PAGE>
TO BE COMPLETED BY PURCHASER IF (2) 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
Issuer as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated: ______________
NOTICE: To be executed by an executive officer
13
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.6 or 4.8 of the Indenture, check the box: If you want to
elect to have only part of this Security purchased by the Company pursuant to
Section 4.6 or 4.8 of the Indenture, state the amount: $
Date: _______________ Your Signature: ___________________________________
Sign exactly as your name appears on the other
side of this Security.
Signature Guarantee: ______________________________
(Signature must be guaranteed)
14
<PAGE>
SCHEDULE A
PRINCIPAL AMOUNT: ______________________________
The following increases or decreases in the principal amount of this
Global Security have been made:
<TABLE>
<CAPTION>
Amount of Amount of Principal Signature of
decrease in increase in Amount of this authorized
Principal Principal Global Security signatory of
Amount of this Amount of this following such Trustee or
Date of Global Global decrease (or Securities
Exchange Security Security increase) Custodian
<S> <C> <C> <C> <C>
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</TABLE>
15
FACE OF SECURITY
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW
YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS 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. TRANSFERS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF
DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND LIMITED TO
TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE
REFERRED TO ON THE REVERSE HEREOF.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF THE
DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH SUCCESSOR DEPOSITORY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO AN ISSUER OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE 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 NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.14 OF THE INDENTURE.
<PAGE>
No.
10 5/8% Series B Senior Subordinated Notes Due 2004
CUSIP No.
HOLLYWOOD ENTERTAINMENT CORPORATION, an Oregon corporation, promises
to pay to Cede & Co., or registered assigns, the principal sum set forth from
time to time on Schedule A hereto on August 15, 2004.
Interest Payment Dates: February 15 and August 15
Record Dates: February 1 and August 1.
Additional provisions of this Security are set forth on the reverse
side of this Security.
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officers.
HOLLYWOOD ENTERTAINMENT CORPORATION
By:
-------------------------------------
Name:
Title:
Dated: ____________, 1997
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
U.S. TRUST COMPANY OF CALIFORNIA, N.A., as Trustee, certifies that this is one
of the Securities referred to in the within-mentioned Indenture.
By: U.S. TRUST COMPANY OF CALIFORNIA,
N.A., as Trustee
-------------------------------------
Authorized Signatory
Date of Authentication:
____________, 1997
<PAGE>
REVERSE OF SECURITY
10 5/8% SERIES B SENIOR SUBORDINATED SECURITY DUE 2004
1. Interest
HOLLYWOOD ENTERTAINMENT CORPORATION, an Oregon corporation (such
entity, and its successors and assigns under the Indenture hereinafter referred
to, and each other entity which is required to become the Company pursuant to
the Indenture, and its successors and assigns under the Indenture, being herein
called the "Company"), promises to pay interest on the principal amount of this
Security at the rate per annum shown above. The Company will pay interest
semiannually on February 15 and August 15 of each year, commencing February 15,
1998. Interest on the Securities will accrue from the most recent date on which
interest has been paid or, if no interest has been paid, from August 13, 1997.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The Company shall pay interest on overdue principal at the same rate
borne by the Securities, and it shall pay interest on overdue installments of
interest at such rate to the extent lawful.
2. Method of Payment
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered holders of Securities at the close
of business on the February 1 and August 1 immediately preceding the interest
payment date even if Securities are canceled on registration of transfer or
registration of exchange after the record date. Holders must surrender
Securities to a Paying Agent to collect principal payments. The Company will pay
principal and interest in money of the United States that at the time of payment
is legal tender for payment of public and private debts ("U.S. Legal Tender").
However, the Company may pay principal and interest by its check payable in such
U.S. Legal Tender. The Company may deliver any such interest payment to the
Paying Agent or to a Holder's registered address.
3. Paying Agent and Registrar
Initially, U.S. Trust Company of California, N.A., a national banking
corporation ("Trustee"), will act as Paying Agent and Registrar. The Company may
appoint and change any Paying Agent, Registrar or co-registrar without notice.
The Company may act as Paying Agent, Registrar, co-Registrar or transfer agent.
4. Indenture
The Company issued the Securities under an Indenture dated as of
August 13, 1997 (the "Indenture"), between the Company and the Trustee. This
Security is one of a duly authorized issue of Securities of the Company
designated as its 10 5/8% Series B Senior Subordinated Notes due 2004 (the
"Exchange Securities"). The Securities include the Initial
<PAGE>
Securities (as defined in the Indenture), and the Exchange Securities issued in
exchange for the Initial Securities pursuant to the Registration Rights
Agreement. The Initial Securities and the Exchange Securities are treated as a
single class of securities under the Indenture. The terms of the Securities
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 (15 U.S.C. ss. 77aaa-77bbbb) as in
effect on the date of the Indenture (the "TIA"). Terms defined in the Indenture
and not defined herein have the meanings ascribed thereto in the Indenture. The
Securities are subject to all such terms, and Securityholders are referred to
the Indenture and the TIA for a statement of those terms. Any conflict between
this Security and the Indenture will be governed by the Indenture.
The Securities are unsecured senior subordinated obligations of the
Company limited to $250,000,000 aggregate principal amount (subject to Section
2.7 of the Indenture). The Indenture imposes certain limitations on the
Incurrence of Indebtedness by the Company and its Restricted Subsidiaries, the
existence of liens, the payment of dividends on, and redemption of, the Capital
Stock of the Company and its Subsidiaries, restricted payments, the sale or
transfer of assets and Subsidiary stock, the issuance or sale of Capital Stock
of Restricted Subsidiaries, the investments of the Company and its Restricted
Subsidiaries, consolidations, mergers and transfers of all or substantially all
the assets of the Company, and transactions with Affiliates. In addition, the
Indenture limits the ability of the Company and certain of its Subsidiaries to
restrict distributions and dividends from Restricted Subsidiaries.
5. Optional Redemption
Except as set forth in the next paragraph, the Securities may not be
redeemed at the option of the Company prior to August 15, 2001. Thereafter, the
Securities will be redeemable, at the Company's option, in whole or in part, at
any time or from time to time, at the following redemption prices (expressed in
percentages of principal amount), plus accrued and unpaid interest, if any, to
the redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date) if
redeemed during the 12-month period commencing on August 15 of the years set
forth below:
Period Percentage
------ ----------
2001 ...................................... 105.313%
2002 ...................................... 102.656%
2003 and thereafter ....................... 100.000%
In addition, at any time and from time to time prior to August 15,
2000, the Company may redeem in the aggregate up to 35% of the original
principal amount of the Securities with the proceeds of one or more Public
Equity Offerings at a redemption price (expressed as a percentage of principal
amount) of 110.625% plus accrued and unpaid interest, if any, to the redemption
date (subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date); provided, however,
that at
<PAGE>
least 65% of the original aggregate principal amount of the Securities must
remain outstanding after each such redemption; and provided further, however,
that such redemption shall occur within 60 days of the closing date of such
Public Equity Offering.
6. Notice of Redemption
Notice of redemption will be mailed by first-class mail at least 30
days but not more than 60 days before the redemption date to each Holder of
Securities to be redeemed at such Holder's registered address. Securities in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000 (except as otherwise set forth in the Indenture). If money
sufficient to pay the redemption price of and accrued interest on all Securities
(or portions thereof) to be redeemed on the redemption date is deposited with
the Paying Agent on or before the redemption date and certain other conditions
are satisfied, on and after such date interest ceases to accrue on such
Securities (or such portions thereof) called for redemption. If a notice or
communication is sent in the manner provided in the Indenture, it is duly given,
whether or not the addressee receives it. Failure to send a notice or
communication to a Securityholder or any defect in it shall not affect its
sufficiency with respect to other Securityholders.
In addition, in the event of certain Asset Dispositions, the Company
will be required to make an offer to purchase Securities at a purchase price of
100% of their principal amount plus accrued interest to the date of purchase
(subject to the rights of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date) as provided in, and
subject to the terms of, the Indenture.
7. Change of Control
Upon a Change of Control, each Holder of Securities will have the
right to require the Company to repurchase all or any part of the Securities of
such Holder at a repurchase price in cash equal to 101% of the principal amount
of the Securities to be repurchased plus accrued and unpaid interest to the date
of repurchase (subject to the right of Holders of record on the relevant record
date to receive interest due on the related interest payment date) as provided
in, and subject to the terms of, the Indenture.
8. Subordination
The Securities are subordinated to Senior Indebtedness of the Company,
as defined in the Indenture. To the extent provided in the Indenture, Senior
Indebtedness of the Company must be paid before the Securities may be paid. In
addition, to the extent applicable, each Subsidiary Guaranty shall be
subordinated to Senior Indebtedness of the relevant Subsidiary Guarantor, as
defined in the Indenture (or the relevant supplement thereto). The Company and,
to the extent applicable, each Subsidiary Guarantor, agrees, and each Holder by
accepting a Security agrees, to the subordination provisions contained in the
<PAGE>
Indenture and authorizes the Trustee to give such provisions effect and appoints
the Trustee as attorney-in-fact for such purpose.
9. Denominations; Transfer; Exchange
The Securities are in registered form, without coupons, and in
denominations of $1,000 and integral multiples of $1,000. A Holder may transfer
or exchange Securities in accordance with the Indenture. The Registrar may
require a Holder, among other things, to furnish appropriate endorsements or
transfer documents and to pay any taxes and fees required by law or permitted by
the Indenture, including any transfer tax or other similar governmental charge
payable in connection therewith. The Registrar need not register the transfer of
or exchange any Securities selected for redemption (except, in the case of a
Security to be redeemed in part, the portion of the Security not to be redeemed)
or any Securities for a period of 15 days before a selection of Securities to be
redeemed or 15 days before an interest payment date.
10. Persons Deemed Owners
The registered Holder of this Security may be treated as the owner of
it for all purposes.
11. Unclaimed Money
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its written request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the money must look
only to the Company and not to the Trustee for payment.
12. Discharge and Defeasance
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for the
payment of principal and interest on the Securities to redemption or maturity,
as the case may be.
13. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the consent of the Holders of at
least a majority in principal amount outstanding of the Securities and (ii) any
past default or compliance with any provision may be waived with the consent of
the Holders of a majority in principal amount outstanding of the Securities.
Subject to certain exceptions set forth in the Indenture, without the consent of
any Securityholder, the Company and the Trustee may amend the Indenture or
<PAGE>
the Securities to cure any ambiguity, omission, defect or inconsistency, to
comply with Article 5 of the Indenture, to provide for uncertificated Securities
in addition to or in place of certificated Securities, to add guarantees with
respect to the Securities, to secure the Securities, to add additional covenants
or surrender rights and powers conferred on the Company, to make any change that
does not adversely affect the rights of any Securityholder or to comply with any
request of the SEC in connection with qualifying the Indenture under the TIA.
14. Defaults and Remedies
Under the Indenture, Events of Default include (i) default for 30 days
in payment of interest on the Securities; (ii) default in payment of principal
or premium, if any, on any Security when due at its Stated Maturity, upon
optional redemption, upon required repurchase, upon declaration or otherwise,
(iii) failure by the Company to comply for 30 days after notice with Sections
4.3, 4.4, 4.6 or Article 5 of the Indenture; (iv) failure by the Company to
comply with other agreements in the Indenture or the Securities, for 60 days
after notice; (iv) failure by the Company or any Restricted Subsidiary to pay
any Indebtedness within any applicable grace period after final maturity or
acceleration by the Holders thereof because of a default and the total amount of
such Indebtedness unpaid or accelerated exceeds $5.0 million and in either case,
such default is not cured or waived and such acceleration, if any, rescinded or
the Indebtedness is not paid in 30 days; (v) certain events of bankruptcy,
insolvency or reorganization of the Company or any Restricted Subsidiary; and
(vi) the rendering of any judgments or decrees against the Company or any
Restricted Subsidiary for the payment of money in excess of $5.0 million, if any
such judgment or decree is not discharged, waived or stayed within 60 days after
entry of such judgment or decree.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the Securities then outstanding
may declare all the Securities to be due and payable. Certain events of
bankruptcy or insolvency are Events of Default which will result in the
Securities being due and payable immediately upon the occurrence of such Events
of Default.
Securityholders may not enforce the Indenture or the Securities except
as provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Securities unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in principal amount of the Securities
may direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Securityholders notice of any continuing Default (except a Default
in payment of principal or interest) if it determines that withholding notice is
in the interest of the Holders.
15. Trustee Dealings with the Company
Subject to certain limitations imposed by the TIA, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of
<PAGE>
Securities and may otherwise deal with and collect obligations owed to it by the
Company or any of its Affiliates and may otherwise deal with the Company or any
of its Affiliates with the same rights it would have if it were not Trustee.
16. No Recourse Against Others
No recourse for the payment of the principal of, premium, if any, or
interest or other Obligations on any of the Securities or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in the Indenture, or in any of
the Securities or because of the creation of any Indebtedness represented hereby
and thereby, shall be had against any incorporator, stockholder, officer,
director, employee or controlling person of the Company, a Subsidiary Guarantor
or any Successor Person thereof. Each Holder, by accepting a Security, waives
and releases all such liability.
17. Guarantees
This Security may be entitled to the benefits of certain Guarantees,
if any, which may be made after the original issuance of this Security for the
benefit of the Holders. Reference is hereby made to the Indenture for a
statement of the respective rights, limitations of rights, duties and
obligations thereunder of any such Subsidiary Guarantors, the Trustee and the
Holders.
18. Governing Law
The Indenture and the Securities shall be governed by, and construed
in accordance with, the laws of the State of New York without giving effect to
applicable principles of conflict of laws to the extent that the application of
the laws of another jurisdiction would be required thereby.
19. Authentication
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
20. Abbreviations
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with rights of survivorship and not as
tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gift to Minors
Act).
<PAGE>
21. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and have directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Securityholder upon written request
and without charge to the Securityholder a copy of the Indenture. Requests may
be made as follows:
If to the Company:
Hollywood Entertainment Corporation
25600 SW Parkway Center Drive
Wilsonville, Oregon 97070
Attention: Secretary
If to the Trustee:
U.S. Trust Company of California, N.A.
555 South Flower Street, Suite 2700
Los Angeles, California 90071
Attention: Corporate Trust Trustee Administration
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint ____________ agent to transfer this Security on the
books of the Company. The agent may substitute another to act for him.
Date: _______________ Your Signature: ___________________________________
Sign exactly as your name appears on the other side
of this Security.
Signature Guarantee: ______________________________
(Signature must be guaranteed)
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.6 or 4.8 of the Indenture, check the box: o If you want to
elect to have only part of this Security purchased by the Company pursuant to
Section 4.6 or 4.8 of the Indenture, state the amount: $
Date: _______________ Your Signature: ___________________________________
Sign exactly as your name appears on the other side
of this Security.
Signature Guarantee: ______________________________
(Signature must be guaranteed)
<PAGE>
SCHEDULE A
PRINCIPAL AMOUNT: ______________________________
The following increases or decreases in the principal amount of this
Global Security have been made:
<TABLE>
<CAPTION>
Amount of Amount of Principal Signature of
decrease in increase in Amount of this authorized
Principal Principal Global Security signatory of
Amount of this Amount of this following such Trustee or
Date of Global Global decrease (or Securities
Exchange Security Security increase) Custodian
<S> <C> <C> <C> <C>
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</TABLE>
REGISTRATION RIGHTS AGREEMENT
Dated as of August 13, 1997
by and among
Hollywood Entertainment Corporation
and
Montgomery Securities
Donaldson Lufkin & Jenrette Securities Corporation
Goldman, Sachs & Co.
Societe Generale Securities Corporation
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and
entered into as of August 13, 1997, by and among Hollywood Entertainment
Corporation, an Oregon corporation (the "Company"), and Montgomery Securities,
Donaldson, Lufkin & Jenrette Securities Corporation, Goldman, Sachs & Co. and
Societe Generale Securities Corporation (each an "Initial Purchaser" and,
collectively, the "Initial Purchasers"), each of whom has agreed to purchase the
Company's 10 5/8% Senior Subordinated Notes due 2004 (the "Initial Notes")
pursuant to the Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated as of
August 7, 1997 (the "Purchase Agreement"), by and among the Company and the
Initial Purchasers (i) for your benefit and for the benefit of each other
Initial Purchaser and (ii) for the benefit of the holders from time to time of
the Notes (including you and each other Initial Purchaser). In order to induce
the Initial Purchasers to purchase the Initial Notes, the Company has agreed to
provide the registration rights set forth in this Agreement. The execution and
delivery of this Agreement is a condition to the obligations of the Initial
Purchasers set forth in Section 5(h) of the Purchase Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Act: The Securities Act of 1933, as amended.
Additional Interest Payment Date: With respect to the Initial Notes,
each Interest Payment Date.
Broker-Dealer: Any broker or dealer registered under the Exchange Act.
Closing Date: The date of this Agreement.
Commission: The Securities and Exchange Commission.
Consummate: A Registered Exchange Offer shall be deemed "Consummated"
for purposes of this Agreement upon the occurrence of (i) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Exchange Notes to be issued in the Exchange Offer, (ii) the
maintenance of such Registration Statement continuously effective and the
keeping of the Exchange Offer open for a period not less than the minimum period
required pursuant to Section 3(b) hereof, and (iii) the delivery by the Company
to the Registrar under the Indenture of Exchange Notes in the same aggregate
principal amount as the aggregate principal amount of Initial Notes that were
tendered by Holders thereof pursuant to the Exchange Offer.
Effectiveness Target Date: As defined in Section 5.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Notes: The 10 5/8% Senior Subordinated Notes due 2004, of the
same series under the Indenture as the Initial Notes, to be issued to Holders in
exchange for Transfer Restricted Securities pursuant to this Agreement.
<PAGE>
Exchange Offer: The registration by the Company under the Act of the
Exchange Notes pursuant to a Registration Statement pursuant to which the
Company offers the Holders of all outstanding Transfer Restricted Securities the
opportunity to exchange all such outstanding Transfer Restricted Securities held
by such Holders for Exchange Notes in an aggregate principal amount equal to the
aggregate principal amount of the Transfer Restricted Securities tendered in
such exchange offer by such Holders.
Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Initial Purchasers
propose to sell the Initial Notes to certain "qualified institutional buyers,"
as such term is defined in Rule 144A under the Act, and to certain institutional
"accredited investors," as such term is defined in Rule 501(a)(1), (2), (3) and
(7) of Regulation D under the Act ("Accredited Institutions").
Holders: As defined in Section 2(b) hereof.
Indemnified Holder: As defined in Section 8(a) hereof.
Indenture: The Indenture, dated as of August 13, 1997, among the
Company and U.S. Trust Company of California, N.A., as trustee (the "Trustee"),
pursuant to which the Notes are to be issued, as such Indenture is amended or
supplemented from time to time in accordance with the terms thereof.
Initial Purchaser: As defined in the preamble hereto.
Initial Notes: The 10 5/8% Senior Subordinated Notes due 2004, of the
same series under the Indenture as the Exchange Notes, for so long as such
securities constitute Transfer Restricted Securities.
Initial Placement: The issuance and sale by the Company of the Initial
Notes to the Initial Purchasers pursuant to the Purchase Agreement.
Interest Payment Date: As defined in the Indenture and the Notes.
NASD: National Association of Securities Dealers, Inc.
Notes: The Initial Notes and the Exchange Notes.
Person: An individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
Prospectus: The prospectus included in a Registration Statement, as
amended or supplemented by any prospectus supplement and by all other amendments
thereto, including post-effective amendments, and all material incorporated by
reference into such Prospectus.
Record Holder: With respect to any Damages Payment Date relating to
the Notes, each Person who is a Holder of Notes on the record date with respect
to the Interest Payment Date on which such Damages Payment Date shall occur.
Registration Default: As defined in Section 5 hereof.
2
<PAGE>
Registration Statement: Any registration statement of the Company
relating to (a) an offering of Exchange Notes pursuant to an Exchange Offer or
(b) the registration for resale of Transfer Restricted Securities pursuant to
the Shelf Registration Statement, which is filed pursuant to the provisions of
this Agreement, in each case, including the Prospectus included therein, all
amendments and supplements thereto (including post-effective amendments) and all
exhibits and material incorporated by reference therein.
Shelf Filing Deadline: As defined in Section 4 hereof.
Shelf Registration Statement: As defined in Section 4 hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb)
as in effect on the date of the Indenture.
Transfer Restricted Securities: Each Note, until the earliest to occur
of (a) the date on which such Note is exchanged in the Exchange Offer and
entitled to be resold to the public by the Holder thereof without complying with
the prospectus delivery requirements of the Act, (b) the date on which such Note
has been effectively registered under the Act and disposed of in accordance with
a Shelf Registration Statement and (c) the date on which such Note is
distributed to the public pursuant to Rule 144 under the Act or by a
Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including delivery of the Prospectus
contained therein).
Underwritten Registration or Underwritten Offering: A registration in
which securities of the Company are sold to an underwriter for reoffering to the
public.
SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT
(a) Transfer Restricted Securities. The securities entitled to the benefits
of this Agreement are the Transfer Restricted Securities.
(b) Holders of Transfer Restricted Securities. A Person is deemed to be a
holder of Transfer Restricted Securities (each, a "Holder") whenever such Person
owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permissible under applicable law
or Commission policy (after the procedures set forth in Section 6(a) below have
been complied with), the Company shall (i) cause to be filed with the Commission
as soon as practicable after the Closing Date, but in no event later than 30
days after the Closing Date, a Registration Statement under the Act relating to
the Exchange Notes and the Exchange Offer, (ii) cause such Registration
Statement to become effective at the earliest possible time, but in no event
later than 90 days after the Closing Date, (iii) in connection with the
foregoing, file (A) all pre-effective amendments to such Registration Statement
as may be necessary in order to cause such Registration Statement to become
effective, (B) if applicable, a post-effective amendment to such Registration
Statement pursuant to Rule 430A under the Act and (C) cause all necessary
filings in connection with the registration and qualification of the Exchange
Notes to be made under the Blue Sky laws of such jurisdictions as are necessary
to permit Consummation of the Exchange Offer, and (iv) upon the effectiveness of
such Registration Statement, commence the Exchange Offer. The Exchange Offer
shall be on the appropriate form permitting registration of the Exchange Notes
to be offered in exchange for the Transfer Restricted Securities and to permit
resales of Notes held by Broker-Dealers as contemplated by Section 3(c) below.
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(b) The Company shall cause the Exchange Offer Registration Statement to be
effective continuously and shall keep the Exchange Offer open for a period of
not less than the minimum period required under applicable federal and state
securities laws to Consummate the Exchange Offer; provided, however, that in no
event shall such period be less than 30 days after the date notice of the
Exchange Offer is mailed to the Holders. The Company shall cause the Exchange
Offer to comply with all applicable federal and state securities laws. No
securities other than the Notes shall be included in the Exchange Offer
Registration Statement. The Company shall use its best efforts to cause the
Exchange Offer to be Consummated on the earliest practicable date after the
Exchange Offer Registration Statement has become effective, but in no event
later than 120 days after the Closing Date.
(c) The Company shall indicate in a "Plan of Distribution" section
contained in the Prospectus forming a part of the Exchange Offer Registration
Statement that any Broker-Dealer who holds Initial Notes that are Transfer
Restricted Securities and that were acquired for its own account as a result of
market-making activities or other trading activities (other than Transfer
Restricted Securities acquired directly from the Company), may exchange such
Initial Notes pursuant to the Exchange Offer; however, such Broker-Dealer may be
deemed to be an "underwriter" within the meaning of the Act and must, therefore,
deliver a prospectus meeting the requirements of the Act in connection with any
resales of the Exchange Notes received by such Broker-Dealer in the Exchange
Offer, which prospectus delivery requirement may be satisfied by the delivery by
such Broker-Dealer of the Prospectus contained in the Exchange Offer
Registration Statement. Such "Plan of Distribution" section shall also contain
all other information with respect to such resales by Broker-Dealers that the
Commission may require in order to permit such resales pursuant thereto, but
such "Plan of Distribution" shall not name any such Broker-Dealer or disclose
the amount of Notes held by any such Broker-Dealer except to the extent required
by the Commission as a result of a change in policy after the date of this
Agreement.
The Company shall use its best efforts to keep the Exchange Offer
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Section 6(c) below to the extent necessary to
ensure that it is available for resales of Notes acquired by Broker-Dealers for
their own accounts as a result of market-making activities or other trading
activities, and to ensure that it conforms with the requirements of this
Agreement, the Act and the policies, rules and regulations of the Commission as
announced from time to time, for a period ending on the earlier of (i) 180 days
from the date on which the Exchange Offer Registration Statement is declared
effective and (ii) the date on which a Broker-Dealer is no longer required to
deliver a prospectus in connection with market-making or other trading
activities.
The Company shall provide sufficient copies of the latest version of
such Prospectus to Broker-Dealers promptly upon request at any time during such
180-day (or shorter as provided in the foregoing sentence) period in order to
facilitate such resales.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Company is not required to file an
Exchange Offer Registration Statement or to consummate the Exchange Offer
because the Exchange Offer is not permitted by applicable law or Commission
policy (after the procedures set forth in Section 6(a) below have been complied
with), (ii) for any reason the Exchange Offer is not Consummated within 120 days
after the Closing Date, or (iii) with respect to any Holder of Transfer
Restricted Securities (A) such Holder is prohibited by applicable law or
Commission policy from participating in the Exchange Offer, or (B) such Holder
may not resell the Exchange Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and that the Prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales by such Holder, or (C) such Holder is a Broker-Dealer and holds Initial
Notes acquired directly from the Company or one of its affiliates, then, upon
such Holder's request, the Company shall
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(x) cause to be filed a shelf registration statement pursuant to Rule
415 under the Act, which may be an amendment to the Exchange Offer
Registration Statement (in either event, the "Shelf Registration
Statement") as soon as practicable but in any event on or prior to 30 days
after the Closing Date (such date being the "Shelf Filing Deadline"), which
Shelf Registration Statement shall provide for resales of all Transfer
Restricted Securities the Holders of which shall have provided the
information required pursuant to Section 4(b) hereof; and
(y) use their best efforts to cause such Shelf Registration Statement
to be declared effective by the Commission on or before the 120th day after
the Closing Date.
The Company shall use its best efforts to keep such Shelf Registration Statement
continuously effective, supplemented and amended as required by the provisions
of Sections 6(b) and (c) hereof to the extent necessary to ensure that it is
available for resales of Notes by the Holders of Transfer Restricted Securities
entitled to the benefit of this Section 4(a), and to ensure that it conforms
with the requirements of this Agreement, the Act and the policies, rules and
regulations of the Commission as announced from time to time, for a period of
two years following the effective date of such Shelf Registration Statement (or
shorter period that will terminate when all the Notes covered by such Shelf
Registration Statement have been sold pursuant to such Shelf Registration
Statement).
(b) Provision by Holders of Certain Information in Connection with the
Shelf Registration Statement. No Holder of Transfer Restricted Securities may
include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 10 business days after receipt of a request
therefor, such information as the Company may reasonably request for use in
connection with any Shelf Registration Statement or Prospectus or preliminary
Prospectus included therein. 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.
SECTION 5. ADDITIONAL INTEREST
If (i) any of the Registration Statements required by this Agreement
is not filed with the Commission on or prior to the date specified for such
filing in this Agreement, (ii) any of such Registration Statements has not been
declared effective by the Commission on or prior to the date specified for such
effectiveness in this Agreement (the "Effectiveness Target Date"), regardless of
the reasonableness of any efforts made by or on behalf of the Company to cause
such Registration Statement to become effective), or (iii) any Registration
Statement required by this Agreement is filed and declared effective but shall
thereafter cease to be effective or fail to be usable for its intended purpose
without being succeeded immediately by a post-effective amendment to such
Registration Statement that cures such failure and that is itself immediately
declared effective (each such event referred to in clauses (i) through (iii), a
"Registration Default"), the Company hereby agrees that the interest rate borne
by the Transfer Restricted Securities shall be increased by 0.25% per annum
during the 90-day period immediately following the occurrence of any
Registration Default and shall increase by 0.25% per annum at the end of each
subsequent 90-day period, but in no event shall such increase exceed 1.00% per
annum. Following the cure of all Registration Defaults relating to any
particular Transfer Restricted Securities, the interest rate borne by the
relevant Transfer Restricted Securities will be reduced to the original interest
rate borne by such Transfer Restricted Securities; provided, however, that, if
after any such reduction in interest rate, a different Registration Default
occurs, the interest rate borne by the relevant Transfer Restricted Securities
shall again be increased pursuant to the foregoing provisions.
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All obligations of the Company set forth in the preceding paragraph
that are outstanding with respect to any Transfer Restricted Security at the
time such security ceases to be a Transfer Restricted Security shall survive
until such time as all such obligations with respect to such Note shall have
been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the Exchange
Offer, the Company shall comply with all of the provisions of Section 6(c)
below, shall use its best efforts to effect such exchange to permit the sale of
Transfer Restricted Securities being sold in accordance with the intended method
or methods of distribution thereof, and shall comply with all of the following
provisions:
(i) If in the reasonable opinion of counsel to the Company there is a
question as to whether the Exchange Offer is permitted by applicable law, the
Company hereby agrees to seek a no-action letter or other favorable decision
from the Commission allowing the Company to Consummate an Exchange Offer for
such Initial Notes. The Company hereby agrees to pursue the issuance of such a
decision to the Commission staff level but shall not be required to take
commercially unreasonable action to effect a change of Commission policy. The
Company hereby agrees, however, to (A) participate in telephonic conferences
with the Commission, (B) deliver to the Commission staff an analysis prepared by
counsel to the Company setting forth the legal bases, if any, upon which such
counsel has concluded that such an Exchange Offer should be permitted and (C)
diligently pursue a favorable resolution by the Commission staff of such
submission.
(ii) As a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each Holder of Transfer Restricted
Securities shall furnish, upon the request of the Company, prior to the
Consummation thereof, a written representation to the Company (which may be
contained in the letter of transmittal contemplated by the Exchange Offer
Registration Statement) to the effect that (A) it is not an affiliate of the
Company, (B) it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a distribution
of the Exchange Notes to be issued in the Exchange Offer and (C) it is acquiring
the Exchange Notes in its ordinary course of business. In addition, all such
Holders of Transfer Restricted Securities shall otherwise cooperate in the
Company's preparations for the Exchange Offer. Each Holder hereby acknowledges
and agrees that any Broker-Dealer and any such Holder using the Exchange Offer
to participate in a distribution of the securities to be acquired in the
Exchange Offer (1) could not under Commission policy as in effect on the date of
this Agreement rely on the position of the Commission enunciated in Morgan
Stanley and Co., Inc. (available June 5, 1991) and Exxon Capital Holdings
Corporation (available May 13, 1988), as interpreted in the Commission's letter
to Shearman & Sterling dated July 2, 1993, and similar no-action letters (which
may include any no-action letter obtained pursuant to clause (i) above), and (2)
must comply with the registration and prospectus delivery requirements of the
Act in connection with a secondary resale transaction and that such a secondary
resale transaction should be covered by an effective registration statement
containing the selling security holder information required by Item 507 or 508,
as applicable, of Regulation S-K if the resales are of Exchange Notes obtained
by such Holder in exchange for Initial Notes acquired by such Holder directly
from the Company.
(b) Shelf Registration Statement. In connection with the Shelf Registration
Statement, the Company shall comply with all the provisions of Section 6(c)
below and shall use its best efforts to effect such registration to permit the
sale of the Transfer Restricted Securities being sold in accordance with the
intended method or methods of distribution thereof, and pursuant thereto the
Company will as expeditiously as possible prepare and file with the Commission a
Registration Statement relating to the registration on any appropriate form
under the Act, which form shall be available for the sale of the Transfer
Restricted Securities in accordance with the intended method or methods of
distribution thereof.
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(c) General Provisions. In connection with any Registration Statement and
any Prospectus required by this Agreement to permit the sale or resale of
Transfer Restricted Securities (including, without limitation, any Registration
Statement and the related Prospectus required to permit resales of Notes by
Broker-Dealers), the Company shall:
(i) use its best efforts to keep such Registration Statement
continuously effective and provide all requisite financial statements for the
period specified in Section 3 or 4 of this Agreement, as applicable; upon the
occurrence of any event that would cause any such Registration Statement or the
Prospectus contained therein (A) to contain a material misstatement or omission
or (B) not to be effective and usable for resale of Transfer Restricted
Securities during the period required by this Agreement, the Company shall file
promptly an appropriate amendment to such Registration Statement, in the case of
clause (A), correcting any such misstatement or omission, and, in the case of
either clause (A) or (B), use its best efforts to cause such amendment to be
declared effective and such Registration Statement and the related Prospectus to
become usable for their intended purpose(s) as soon as practicable thereafter;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be necessary to
keep the Registration Statement effective for the applicable period set forth in
Section 3 or 4 hereof, as applicable, or such shorter period as will terminate
when all Transfer Restricted Securities covered by such Registration Statement
have been sold; cause the Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424
under the Act, and to comply fully with the applicable provisions of Rules 424
and 430A under the Act in a timely manner; and comply with the provisions of the
Act with respect to the disposition of all securities covered by such
Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the sellers thereof set forth in
such Registration Statement or supplement to the Prospectus;
(iii) advise the underwriter(s), if any, and selling Holders promptly
and, if requested by such Persons, to confirm such advice in writing, (A) when
the Prospectus or any Prospectus supplement or post-effective amendment has been
filed, and, with respect to any Registration Statement or any post-effective
amendment thereto, when the same has become effective, (B) of any request by the
Commission for amendments to the Registration Statement or amendments or
supplements to the Prospectus or for additional information relating thereto,
(C) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement under the Act or of the suspension
by any state securities commission of the qualification of the Transfer
Restricted Securities for offering or sale in any jurisdiction, or the
initiation of any proceeding for any of the preceding purposes, (D) of the
existence of any fact or the happening of any event that makes any statement of
a material fact made in the Registration Statement, the Prospectus, any
amendment or supplement thereto, or any document incorporated by reference
therein untrue, or that requires the making of any additions to or changes in
the Registration Statement or the Prospectus in order to make the statements
therein not misleading. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, or any state
securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption from qualification of the Transfer
Restricted Securities under state securities or Blue Sky laws, the Company shall
use its best efforts to obtain the withdrawal or lifting of such order at the
earliest possible time;
(iv) furnish without charge to each of the Initial Purchasers and each
of the underwriter(s), if any, before filing with the Commission, copies of any
Registration Statement or any Prospectus included therein or any amendments or
supplements to any such Registration Statement or Prospectus (including all
documents incorporated by reference after the initial filing of such
Registration Statement), which documents will be subject to the review of such
Holders and underwriter(s), if any, for a period of at least five business days,
and the Company will not file any such Registration Statement or Prospectus or
any amendment or supplement to any
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such Registration Statement or Prospectus (including all such documents
incorporated by reference) to which an Initial Purchaser of Transfer Restricted
Securities covered by such Registration Statement or the underwriter(s), if any,
shall reasonably object in writing within five business days after the receipt
thereof (such objection to be deemed timely made upon confirmation of telecopy
transmission within such period). The objection of an Initial Purchaser or
underwriter, if any, shall be deemed to be reasonable if such Registration
Statement, amendment, Prospectus or supplement, as applicable, as proposed to be
filed, contains a material misstatement or omission;
(v) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus, provide
copies of such document to the Initial Purchasers and to the underwriter(s), if
any, make the Company's representatives available for discussion of such
document and other customary due diligence matters, and include such information
in such document prior to the filing thereof as such selling Holders or
underwriter(s), if any, reasonably may request;
(vi) make available at reasonable times for inspection by the Initial
Purchasers, any underwriter participating in any disposition pursuant to such
Registration Statement, and any attorney or accountant retained by such selling
Holders or any of the underwriter(s), all financial and other records, pertinent
corporate documents and properties of the Company and cause the Company's
officers, directors and employees to supply all information reasonably requested
by any such Holder, underwriter, attorney or accountant in connection with such
Registration Statement subsequent to the filing thereof and prior to its
effectiveness;
(vii) if requested by any selling Holders or the underwriter(s), if
any, promptly incorporate in any Registration Statement or Prospectus, pursuant
to a supplement or post-effective amendment if necessary, such information as
such selling Holders and underwriter(s), if any, may reasonably request to have
included therein, including, without limitation, information relating to the
"Plan of Distribution" of the Transfer Restricted Securities, information with
respect to the principal amount of Transfer Restricted Securities being sold to
such underwriter(s), the purchase price being paid therefor and any other terms
of the offering of the Transfer Restricted Securities to be sold in such
offering; and make all required filings of such Prospectus supplement or
post-effective amendment as soon as practicable after the Company is notified of
the matters to be incorporated in such Prospectus supplement or post-effective
amendment;
(viii) cause the Transfer Restricted Securities covered by the
Registration Statement to be rated with the appropriate rating agencies, if so
requested by the Holders of a majority in aggregate principal amount of Notes
covered thereby or the underwriter(s), if any;
(ix) furnish to each selling Holder and each of the underwriter(s), if
any, without charge, at least one copy of the Registration Statement, as first
filed with the Commission, and of each amendment thereto, including financial
statements and schedules, all documents incorporated by reference therein and
all exhibits (including exhibits incorporated therein by reference);
(x) deliver to each selling Holder and each of the underwriter(s), if
any, without charge, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto as such Persons
reasonably may request; the Company hereby consents to the use of the Prospectus
and any amendment or supplement thereto by each of the selling Holders and each
of the underwriter(s), if any, in connection with the offering and the sale of
the Transfer Restricted Securities covered by the Prospectus or any amendment or
supplement thereto;
(xi) enter into such agreements (including an underwriting agreement),
and make such representations and warranties, and take all such other actions in
connection therewith in order to expedite or facilitate the disposition of the
Transfer Restricted Securities pursuant to any Registration Statement
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contemplated by this Agreement, all to such extent as may be requested by any
Initial Purchaser or by any Holder of Transfer Restricted Securities or
underwriter in connection with any sale or resale pursuant to any Registration
Statement contemplated by this Agreement; and whether or not an underwriting
agreement is entered into and whether or not the registration is an Underwritten
Registration, the Company shall:
(A) furnish to each Initial Purchaser, each selling Holder and each
underwriter, if any, in such substance and scope as they may request and as
are customarily made by issuers to underwriters in primary underwritten
offerings, upon the date of the Consummation of the Exchange Offer and, if
applicable, the effectiveness of the Shelf Registration Statement:
(1) a certificate, dated the date of Consummation of the Exchange
Offer or the date of effectiveness of the Shelf Registration
Statement, as the case may be, signed by (y) the President or any Vice
President and (z) a principal financial or accounting officer of the
Company, confirming, as of the date thereof, the matters set forth in
paragraphs (i), (ii) and (iii) of Section 5(e) of the Purchase
Agreement and such other matters as such parties may reasonably
request;
(2) an opinion, dated the date of Consummation of the Exchange
Offer or the date of effectiveness of the Shelf Registration
Statement, as the case may be, of counsel for the Company, covering
the matters set forth in paragraph (c) of Section 5 of the Purchase
Agreement and such other matter as such parties may reasonably
request, and in any event including a statement to the effect that
such counsel has participated in conferences with officers and other
representatives of the Company, representatives of the independent
public accountants for the Company, the Initial Purchasers'
representatives and the Initial Purchasers' counsel in connection with
the preparation of such Registration Statement and the related
Prospectus and have considered the matters required to be stated
therein and the statements contained therein, although such counsel
has not independently verified the accuracy, completeness or fairness
of such statements; and that such counsel advises that, on the basis
of the foregoing (relying as to materiality to a large extent upon
facts provided to such counsel by officers and other representatives
of the Company and without independent check or verification), no
facts came to such counsel's attention that caused such counsel to
believe that the applicable Registration Statement, at the time such
Registration Statement or any post-effective amendment thereto became
effective, and, in the case of the Exchange Offer Registration
Statement, as of the date of Consummation, 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 contained in such
Registration Statement as of its date and, in the case of the opinion
dated the date of Consummation of the Exchange Offer, as of the date
of Consummation, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading. Without limiting the foregoing, such
counsel may state further that such counsel assumes no responsibility
for, and has not independently verified, the accuracy, completeness or
fairness of the financial statements, notes and schedules and other
financial data included in any Registration Statement contemplated by
this Agreement or the related Prospectus; and
(3) a customary comfort letter, dated as of the date of
Consummation of the Exchange Offer or the date of effectiveness of the
Shelf Registration Statement, as the case may be, from the Company's
independent accountants, in the customary form and covering matters of
the type customarily covered in comfort letters by underwriters in
connection with primary
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underwritten offerings, and affirming the matters set forth in the
comfort letters delivered pursuant to Section 5(a) of the Purchase
Agreement, without exception;
(B) set forth in full or incorporate by reference in the underwriting
agreement, if any, the indemnification provisions and procedures of Section
8 hereof with respect to all parties to be indemnified pursuant to said
Section; and
(C) deliver such other documents and certificates as may be reasonably
requested by such parties to evidence compliance with clause (A) above and
with any customary conditions contained in the underwriting agreement or
other agreement entered into by the Company pursuant to this clause (xi),
if any.
If at any time the representations and warranties of the Company
contemplated in clause (A)(1) above cease to be true and correct, the Company
shall so advise the Initial Purchasers and the underwriter(s), if any, and each
selling Holder promptly and, if requested by such Persons, shall confirm such
advice in writing;
(xii) prior to any public offering of Transfer Restricted Securities,
cooperate with the selling Holders, the underwriter(s), if any, and their
respective counsel in connection with the registration and qualification of the
Transfer Restricted Securities under the securities or Blue Sky laws of such
jurisdictions as the selling Holders or underwriter(s) may request and do any
and all other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Transfer Restricted Securities covered by the Shelf
Registration Statement; provided, however, that the Company shall not be
required to register or qualify as a foreign corporation where it is not then so
qualified or to take any action that would subject it to the service of process
in suits or to taxation, other than as to matters and transactions relating to
the Registration Statement, in any jurisdiction where it is not then so subject;
(xiii) shall issue, upon the request of any Holder of Initial Notes
covered by the Shelf Registration Statement, Exchange Notes, having an aggregate
principal amount equal to the aggregate principal amount of Initial Notes
surrendered to the Company by such Holder in exchange therefor or being sold by
such Holder; such Exchange Notes to be registered in the name of such Holder or
in the name of the purchaser(s) of such Notes, as the case may be; in return,
the Initial Notes held by such Holder shall be surrendered to the Company for
cancellation;
(xiv) cooperate with the selling Holders and the underwriter(s), if
any, to facilitate the timely preparation and delivery of certificates
representing Transfer Restricted Securities to be sold and not bearing any
restrictive legends; and enable such Transfer Restricted Securities to be in
such denominations and registered in such names as the Holders or the
underwriter(s), if any, may request at least two business days prior to any sale
of Transfer Restricted Securities made by such underwriter(s);
(xv) use its best efforts to cause the Transfer Restricted Securities
covered by the Registration Statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable the
seller or sellers thereof or the underwriter(s), if any, to consummate the
disposition of such Transfer Restricted Securities, subject to the proviso
contained in clause (viii) above;
(xvi) if any fact or event contemplated by clause (c)(iii)(D) above
shall exist or have occurred, prepare a supplement or post-effective amendment
to the Registration Statement or related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of Transfer Restricted Securities, the Prospectus
will not contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading;
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(xvii) provide a CUSIP number for all Transfer Restricted Securities
not later than the effective date of the Registration Statement and provide the
Trustee under the Indenture with printed certificates for the Transfer
Restricted Securities which are in a form eligible for deposit with the
Depositary Trust Company;
(xviii) cooperate and assist in any filings required to be made with
the NASD and in the performance of any due diligence investigation by any
underwriter (including any "qualified independent underwriter") that is required
to be retained in accordance with the rules and regulations of the NASD, and use
its reasonable best efforts to cause such Registration Statement to become
effective and approved by such governmental agencies or authorities as may be
necessary to enable the Holders selling Transfer Restricted Securities to
consummate the disposition of such Transfer Restricted Securities;
(xix) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make generally available to its
security holders, as soon as practicable, a consolidated earnings statement
meeting the requirements of Rule 158 (which need not be audited) for the
twelve-month period (A) commencing at the end of any fiscal quarter in which
Transfer Restricted Securities are sold to underwriters in a firm or best
efforts Underwritten Offering or (B) if not sold to underwriters in such an
offering, beginning with the first month of the Company's first fiscal quarter
commencing after the effective date of the Registration Statement;
(xx) cause the Indenture to be qualified under the TIA not later than
the effective date of the first Registration Statement required by this
Agreement, and, in connection therewith, cooperate with the Trustee and the
Holders of Notes to effect such changes to the Indenture as may be required for
such Indenture to be so qualified in accordance with the terms of the TIA; and
execute and use its best efforts to cause the Trustee to execute, all documents
that may be required to effect such changes and all other forms and documents
required to be filed with the Commission to enable such Indenture to be so
qualified in a timely manner; and
(xxi) provide promptly to each Holder upon request each document filed
with the Commission pursuant to the requirements of Section 13 and Section 15 of
the Exchange Act.
Each Holder agrees by acquisition of a Transfer Restricted Security
that, upon receipt of any notice from the Company of the existence of any fact
of the kind described in Section 6(c)(iii)(D) hereof, such Holder will forthwith
discontinue disposition of Transfer Restricted Securities pursuant to the
applicable Registration Statement until such Holder's receipt of the copies of
the supplemented or amended Prospectus contemplated by Section 6(c)(xvi) hereof,
or until it is advised in writing (the "Advice") by the Company that the use of
the Prospectus may be resumed, and has received copies of any additional or
supplemental filings that are incorporated by reference in the Prospectus. If so
directed by the Company, each Holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such Transfer Restricted
Securities that was current at the time of receipt of such notice. In the event
the Company shall give any such notice, the time period regarding the
effectiveness of such Registration Statement set forth in Section 3 or 4 hereof,
as applicable, shall be extended by the number of days during the period from
and including the date of the giving of such notice pursuant to Section
6(c)(iii)(D) hereof to and including the date when each selling Holder covered
by such Registration Statement shall have received the copies of the
supplemented or amended Prospectus contemplated by Section 6(c)(xvi) hereof or
shall have received the Advice; however, no such extension shall be taken into
account in determining whether Additional Interest is due pursuant to Section 5
hereof or the amount of such Additional Interest, it being agreed that the
Company's option to suspend use of a Registration Statement pursuant to this
paragraph shall be treated as a Registration Default for purposes of Section 5.
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SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance of or compliance
with this Agreement will be borne by the Company, regardless of whether a
Registration Statement becomes effective, including without limitation: (i) all
registration and filing fees and expenses (including filings made by any Initial
Purchaser or Holder with the NASD (and, if applicable, the fees and expenses of
any "qualified independent underwriter" and its counsel that may be required by
the rules and regulations of the NASD)); (ii) all fees and expenses of
compliance with federal securities and state Blue Sky or securities laws; (iii)
all expenses of printing (including printing certificates for the Exchange Notes
to be issued in the Exchange Offer and printing of Prospectuses), messenger and
delivery services and telephone; (iv) all fees and disbursements of counsel for
the Company and, subject to Section 7(b) below, the Holders of Transfer
Restricted Securities; and (v) all fees and disbursements of independent
certified public accountants of the Company (including the expenses of any
special audit and comfort letters required by or incident to such performance).
The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and the
fees and expenses of any Person, including special experts, retained by the
Company.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company will reimburse the
Initial Purchasers and the Holders of Transfer Restricted Securities being
tendered in the Exchange Offer and/or resold pursuant to the "Plan of
Distribution" contained in the Exchange Offer Registration Statement or
registered pursuant to the Shelf Registration Statement, as applicable, for the
reasonable fees and disbursements of not more than one counsel, who shall be
Brobeck, Phleger & Harrision LLP or such other counsel as may be chosen by the
Holders of a majority in principal amount of the Transfer Restricted Securities
for whose benefit such Registration Statement is being prepared.
SECTION 8. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless (i) each Holder and
(ii) each person, if any, who controls (within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act) any Holder (any of the persons referred
to in this clause (ii) being hereinafter referred to as a "controlling person")
and (iii) the respective officers, directors, partners, employees,
representatives and agents of any Holder or any controlling person (any person
referred to in clause (i), (ii) or (iii) may hereinafter be referred to as an
"Indemnified Holder"), to the fullest extent lawful, from and against any and
all losses, claims, damages, liabilities, judgments, actions and expenses
(including without limitation and as incurred, reimbursement of all reasonable
costs of investigating, preparing, pursuing, settling, compromising, paying or
defending any claim or action, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, including the reasonable
fees and expenses of counsel to any Indemnified Holder), joint or several,
directly or indirectly caused by, related to, based upon, arising out of or in
connection with any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement or Prospectus (or any amendment or
supplement thereto), or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or expenses are caused by an untrue statement or omission or alleged
untrue statement or omission that is made in reliance upon and in conformity
with information relating to any of the Holders furnished in writing to the
Company by any of the Holders expressly for use therein. This indemnity
agreement shall be in addition to any liability which the Company may otherwise
have.
In case any action or proceeding (including any governmental or
regulatory investigation or proceeding) shall be brought or asserted against any
of the Indemnified Holders with respect to which indemnity may be sought against
the Company, such Indemnified Holder (or the Indemnified Holder controlled by
such
12
<PAGE>
controlling person) shall promptly notify the Company in writing (provided, that
the failure to give such notice shall not relieve the Company of its obligations
pursuant to this Agreement). Such Indemnified Holder shall have the right to
employ its own counsel in any such action and the fees and expenses of such
counsel shall be paid, as incurred, by the Company (regardless of whether it is
ultimately determined that an Indemnified Holder is not entitled to
indemnification hereunder). The Company shall not, in connection with any one
such action or proceeding or separate but substantially similar or related
actions or proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) at
any time for such Indemnified Holders, which firm shall be designated by the
Holders. The Company shall be liable for any settlement of any such action or
proceeding effected with the Company's prior written consent, which consent
shall not be withheld unreasonably, and the Company agrees to indemnify and hold
harmless any Indemnified Holder from and against any loss, claim, damage,
liability or expense by reason of any settlement of any action effected with the
written consent of the Company. The Company shall not, without the prior written
consent of each Indemnified Holder, settle or compromise or consent to the entry
of judgment in or otherwise seek to terminate any pending or threatened action,
claim, litigation or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not any Indemnified Holder is a
party thereto), unless such settlement, compromise, consent or termination
includes an unconditional release of each Indemnified Holder from all liability
arising out of such action, claim, litigation or proceeding.
(b) Each Holder of Transfer Restricted Securities agrees, severally and not
jointly, to indemnify and hold harmless the Company, and its respective
directors, its officers who sign a Registration Statement, and any person
controlling (within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act) the Company, to the same extent as the foregoing indemnity from
the Company to each of the Indemnified Holders, but only with respect to claims
and actions based on information relating to such Holder furnished in writing by
such Holder expressly for use in any Registration Statement. In case any action
or proceeding shall be brought against the Company or its directors or officers
or any such controlling person in respect of which indemnity may be sought
against a Holder of Transfer Restricted Securities, such Holder shall have the
rights and duties given the Company and the Company or its directors or officers
or such controlling person shall have the rights and duties given to each Holder
by the preceding paragraph. In no event shall the liability of any selling
Holder hereunder be greater in amount than the dollar amount of the proceeds
received by such Holder upon the sale of the Registrable Securities giving rise
to such indemnification obligation.
(c) If the indemnification provided for in this Section 8 is unavailable to
an indemnified party under Section 8(a) or Section 8(b) hereof (other than by
reason of exceptions provided in those Sections) in respect of any losses,
claims, damages, liabilities, judgments, actions or expenses referred to
therein, then each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the Holders on the other hand from
the Initial Placement (which in the case of the Issuer shall be deemed to be
equal to the total gross proceeds from the Initial Placement as set forth on the
cover page of the Offering Memorandum), the amount of Additional Interest which
did not become payable as a result of the filing of the Registration Statement
resulting in such losses, claims, damages, liabilities, judgments actions or
expenses, and such Registration Statement, or if such allocation is not
permitted by applicable law, the relative fault of the Company on the one hand
and of the Indemnified Holder on the other in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
fault of the Company on the one hand and of the Indemnified Holder on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or by
the Indemnified Holder and the parties' relative intent, knowledge, access to
information and opportunity to correct
13
<PAGE>
or prevent such statement or omission. The amount paid or payable by a party as
a result of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include, subject to the limitations set forth in the
second paragraph of Section 8(a), any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending any action
or claim.
The Company and each Holder of Transfer Restricted Securities agree
that it would not be just and equitable if contribution pursuant to this Section
8(c) were determined by pro rata allocation (even if 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 in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or expenses referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 8, none of the
Holders (and its related Indemnified Holders) shall be required to contribute,
in the aggregate, any amount in excess of the amount by which the total discount
received by such Holder with respect to the Initial Notes exceeds the amount of
any damages which such Holder has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Holders' obligations to
contribute pursuant to this Section 8(c) are several in proportion to the
respective principal amount of Initial Notes held by each of the Holders
hereunder and not joint.
SECTION 9. RULE 144A
The Company hereby agrees with each Holder, for so long as any
Transfer Restricted Securities remain outstanding, to make available to any
Holder or beneficial owner of Transfer Restricted Securities in connection with
any sale thereof and any prospective purchaser of such Transfer Restricted
Securities from such Holder or beneficial owner, the information required by
Rule 144A(d)(4) under the Act in order to permit resales of such Transfer
Restricted Securities pursuant to Rule 144A.
SECTION 10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in any underwriting arrangements approved by
the Persons entitled hereunder to approve such arrangements and (b) completes
and executes all reasonable questionnaires, powers of attorney, indemnities,
underwriting agreements, lockup letters and other documents required under the
terms of such underwriting arrangements.
SECTION 11. SELECTION OF UNDERWRITERS
The Holders of Transfer Restricted Securities covered by the Shelf
Registration Statement who desire to do so may sell such Transfer Restricted
Securities in an Underwritten Offering. In any such Underwritten Offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering; provided, that such investment bankers and managers must be
reasonably satisfactory to the Company.
14
<PAGE>
SECTION 12. MISCELLANEOUS
(a) Remedies. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agree to waive the defense in any action
for specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not on or after the date
of this Agreement enter into any agreement with respect to its securities that
is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. The Company has not previously
entered into any agreement granting any registration rights with respect to its
securities to any Person. The rights granted to the Holders hereunder do not in
any way conflict with and are not inconsistent with the rights granted to the
holders of the Company's securities under any agreement in effect on the date
hereof.
(c) Adjustments Affecting the Notes. The Company will not take any action,
or permit any change to occur, with respect to the Notes that would materially
and adversely affect the ability of the Holders to Consummate any Exchange
Offer.
(d) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless the Company has obtained the
written consent of Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities. Notwithstanding the foregoing, a waiver or
consent to departure from the provisions hereof that relates exclusively to the
rights of Holders whose securities are being tendered pursuant to the Exchange
Offer and that does not affect directly or indirectly the rights of other
Holders whose securities are not being tendered pursuant to such Exchange Offer
may be given by the Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities being tendered or registered; provided that, with
respect to any matter that directly or indirectly affects the rights of any
Initial Purchaser hereunder, the Company shall obtain the written consent of
each such Initial Purchaser with respect to which such amendment, qualification,
supplement, waiver, consent or departure is to be effective.
(e) Notices. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of the
Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to the Company:
Hollywood Entertainment Corporation
2600 S.W. Parkway Center Drive
Wilsonville, OR 97070
Telecopier No.: (503) 570-1701
Attention: Donald J. Ekman, Esq.
15
<PAGE>
With a copy to:
Stoel Rives LLP
Standard Insurance Center
900 S.W. Fifth Avenue, Suite 2300
Portland, OR 97204-1268
Telecopier No.: (503) 220-2480
Attention: Robert J. Moorman, Esq.
Latham & Watkins
505 Montgomery Street, Suite 1900
San Francisco, CA 94111
Telecopier No.: (415) 395-8095
Attention: Gregory K. Miller
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt 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 at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties, including
without limitation and without the need for an express assignment, subsequent
Holders of Transfer Restricted Securities; provided, however, that this
Agreement shall not inure to the benefit of or be binding upon a successor or
assign of a Holder unless and to the extent such successor or assign acquired
Transfer Restricted Securities from such Holder.
(g) 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.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) 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.
(k) Entire Agreement. This Agreement together with the other Operative
Documents (as defined in the Purchase Agreement) is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the
16
<PAGE>
subject matter contained herein. There are no restrictions, promises, warranties
or undertakings, other than those set forth or referred to herein with respect
to the registration rights granted by the Company with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
17
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
HOLLYWOOD ENTERTAINMENT CORPORATION
By: DONALD J. EKMAN
-------------------------------------
Name:
Title:
<PAGE>
The foregoing Registration Rights Agreement is hereby confirmed and accepted as
of the date first above written.
MONTGOMERY SECURITIES
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
GOLDMAN, SACHS & CO.
SOCIETE GENERALE SECURITIES CORPORATION
By: MONTGOMERY SECURITIES
By: RICHARD SMITH
-----------------------------------
STOEL RIVES LLP
---------------
ATTORNEYS
Standard Insurance Center
900 SW Fifth Avenue, Suite 2300
Portland, Oregon 97204-1268
Telephone (503) 224-3380
Fax (503) 220-2480
TDD (503) 221-1045
September 10, 1997
Board of Directors
Hollywood Entertainment Corporation
25600 SW Parkway Center Drive
Wilsonville, OR 97070
We have acted as counsel for Hollywood Entertainment Corporation (the
"Company") in connection with the preparation and filing of a Registration
Statement on Form S-4 (the "Registration Statement") under the Securities Act of
1933, as amended, covering an aggregate principal amount of $200,000,000 of
105/8% Series B Senior Subordinated Notes due 2004 of the Company (the "Series B
Notes") being offered for exchange by the Company. We have reviewed the
corporate action of the Company in connection with this matter and have examined
the documents, corporate records and other instruments we deemed necessary for
the purpose of this opinion.
Based on the foregoing, it is our opinion that:
(i) The Company is a corporation existing under the laws of the State of
Oregon; and
(ii) The Series B Notes have been duly authorized.
We consent to the use of our name in the Registration Statement and in the
Prospectus filed as a part thereof and to the filing of this opinion as an
exhibit to the Registration Statement.
Very truly yours,
STOEL RIVES LLP
STOEL RIVES LLP
<TABLE>
<CAPTION>
<S> <C> <C>
CHICAGO OFFICE LATHAM & WATKINS NEW YORK OFFICE
SEARS TOWER, SUITE 5800 ATTORNEYS AT LAW 885 THIRD AVENUE, SUITE 1000
CHICAGO, ILLINOIS 60606 505 MONTGOMERY STREET, SUITE 1900 NEW YORK, NEW YORK 10022-4802
TELEPHONE (312) 876-7700 SAN FRANCISCO, CALIFORNIA 94111-2562 TELEPHONE (212) 906-1200
FAX (312) 993-9767 TELEPHONE (415) 391-0600 FAX (212) 751-4864
FAX (415) 395-8095
----------
HONG KONG OFFICE PAUL R. WATKINS (1899-1973) ORANGE COUNTY OFFICE
23RD FLOOR DANA LATHAM (1898-1974) 650 TOWN CENTER CRIVE, SUITE 2000
STANDARD CHARTERED BANK BUILDING ---------- COSTA MESA, CALIFORNIA 92626-1925
4 DES VOEUX ROAD CENTRAL, HONG KONG TELEPHONE (714) 540-1235
TELEPHONE + 852-2905-6400 FAX (714) 755-8290
FAX + 852-2905-6940
LONDON OFFICE SAN DIEGO OFFICE
ONE ANGEL COURT 701 "B" STREET, SUITE 2100
LONDON EC2R 7HJ ENGLAND SAN DIEGO, CALIFORNIA 92101-8197
TELEPHONE + 44-171-374-4444 TELEPHONE (619) 236-1234
FAX + 44-171-374-4460 FAX (619) 696-7419
LOS ANGELES OFFICE SILICON VALLEY OFFICE
633 WEST FIFTH STREET, SUITE 4000 75 WILLOW ROAD
LOS ANGELES, CALIFORNIA 90071-2007 MENLO PARK, CALIFORNIA 94025-3656
TELEPHONE (213) 485-1234 TELEPHONE (415) 328-4600
FAX (213) 891-8763 FAX (415) 463-2600
MOSCOW OFFICE TOKYO OFFICE
113/1 LENINSKY PROSPECT, SUITE C200 INFINI AKASAKA, MINATO-KU
MOSCOW, RUSSIA 117198 TOKYO 107, JAPAN
TELEPHONE + 7-503-956-5555 TELEPHONE + 813-3423-3970
FAX + 7-503 956-5556 FAX + 813-3423-3971
NEW JERSEY OFFICE WASHINGTON, D.C. OFFICE
ONE NEWARK CENTER 1001 PENNSYLVANIA AVE., N.W., SUITE 1300
NEWARK, NEW JERSEY 07101-3174 WASHINGTON, D.C. 20004-2505
TELEPHONE (201) 639-1234 TELEPHONE (202) 637-2200
FAX (201) 639-7298 FAX (202) 637-2201
</TABLE>
September 10, 1997
Hollywood Entertainment Corporation
25600 SW Parkway Center Drive
Wilsonville, Oregon 97070
Re: Registration Statement on Form S-4
$100,000,000 Aggregate Principal Amount of
10-5/8% Series B Senior Subordinated Notes due 2004
---------------------------------------------------
Ladies and Gentlemen:
In connection with the registration of $200,000,000 aggregate
principal amount of 10-5/8% Series B Senior Subordinated Notes due 2004 (the
"Series B Notes") by Hollywood Entertainment Corporation, an Oregon corporation
(the "Company"), under the Securities Act of 1933, as amended (the "Securities
Act"), on Form S-4 filed with the Securities and Exchange Commission (the
"Commission") on September 10, 1997, you have requested our opinion with respect
to the matters set forth below.
In our capacity as your special counsel in connection with such
registration, we are familiar with the proceedings taken and proposed to be
taken by the Company in connection with the issuance of the Series B Notes, and
for the purposes of this opinion, have assumed such proceedings will be timely
completed in the manner presently proposed. In addition, we have made such legal
and factual examinations and inquiries, including an
<PAGE>
LATHAM & WATKINS
Hollywood Entertainment Corporation
September 10, 1997
Page 2
examination of originals or copies certified or otherwise identified to our
satisfaction of such documents, corporate records and instruments, as we have
deemed necessary or appropriate for purposes of this opinion.
In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, and the
conformity to authentic original documents of all documents submitted to us as
copies.
We are opining herein as to the effect on the subject transaction only
of the internal laws of the State of New York, and we express no opinion with
respect to the applicability thereto, or the effect thereon, of the laws of any
other jurisdiction or as to any matters of municipal law or the laws of any
other local agencies within the State of New York.
Capitalized terms used herein without definition have the meanings
ascribed to them in the Registration Statement.
Subject to the foregoing and the other matters set forth herein, it is
our opinion that, as of the date hereof, when Series B Notes have been duly
executed, authenticated and delivered by or on behalf of the Company in
accordance with the terms and provisions of the Indenture and as contemplated by
the Registration Statement, the Series B Notes will constitute valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms.
The opinion rendered in the paragraph above relating to the
enforceability of the Series B Notes is subject to the following exceptions,
limitations and qualifications: (i) the effect of bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting the rights and remedies of creditors; (ii) the effect
of general principles of equity, whether enforcement is considered in a
proceeding in equity or law, and the discretion of the court before which any
proceeding therefor may be brought; (iii) the unenforceability under certain
circumstances under law or court decisions of provisions providing for the
indemnification of or contribution to a party with respect to a liability where
such indemnification or contribution is contrary to public policy; and (iv) we
express no opinion concerning the enforceability of the waiver of rights or
defenses contained in Section 6.12 of the Indenture.
We assume for purposes of this opinion that (i) the Company has been
duly incorporated and is validly existing as a corporation under the laws of the
State of Oregon, and has the corporate power and authority to issue the Series B
Notes; (ii) the Series B Notes have been duly authorized by all necessary
corporate action by the Company; (iii) the Indenture has been duly authorized by
all necessary corporate action by the Company, has been duly executed and
delivered by the Company and constitutes the legally valid, binding
<PAGE>
LATHAM & WATKINS
Hollywood Entertainment Corporation
September 10, 1997
Page 3
and enforceable obligation of the Company enforceable against the Company in
accordance with its terms; (iv) the Trustee is duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization; (v) the
Trustee is duly qualified to engage in the activities contemplated by the
Indenture; (vi) the Indenture has been duly authorized, executed and delivered
by the Trustee and constitutes its legally valid, binding and enforceable
obligation of the Trustee enforceable against the Trustee in accordance with its
terms; (vii) the Trustee is in compliance, generally and with respect to acting
as a trustee under the Indenture, with all applicable laws and regulations; and
(viii) the Trustee has the requisite organizational and legal power and
authority to perform its obligations under the Indenture.
We consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference therein to our firm contained under
the heading "Legal Matters".
Very truly yours,
/s/ Latham & Watkins
REVOLVING CREDIT AGREEMENT
among
HOLLYWOOD ENTERTAINMENT CORPORATION,
as Borrower,
and
SOCIETE GENERALE
DLJ CAPITAL FUNDING, INC.
GOLDMAN SACHS CREDIT PARTNERS L.P.
and
the other financial institutions identified
on the signature pages hereto,
as Lenders,
and
SOCIETE GENERALE,
as Agent for the Lenders,
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION,
as Administrative Agent,
GOLDMAN SACHS CREDIT PARTNERS L.P.,
as Documentation Agent, and
CREDIT LYONNAIS LOS ANGELES BRANCH,
BARCLAYS BANK PLC,
DEUTSCHE BANK AG, NEW YORK BRANCH,
U.S. BANK NATIONAL ASSOCIATION,
and
KEYBANK NATIONAL ASSOCIATION,
as Co-Agents
- --------------------------------------------------------------------------------
September 5, 1997
- --------------------------------------------------------------------------------
$300,000,000
- --------------------------------------------------------------------------------
Arranged by
Societe Generale
DLJ Capital Funding, Inc.
Goldman Sachs Credit Partners L.P.
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms................................................ 2
1.2 General Principles Applicable to Definitions; Certain
Usages of Terms......................................................18
1.3 Accounting Terms.....................................................19
ARTICLE II
THE LOANS
2.1 The Facility............................................................19
2.1.1 Revolving Line of Credit.......................................19
2.1.2 Swing Line.....................................................19
2.2 Manner of Borrowing a Loan..............................................20
2.2.1 Revolving Loans................................................20
2.2.2 Swing Line Borrowings..........................................21
2.2.3 General Provisions.............................................21
2.3 Reductions of Commitments...............................................22
2.3.1 Voluntary Reductions...........................................22
2.3.2 Mandatory Reductions...........................................22
2.3.3 Effect of Reduction............................................23
2.4 Repayment of Principal..................................................23
2.4.1 Maturity Date..................................................23
2.4.2 Mandatory Payments and Prepayments.............................23
2.5 Agent's Right to Fund...................................................24
2.6 Interest on Loans.......................................................25
2.6.1 General Provisions.............................................25
2.6.2 Selection of Alternative Rate..................................25
2.6.3 Applicable Days for Computation of Interest....................27
2.6.4 Unavailable IBOR Rate..........................................27
2.7 Compensation for Increased Costs........................................27
2.7.1 Borrower's Obligation to Compensate............................27
2.7.2 Effect of Invalidity or Inapplicability........................29
2.7.3 Failure or Delay...............................................29
2.8 Prepayments.............................................................29
2.9 Notes...................................................................29
2.10 Manner of Payments......................................................30
2.10.1 Time, Place and Manner.........................................30
2.10.2 Statements.....................................................30
2.10.3 Payments on Days Other than Business Days......................30
2.10.4 Application of Payments........................................30
2.11 Fees....................................................................30
2.11.1 Unused Commitment Fee..........................................30
2.11.2 Loan Fees......................................................31
i
<PAGE>
2.11.3 Agency Fees....................................................31
2.11.4 Nonrefundable..................................................31
2.12 Sharing of Payments, Etc................................................31
2.13 Withholding Taxes.......................................................32
2.14 Guaranties..............................................................32
2.14.1 Guaranties.....................................................32
2.14.2 Certain Acknowledgments by Borrower............................32
2.15 Designated Senior Indebtedness..........................................33
ARTICLE III
CONDITIONS OF LENDING
3.1 Conditions to Availability..............................................33
3.1.1 Execution and Delivery of Loan Documents.......................33
3.1.2 Corporate Authority............................................33
3.1.3 Legal Opinion..................................................34
3.1.4 Perfected Security Interests...................................34
3.1.5 Termination of Commitments and Liens under
Existing Credit Agreement......................................34
3.1.6 High Yield Offering............................................34
3.1.7 Payment of Fees................................................35
3.1.8 Other Information..............................................35
3.2 Conditions Precedent to all Loans.......................................35
3.2.1 Notice of Borrowing............................................35
3.2.2 Absence of Defaults, Accuracy of
Representations................................................35
3.3 Special Condition Precedent to Initial Loans............................35
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Corporate Existence and Power...........................................36
4.2 Corporate Authorization.................................................36
4.3 Government Approvals, Etc...............................................36
4.4 Binding Obligations, Etc................................................37
4.5 Litigation..............................................................37
4.6 Financial Condition.....................................................37
4.7 Indebtedness; Title and Liens...........................................37
4.8 Taxes...................................................................38
4.9 Laws, Orders; Other Agreements..........................................38
4.10 Lien Priority...........................................................39
4.11 Federal Reserve Regulations.............................................39
4.12 ERISA...................................................................39
4.13 Patents, Licenses, Franchises...........................................40
4.14 Not Investment Company, Etc.............................................40
4.15 Insurance...............................................................40
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4.16 Certain Representations Regarding Subsidiaries and
Material Subsidiaries...................................................40
4.17 Representations as a Whole..............................................42
ARTICLE V
AFFIRMATIVE COVENANTS
5.1 Use of Proceeds.........................................................42
5.2 Payment.................................................................42
5.3 Preservation of Corporate Existence, Etc................................42
5.4 Visitation Rights.......................................................43
5.5 Keeping of Books and Records............................................43
5.6 Maintenance of Property, Etc............................................43
5.7 Compliance With Laws, Etc...............................................43
5.8 Other Obligations.......................................................44
5.9 Insurance...............................................................44
5.10 Financial Information...................................................46
5.10.1 Annual Audited Financial Statements............................46
5.10.2 Quarterly Reports..............................................46
5.10.3 Quarterly Compliance Certificates..............................47
5.10.4 Monthly Store Sales Comparisons................................47
5.10.5 Annual Budget: Financial Projections...........................47
5.10.6 Shareholder, SEC and Government Reports........................47
5.10.7 Subordinated Debt..............................................47
5.10.8 Other Information..............................................47
5.11 Notification............................................................48
5.12 Indemnity of Material Subsidiaries......................................48
5.13 Delivery of Subsidiary Documents; Additional Payments
Additional Acts.........................................................48
5.14 Net Worth...............................................................49
5.15 Leverage Ratio..........................................................49
5.16 Interest Coverage Ratio.................................................49
5.17 Average Per Store Contribution to Profit................................49
ARTICLE VI
NEGATIVE COVENANTS
6.1 Liquidation, Merger, Sale of Assets.....................................50
6.2 Indebtedness............................................................51
6.3 Guaranties, Etc.........................................................53
6.4 Liens...................................................................53
6.5 Location of Inventory...................................................54
6.6 Investments.............................................................54
6.7 Operating Lease Obligations.............................................55
6.8 Limitations on Prepayment or Amendment of Subordinated
Debt....................................................................55
6.9 ERISA Compliance........................................................55
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6.10 Transactions with Affiliates............................................55
6.11 Change in Business......................................................56
6.12 Accounting Change.......................................................56
ARTICLE VII
EVENTS OF DEFAULT
7.1 Events of Default.......................................................56
7.1.1 Loan Payment Default...........................................56
7.1.2 Other Payment Default..........................................56
7.1.3 Breach of Warranty.............................................56
7.1.4 Breach of Certain Covenants; Failure of
Security.......................................................56
7.1.5 Breach of Other Covenants......................................57
7.1.6 Material Adverse Changes: Extraordinary
Situation......................................................57
7.1.7 Cross-Default..................................................57
7.1.8 Voluntary Bankruptcy, Etc......................................58
7.1.9 Involuntary Bankruptcy, Etc....................................58
7.1.10 Insolvency, Etc................................................59
7.1.11 ERISA..........................................................59
7.1.12 Judgment.......................................................59
7.1.13 Government Approvals, Etc......................................59
7.1.14 Change of Control..............................................60
7.2 Consequences of Default.................................................60
ARTICLE VIII
THE AGENT
8.1 Authorization and Action................................................60
8.2 Duties and Obligations..................................................62
8.2.1 Limitations on Obligations.....................................62
8.2.2 Use of Agents, Employees, Etc..................................63
8.2.3 Payments, Deliveries to Lenders................................63
8.2.4 Provision of Information Regarding Withholding.................63
8.3 Dealings Between Agent and Borrower.....................................63
8.4 Lender Credit Decision..................................................64
8.5 Indemnification by Lenders..............................................64
8.6 Successor Agent.........................................................64
8.7 Administrative Agent; Documentation Agent; Co-Agents....................65
ARTICLE IX
MISCELLANEOUS
9.1 No Waiver; Remedies Cumulative..........................................65
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9.2 Governing Law...........................................................66
9.3 Mandatory Arbitration...................................................66
9.4 Notices.................................................................66
9.5 Assignment and Participations...........................................67
9.5.1 Agreement Binding..............................................67
9.5.2 Sale of Participations.........................................67
9.5.3 Assignments....................................................67
9.5.4 Assignments or Pledges to Federal Reserve Bank.................68
9.5.5 Certain Effects of Assignments, Participations
and Pledges....................................................69
9.5.6 Confidentiality................................................70
9.5.7 Representations of Lenders.....................................70
9.6 Indemnification by Borrower; Expenses...................................71
9.6.1 Indemnification................................................71
9.6.2 Expenses.......................................................72
9.7 Setoff..................................................................72
9.8 No Third Party Beneficiaries............................................72
9.9 Severability; Independence of Covenants.................................73
9.9.1 Severability...................................................73
9.9.2 Independence of Covenants......................................73
9.10 Survival................................................................73
9.11 Conditions Not Fulfilled; Limitation on Liability.......................73
9.11.1 Conditions Not Fulfilled.......................................73
9.11.2 Limitation on Liability........................................73
9.12 Entire Agreement; Amendment.............................................74
9.13 WAIVER OF JURY TRIAL....................................................74
9.14 Headings................................................................74
9.15 Counterparts............................................................74
SCHEDULES
Schedule 1 - Prepayment Fees
EXHIBITS
Exhibit A - Form of Promissory Note
Exhibit B - Form of Borrower Security Agreement
Exhibit C - Form of Subsidiary Security Agreement
Exhibit D - Form of Assignment Agreement
Exhibit E - Form of Guaranty
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REVOLVING CREDIT AGREEMENT
THIS REVOLVING CREDIT AGREEMENT ("Agreement") is made as of September 5,
1997, by and among (i) HOLLYWOOD ENTERTAINMENT CORPORATION (d/b/a "Hollywood
Video"), an Oregon corporation, as borrower (the "Borrower"), (ii) SOCIETE
GENERALE, DLJ CAPITAL FUNDING, INC. and GOLDMAN SACHS CREDIT PARTNERS L.P., and
the other financial institutions identified as Lenders on the signature pages
hereto, as lenders (each individually a "Lender" and collectively the
"Lenders"), and (iii) SOCIETE GENERALE, as agent for the Lenders (in that
capacity, the "Agent"), DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION, as
administrative agent for the Lenders (the "Administrative Agent") and GOLDMAN
SACHS CREDIT PARTNERS L.P., as documentation agent (in that capacity, the
"Documentation Agent"), and CREDIT LYONNAIS, LOS ANGELES BRANCH, BARCLAYS BANK
PLC, DEUTSCHE BANK AG, NEW YORK BRANCH, U.S. BANK NATIONAL ASSOCIATION, and
KEYBANK NATIONAL ASSOCIATION, as Co-Agents (in that capacity, individually a
"Co-Agent" and collectively the "Co-Agents").
RECITALS
A. Pursuant to that certain Amended and Restated Revolving Credit Agreement
(the "Existing Credit Agreement") dated as of February 12, 1997, by and among
Bank of America National Trust & Savings Association, United States National
Bank of Oregon, Union Bank of California, N.A., Key Bank of Washington, Banque
Nationale de Paris, Societe Generale, The Sumitomo Bank, Limited and Bank
Hapoalim, B.M. (each individually an "Existing Lender" and collectively the
"Existing Lenders"), Bank of America National Trust Savings Association as agent
for the Existing Lenders (in that capacity, the "Existing Agent"), and the
Borrower, as amended, the Existing Lenders agreed to provide the Borrower with a
revolving credit facility (the "Existing Facility").
B. Borrower has requested that the Lenders extend a revolving loan facility
to the Borrower, to be secured by substantially all of its personal property,
the proceeds of which will be used in accordance with the provisions of this
Agreement (including that the proceeds of the initial Loan hereunder be applied,
as necessary, to the payment of all accrued and unpaid obligations of the
Borrower under the Existing Facility), and the Lenders are willing to extend the
requested facility on the terms and conditions set forth herein.
NOW, THEREFORE, the parties hereto hereby agree as follows:
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ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms. As used in this Agreement, (i) terms defined in
the preamble or in the recitals hereto, unless otherwise defined, have the
meanings given to them therein, and (ii) the following terms have the following
meanings:
"Acquisition Price" means, for any asset, the aggregate purchase price
therefor (whether paid in cash or other property, and determined using the fair
market value of property other than cash), including bona fide purchase money
financing provided by the seller and all existing Indebtedness pertaining to
such asset (a) that is assumed as part of the acquisition of such asset or (b)
subject to which such asset is acquired.
"Additional Similar Assets" means (a) any property or assets (other than
Indebtedness or securities) in a line of business in which the Borrower is
engaged as of the date hereof or that is not substantially different from any
such line, or (b) the capital stock of a Person engaged in a line of business in
which the Borrower is engaged as of the date hereof.
"Adjusted Base Rate" means a per annum rate of interest equal to the Base
Rate (changing as such Base Rate changes) plus the Margin (changing as such
Margin changes).
"Adjusted EBITDA" means, for any Person for any period, such Person's
EBITDA for such period minus thirty percent (30%) of total Rental Revenues for
all Stores for such period (after deducting from such 30% of total Rental
Revenues any cash charges associated with the acquisition of inventory
(including, without limitation, any fees in connection with revenue sharing
arrangements with respect to Rental Items), to the extent such cash charges were
treated as operating expenses for purposes of determining such Person's net
income for such period in accordance with GAAP ("Associated Cash Charges");
provided that such Associated Cash Charges have been (a) separately audited by
Borrower's independent public accountants as of the end of the Borrower's fiscal
year then most recently ended and (b) noted in Borrower's quarterly compliance
certificates delivered in accordance with Section 5.10.3).
"Affiliate" means, with respect to any specified Person, any other Person
that, directly or indirectly, controls, is controlled by, or is under common
control with, such specified Person. For purposes of the Loan Documents,
"control" means the power to direct the management and policies of another
Person, directly or indirectly, through the ownership of voting securities, by
contract, or otherwise, and the terms "controlled by" and "under common control
with" have correlative
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meanings. In addition, the term "Affiliate" also means, with respect to the
Borrower or any Subsidiary, (a) any beneficial owner of capital stock of the
Borrower (or of options, warrants or other rights to acquire capital stock of
the Borrower, whether or not exercisable at the time of determination)
representing ten percent (10%) or more, on a fully diluted basis, of the total
voting power of all voting securities of the Borrower entitled to vote in the
election of directors, and (b) any Person who would be an Affiliate of such
beneficial owner pursuant to the first sentence of this definition.
"Agent" means Societe Generale in its capacity as agent for the Lenders,
and any successor agent selected pursuant to Section 8.6.
"Agent-Related Person" has the meaning given in Section 8.4.
"Aggregate Investment" means (a) with respect to Investments in a Person,
the sum of (i) the Acquisition Price of the securities of such Person, plus (ii)
all contributions of cash or other property (valued at fair market value) made,
or committed to be made, to such Person, plus (iii) all other Investments in
such Person, plus (iv) (without duplication of amounts included pursuant to
clause (a) of this definition) aggregate Indebtedness (including, without
limitation, guaranties and other contingent obligations in support of
Indebtedness of another Person) incurred in support of the obligations of such
Person; and (b) with respect to a line of business not conducted through another
Person, the sum of (i) the aggregate Acquisition Price of all property used in
the conduct of such line of business (or, if such property is not acquired for
the purpose of conducting such line of business, but is later used therein, the
fair market value of such property at the time such use commences), plus (ii)
cumulative operating losses (before depreciation) incurred in the conduct of
such line of business.
"Ancillary Business" means any business (a) substantially different from
those lines of business carried on by the Borrower on the date hereof, that (b)
the Board of Directors of the Borrower determines in good faith is related,
ancillary or complementary to the lines of business carried on by the Borrower
on the date hereof.
"Applicable Interest Period" means, with respect to any IBOR Loan, the
period commencing on the first day the Borrower elects to have such IBOR Rate
apply to such Loan and (subject to Section 2.10.3) ending on a day one, two,
three or six months thereafter, as specified in the Interest Rate Notice given
in respect of such Loan or as otherwise determined pursuant to Section 2.6.2 ;
provided, however, that (a) no Applicable Interest Period may be selected for a
Loan if it extends beyond the Maturity Date, and (b) no Applicable Interest
Period may be selected so as to end later than the next succeeding date of any
scheduled reduction in the Total Commitment if the aggregate principal amount of
the IBOR Loan subject thereto, when aggregated with the aggregate principal
amount of all other then outstanding IBOR Loans
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subject to Applicable Interest Periods that end after the date of such scheduled
reduction, would exceed the amount of the Total Commitment, as reduced thereon.
"Applicable Interest Rate" means, for each Loan, the Adjusted Base Rate or
IBOR Rate, as designated by the Borrower in an Interest Rate Notice given with
respect to such Loan (or portion thereof) or as otherwise determined pursuant to
Section 2.6.2.
"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or other dispositions):
(a) by the Borrower or any Subsidiary (including, without limitation,
any disposition by way of merger, consolidation or similar transaction),
(b) to any Person other than (i) in the case of a disposition by the
Borrower, to a Material Subsidiary, or (ii) in the case of a disposition by
a Subsidiary, to the Borrower, to a Material Subsidiary or to another
Subsidiary of the Borrower in which the Borrower owns, directly or
indirectly through one or more wholly-owned Subsidiaries, at least the same
percentage of the outstanding equity interests that it owns in the
Subsidiary making such disposition;
(each of the foregoing, for purposes of this definition, a "disposition"), of
(x) any shares of the capital stock of any Subsidiary (other than directors'
qualifying shares and, to the extent required by local ownership laws in any
foreign country, shares owned by foreign shareholders), (y) all or substantially
all of the assets of any division, business segment or comparable line of
business of the Borrower or any Subsidiary, or (z) any other assets of the
Borrower or any Subsidiary outside the ordinary course of such Person's
business; but excluding (p) any disposition that constitutes a Permitted
Investment; (q) distributions to shareholders, to the extent permitted under the
Loan Documents; (r) sales of Rental Items consistent with past practice; (s) a
disposition (other than a sale or closure of a Store, which shall be subject to
the following clause (t)), for fair market value, of assets having a fair market
value of less than One Million Dollars ($1,000,000), if the fair market value of
the assets subject to such disposition, when aggregated with the fair market
value of the assets subject to all prior dispositions of assets during the same
fiscal year that have been excluded from the definition of "Asset Disposition"
pursuant to this clause (s), does not exceed Five Million Dollars ($5,000,000);
and (t) any sale or closure of a Store (or sale or closure, as part of a single
transaction, of more than one Store), provided that (i) within ninety (90) days
after such disposition, the Borrower, or a Material Subsidiary, has opened
another Store of the same type for each such Store sold or closed and (ii) until
it is determined that such disposition does not constitute an Asset Disposition,
an
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amount equal to the Net Available Cash therefrom (determined as if such
disposition were an Asset Disposition) is either reserved against availability
under the Facility or (to the extent that there is not sufficient availability
under the Facility to reserve the full amount thereof) deposited with the Agent,
to be held as Collateral, pursuant to documentation in form and substance
reasonably satisfactory to the Agent, pending the use thereof (A) to acquire
Additional Similar Assets or (B) if such disposition is determined to constitute
an Asset Disposition, to be applied in accordance with Sections 2.3.2 and 2.4.2.
"Assignment Agreement" has the meaning given in Section 8.2.1.
"Availability Date" has the meaning given in Section 3.1.
"Bankruptcy Code" means the Bankruptcy Code of the United States, 11 U.S.C.
ss.ss. 101 et seq., as amended from time to time, and any successor statute.
"Base Rate" means, for any day, the higher of: (a) 0.50% per annum above
the latest Federal Funds Rate; and (b) the rate of interest in effect for such
day as publicly announced from time to time by Societe Generale, Los Angeles
Branch, as its "reference rate." (The "reference rate" is a rate set by Societe
Generale, Los Angeles Branch, based upon various factors including its costs and
desired return and general economic conditions, and is used as a reference point
for pricing some loans, which may be priced at, above, or below such announced
rate.)
"Base Rate Loan" means a Loan bearing interest at the Adjusted Base Rate.
"Borrower" means Hollywood Entertainment Corporation, an Oregon
corporation, and any permitted Successor or assign pursuant to Section 9.5.
"Borrower Disclosure Letter" means that certain letter, dated as of the
date hereof, signed on behalf of Borrower and delivered to the Agent on or prior
to the Funding Date of the initial Loan hereunder.
"Borrower Security Agreement" means a Security Agreement executed by the
Borrower in favor of the Agent substantially in the form attached hereto as
Exhibit B.
"Business Day" means any day other than Saturday, Sunday or another day on
which banks are authorized or obligated by law to close in Los Angeles,
California or Portland, Oregon, except in the context of the selection of a Loan
accruing interest at the IBOR Rate or the calculation of the IBOR Rate for any
Applicable Interest Period, in which event "Business Day" means any day other
than Saturday or Sunday on which dealings in foreign currencies and exchange
between banks may be carried on in Grand Cayman, British West Indies, and Los
Angeles, California.
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"Capital Leases" means, for any Person, all obligations of such Person
under leases which are, or, in accordance with GAAP, should be, recorded as
capital leases.
"Closing Date" means the date of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral" means, except to the extent expressly excluded therefrom
pursuant to the terms of any Security Agreement, all personal property of the
Borrower and of each Material Subsidiary (whether or not the creation of a Lien
thereon is subject to the Uniform Commercial Code, as in effect in any relevant
jurisdiction), including, without limitation, whether now owned or hereafter
acquired, all right, title and interest of the Borrower and each Material
Subsidiary in any and all (a) goods, (b) accounts, (c) chattel paper, (d)
documents, (e) instruments, (f) investment property, (g) rights to proceeds of
written letters of credit, (h) money and (i) general intangibles.
"Commitment" has the meaning given in Section 2.1.1.
"Controlled Group" means all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common control
which, together with the Borrower, are treated as a single employer under
Section 414(b) or 414(c) of the Code.
"Default" means any event which, but for the passage of time or the giving
of notice, or both, would be an Event of Default.
"Default Rate" has the meaning given in Section 2.6.1(a).
"Defaulting Lender" means any Lender that fails or refuses to perform its
obligations under this Agreement within the time period specified for
performance of such obligation or, if no time frame is specified, for a period
of five (5) Business Days after notice from Agent.
"EBITDA" means, for any Person for any period, such Person's net income (or
net loss), excluding any extraordinary gains or losses and taxes associated
therewith, plus the sum of (a) interest expense, (b) income tax expense, (c)
depreciation expense, (d) amortization expense, and (e) all other noncash items
deducted for purposes of determining net income (other than items that will
require cash payments and for which an accrual or reserve is, or is required
under GAAP, to be made), in each case determined on a consolidated basis in
accordance with GAAP for such Person for such period; provided, however, that in
determining net income (or net loss) for any period that includes the three
months ended March 31, 1997, there shall be excluded the nonrecurring $18.9
million pre-tax expense related to the settlement in such period of the
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securities class action lawsuit Murphy v. Hollywood Entertainment
Corporation et al.
"Eligible Assignee" means (a) (i) a (A) commercial bank, (B) savings and
loan association or (C) savings bank, in each case, organized under the laws of
the United States or any state thereof; (ii) a commercial bank organized under
the laws of any other country or a political subdivision thereof, provided that
(A) such bank is acting through a branch or agency located in the United States,
or (B) such bank is organized under the laws of a country that is a member of
the Organization for Economic Cooperation and Development or a political
subdivision of such a country; and (iii) any other Person that (A) is an
"accredited investor" (as defined in Regulation D promulgated under the
Securities Act of 1993, as amended), and (B) extends credit or buys loans as one
of its businesses (including, without limitation, insurance companies, mutual
funds and lease financing companies); and (b) any Lender or Affiliate of any
Lender; provided, however, that (x) neither the Borrower nor any Affiliate of
the Borrower shall be an Eligible Assignee, and (y) no Person shall be an
Eligible Assignee unless, at the time it first acquires an interest in the
Loans, the Borrower would not be required to deduct or withhold any Taxes or
other amounts from or in respect of any sum payable hereunder or under any other
Loan Document to such Person.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Event of Default" has the meaning given in Section 7.1.
"Excess Disposition Proceeds" has the meaning given in Section 2.3.2 .
"Facility" means the revolving line of credit (including the Swing Line
subfacility) described in Section 2.1.
"Federal Funds Rate" means, for any period, a fluctuating interest rate per
annum equal for each day during such period to the weighted average of the rates
on overnight federal funds transactions with members of the Federal Reserve
System arranged by federal funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for such day on such
transactions received by Agent from three federal funds brokers of recognized
standing selected by it.
"Financing Statements" means those Uniform Commercial Code financing
statements, satisfactory in form and substance to the Agent and naming the Agent
as secured party, executed by the Borrower, as debtor, in form acceptable for
filing in each of the fifty states and
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identifying by item or type the Collateral described in the Security
Agreement.
"Funded Debt" means, for any Person, without duplication: (a) all
indebtedness or liability of such Person for borrowed money and all indebtedness
or liability for borrowed money secured by a Lien on the assets of such Person,
whether or not such indebtedness or liability has been assumed by such Person,
(b) all indebtedness and liability of such Person for Capital Leases and (c) all
indebtedness or liability for borrowed money or for Capital Leases for which
such Person is indirectly or contingently liable (as obligor, guarantor, or
otherwise), but, in the case of Funded Debt described in this clause (c), not in
excess of any contractual limit on such Person's liability therefor.
"Funding Date" means, with respect to any Loan, the date on which such Loan
is funded pursuant to Article II.
"GAAP" has the meaning given in Section 1.3.
"Government Approval" means an approval, permit, license, authorization,
certificate, or consent of any Governmental Authority.
"Governmental Authority" means the government of the United States or any
State or any foreign country, or of any political subdivision of any thereof, or
any branch, department, agency, instrumentality, court, tribunal or regulatory
authority which constitutes a part or exercises any sovereign power of any of
the foregoing.
"Guaranty" means a guaranty of the Obligations executed by one or more
Material Subsidiaries, in substantially the form of Exhibit E.
"High Yield Notes" means (a) the "Initial Securities", as defined in, and
issued pursuant to, the Indenture, and (b) the "Exchange Securities" (as defined
in the Indenture), if any, issued in exchange therefor as contemplated by the
High Yield Offering Memorandum and the Indenture, provided that such Exchange
Securities have terms (including subordination provisions) substantially
identical in all material respects to such Initial Securities, except that such
Exchange Securities need not contain the same restrictions on transfer or
registration rights as do such Initial Securities.
"High Yield Offering" means (a) at any time prior to the offering of the
"Exchange Securities" described in the Indenture, the Borrower's offering of the
High Yield Notes outstanding as of the Closing Date, and (b) upon commencement
of the Borrower's offering of such Exchange Securities, both the offering
described in the preceding clause (a) and the offering of such Exchange
Securities pursuant to the "Exchange Offer Registration Statement" described in
the High Yield Offering Memorandum.
"High Yield Offering Memorandum" means (a) at any time prior to the filing
of the "Exchange Offer Registration Statement" referred to above,
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the Offering Memorandum, dated July 18, 1997, relating to the issuance of the
Borrower's senior subordinated notes due 2004, as at any time amended, and (b)
following the filing of such Exchange Offer Registration Statement,
collectively, the Offering Memorandum described in the preceding clause (a),
such Exchange Offer Registration Statement and any related offering memorandum
or prospectus, in each case, as at any time amended.
"IBOR Loan" means a Loan bearing interest at an IBOR Rate.
"IBOR Rate" means, with respect to any Loan for any Applicable Interest
Period, an interest rate per annum equal to the sum of (a) the Margin (changing
effective as of the date of each change in the Margin) and (b) the product of
(i) the Offshore Rate; and (ii) the Eurodollar Reserves in effect on the first
day of such Applicable Interest Period. As used herein, the "Offshore Rate"
means the rate of interest per annum determined by the Agent as the rate at
which dollar deposits in the approximate amount of such Loan for such Applicable
Interest Period would be offered by Societe Generale's Grand Cayman Branch,
Grand Cayman B.W.I. (or such other office as may be designated for such purpose
by Societe Generale) to major banks in the offshore dollar interbank market at
their request at approximately 11:00 a.m. (New York City time) two (2) Business
Days prior to the commencement of such Applicable Interest Period. As used
herein, "Eurodollar Reserves" means a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including, without
limitation, any special, supplemental, marginal or emergency reserves),
expressed as a decimal, established by the Board of Governors of the Federal
Reserve System or any other banking authority to which the Lenders are subject
for Eurocurrency Liability (as defined in Regulation D of such Board of
Governors). It is agreed that for purposes hereof, each Loan accruing interest
at the IBOR Rate shall be deemed to constitute a Eurocurrency Liability and to
be subject to the reserve requirements of Regulation D, without benefit of
credit or proration, exemptions or offsets which might otherwise be available to
the Lenders from time to time under such Regulation D. Eurodollar Reserves shall
be adjusted automatically on and as of the effective date of any change in any
reserve percentage and shall apply to Applicable Interest Periods commencing
after the effective date of change.
"Indebtedness" means, for any Person, without duplication: (a) all items of
indebtedness or liability (except capital, surplus, deferred credits and
reserves, as such) which, in accordance with GAAP, would be included in
determining total liabilities as shown on the liability side of a balance sheet
as of the date as of which indebtedness is determined, (b) indebtedness secured
by any Lien, whether or not such indebtedness shall have been assumed, (c) any
other indebtedness or liability for borrowed money or for the deferred purchase
price of property or services for which such Person is directly or contingently
liable as obligor, guarantor, or otherwise, or in respect of which such
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Person otherwise assures a creditor against loss, (d) any other obligations of
such Person under Capital Leases, and (e) any obligations of such Person under
any interest rate swap agreement, interest rate cap agreement or other financial
agreement or arrangement designed to protect the Borrower or any Subsidiary
against fluctuations in interest rates or in the prices of any goods or
services.
"Indenture" means the Indenture dated as of August 13, 1997, between the
Borrower, as Issuer, and U.S. Trust Company of California, N.A., as Trustee,
with respect to the Borrower's 10-5/8% Senior Subordinated Notes Due 2004, as at
any time amended in accordance with the provisions hereof.
"Interest Coverage Ratio", for any period of four consecutive fiscal
quarters of the Borrower, means the ratio of (a) Adjusted EBITDA for such
period, less cash taxes paid by the Borrower and its consolidated Subsidiaries
during such period, to (b) total interest expense of the Borrower for such
period, determined on a consolidated basis in accordance with GAAP.
"Interest Rate Notice" has the meaning given in Section 2.6.2.
"Investment" means, as applied to any Person, (a) any direct or indirect
purchase or other acquisition by that Person of (i) any equity or debt
securities (including, without limitation, capital stock, shares, voting trust
certificates, bonds, debentures, notes or instruments or other securities or
evidences of indebtedness or other obligations), or (ii) a beneficial interest
in any equity or debt securities, of any other Person; and (b) any direct or
indirect loan, advance (other than deposits with financial institutions
available for withdrawal on demand, prepaid expenses, and similar items made or
incurred in the ordinary course of business), or capital contribution by such
Person to any other Person (including, without limitation, by means of any
transfer of cash or other property or payment for property or services for the
use of such other Person), including all Indebtedness and accounts owed by that
other Person (x) that arise from any Asset Disposition, (y) that are not current
assets or (z) that did not arise from sales of goods or services to that Person
in the ordinary course of business and on arm's-length terms.
"Lenders" means Societe Generale; DLJ Capital Funding, Inc; Goldman Sachs
Credit Partners L.P. and each of the other Persons identified as Lenders on the
signature pages hereto, and any Successors to or permitted assigns of any of the
foregoing.
"Leverage Ratio" means, for any period of four consecutive fiscal quarters
of the Borrower (determined on a consolidated basis), the ratio of (a)
Borrower's Funded Debt as of the last day of such period, to (b) Borrower's
Adjusted EBITDA for such period.
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"Lien" means, for any Person, any security interest, pledge, mortgage,
charge, assignment, hypothecation, encumbrance, attachment, garnishment,
execution or other voluntary or involuntary security interest or lien in, on or
affecting the revenues of such Person or any real or personal property in which
such Person has or hereafter acquires any interest, except (i) (without limiting
the provisions of Section 7.1.12(b)) liens for Taxes which are not delinquent or
which remain payable without penalty or the validity or amount of which is being
contested in good faith by appropriate proceedings upon stay of execution of the
enforcement thereof with appropriate reserves having been established therefor;
(ii) liens imposed by law (such as mechanics' liens) incurred in good faith in
the ordinary course of business which are not delinquent or which remain payable
without penalty or the validity or amount of which is being contested in good
faith by appropriate proceedings upon stay of execution of the enforcement
thereof with, in the case of liens on property of the Borrower, provision having
been made to the satisfaction of the Agent for the payment thereof in the event
the contest is determined adversely to the Borrower; (iii) deposits or pledges
under worker's compensation, unemployment insurance, social security or other
similar laws or made to secure the performance of bids, tenders, contracts
(except for repayment of borrowed money), or leases (other than Capital Leases),
or to secure statutory obligations or surety or appeal bonds or to secure
indemnity, performance or other similar bonds given in the ordinary course of
business; and (iv) liens arising solely by virtue of any statutory or common law
provision relating to banker's liens, rights of setoff or similar rights and
remedies as to deposit accounts or other funds maintained with a creditor
depository institution, provided that (A) such deposit account or other funds
is/are available to such Person on demand, and (B) such deposit account or other
funds are neither established nor maintained with such depository institution as
security for, or a condition to or other requirement imposed in connection with
the incurring or maintenance of, any Indebtedness to such depository
institution.
"Loan" means a loan made by one or more Lenders pursuant hereto, provided
that (a) if any Revolving Loan or Revolving Loans (or portions thereof) is/are
combined or subdivided pursuant to Section 2.6.2, the term "Loan" means such
combination or such subdivided portion thereof, as the case may be; (b) where
the context so requires, the term "Loan" means, with respect to a particular
Lender, the advance made (or required to be made) by such Lender in the amount
of such Lender's Percentage Interest of a borrowing hereunder (or, if less, the
remaining unused portion of such Lender's Commitment); and (c) except where the
context otherwise requires, the term "Loan" also means each advance under the
Swing Line.
"Loan Documents" means this Revolving Credit Agreement, the Notes, the
Security Agreements, the Guaranties and all other certificates, instruments and
other documents executed in connection with this Agreement or the transactions
contemplated hereby.
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"Majority Lenders" means at any time Lenders having an aggregate Percentage
Interest of greater than fifty percent (50%).
"Mandatory Reduction" means a reduction in the Total Commitment effected
(a) pursuant to the definition of "Total Commitment" or (b) pursuant to Section
2.3.2.
"Margin" means a per annum rate determined in accordance with the following
chart, adjusted as of the first day of the first full calendar month beginning
after the date on which the Borrower delivers the quarterly compliance
certificates required under Section 5.10.3 with respect to any fiscal quarter,
based on the Leverage Ratio for the period of four consecutive fiscal quarters
ended as of the last day of such fiscal quarter, provided that if the Borrower
fails to deliver such quarterly compliance certificate on or before the date it
is due, then, from the first day of the first full calendar month beginning
after the date such delivery was due until the first Business Day after such
quarterly compliance certificate is delivered, the Margin shall be the lesser of
(a) 25 basis points over the Margin theretofore in effect, or (b) the maximum
Margin (for Base Rate Loans or IBOR Loans, as the case may be) forth set in the
following chart:
<TABLE>
<CAPTION>
Margin for use
Leverage Margin for use in in determining
Ratio determining IBOR Rate Adjusted Base Rate
----- --------------------- ------------------
<S> <C> <C>
less than or
equal to 1.50 0.875% 0.000%
greater than 1.50
but less than or
equal to 1.75 1.125% 0.125%
greater than 1.75
but less than or
equal to 2.00 1.375% 0.375%
greater than 2.00
but less than or
equal to 2.50 1.625% 0.625%
greater than 2.50
but less than or
equal to 3.00 1.875% 0.875%
greater than 3.00 2.125% 1.125%
</TABLE>
Subject to the proviso in the preceding sentence, from the date of this
Agreement through the first day of the first full calendar month to begin after
the date on which the Borrower delivers to the Agent the quarterly compliance
certificates required under Section 5.10.3 in
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respect of the fiscal quarter ending September 30, 1997, the Margin applicable
to IBOR Loans shall be 1.875% per annum, and the Margin applicable to Base Rate
Loans shall be 0.875%.
"Material Adverse Effect" means, (a) with respect to Borrower or any
Material Subsidiary, a material adverse effect on the business, operations or
financial condition of the Borrower or such Material Subsidiary; or (b) with
respect to the Borrower or any Material Subsidiary, a material adverse effect on
the ability of such Person to perform its obligations under the Loan Documents
to which it is a party.
"Material Subsidiary" means, at any time, each Subsidiary of the Borrower
that then has a Net Worth in excess of the lesser of (a) $5,000,000 or (b) 3% of
Borrower's Net Worth.
"Maturity Date" means the date that is five (5) years after the date
hereof.
"Net Available Cash" means, with respect to any Asset Disposition, the cash
payments received by the Borrower or any Subsidiary therefrom (including,
without limitation (but without limiting the provisions of Section 6.6), as and
when received, any cash payments received by way of deferred payment of
principal pursuant to any note or installment receivable or otherwise and cash
received upon the conversion into cash of marketable securities or other
property received as consideration for such Asset Disposition), in each case net
of all (a) (i) legal, title, recording and transfer tax expenses relating to
such Asset Disposition, (ii) commissions and other fees and expenses incurred to
any Person other than an Affiliate of the Borrower in connection with such Asset
Disposition, and (iii) Federal, state, provincial, foreign and local taxes
required to be paid, as a consequence of such Asset Disposition, within twelve
months after the date thereof; (b) payments made on any Indebtedness (i) secured
by any assets subject to such Asset Disposition, in accordance with the terms of
any Lien of any kind thereon, as a condition precedent to the consummation of
such Asset Disposition, (ii) required to be made, at or before the consummation
of such Asset Disposition, to obtain a necessary consent thereto, or (iii)
required to be paid from the proceeds of such Asset Disposition under applicable
law; (c) in the case of an Asset Distribution by a Subsidiary, distributions and
other payments required to be made to any holders of minority interests in such
Subsidiary as a consequence of such Asset Disposition; and (d) appropriate
reserves established by the seller, in accordance with GAAP or as otherwise
agreed by the Majority Lenders, against any liabilities (i) associated with the
assets subject to such Asset Disposition (including, without limitation,
liabilities under any indemnity obligations incurred as part of such Asset
Disposition), (ii) that are retained by the Borrower or the Subsidiary party to
such Asset Disposition.
"Net Cash Proceeds" means, with respect to any issuance or sale of capital
stock by the Borrower, the cash proceeds of such issuance or
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sale, net of (a) (i) attorneys' fees and disbursements, (ii) accountants' fees,
(iii) underwriters' or placement agents' fees, discounts or commissions, and
(iv) brokerage, consultants' and other fees, in each case, actually incurred in
connection with such issuance or sale; (b) taxes paid or payable as a result
thereof; and (c) any portion of such cash proceeds received in respect of sales
of capital stock to any Subsidiary.
"Net Income" means, for any accounting period, the net income of the
Borrower for such period, determined in accordance with GAAP.
"Net Worth" means, for any Person, such Person's shareholders' equity,
determined in accordance with GAAP.
"Notes" has the meaning given in Section 2.9.
"Notice of Borrowing" means a written request for a Loan, executed by the
Borrower and delivered to the Agent and containing the information set forth in
Section 2.2.
"Obligations" means, from time to time, all indebtedness or other
obligations of the Borrower owing to the Agent, any Lender or any Indemnified
Person (as defined in Section 9.6.1), or any of their respective successors,
transferees or assigns, of every type and description, whether or not evidenced
by any note, guaranty or other instrument, arising under or in connection with
this Agreement or any other Loan Document, whether or not for the payment of
money, whether direct or indirect (including those acquired by assignment),
absolute or contingent, due or to become due, now existing or hereafter arising
and however acquired, and including, without limitation, all present and future
obligations for the payment of principal, premium, interest (including interest
accruing after the filing of any petition under the Bankruptcy Code, at the
Default Rate), penalties, fees, indemnifications, reimbursements, damages and
other liabilities at any time payable under the Loan Documents.
"Officer's Certificate" means a certificate signed in the name of the
Borrower by its Chairman, its President, its Chief Financial Officer, its Senior
Vice President of Finance or its Controller.
"Passive Investment" means the acquisition by the Borrower of voting
securities of a Person, engaged (or being formed to engage) in an Ancillary
Business, provided that (a) such Person is a corporation, limited partnership or
other limited liability entity and the securities therein acquired by the
Borrower do not expose the Borrower generally to liability for the obligations
of such Person; (b) Borrower does not own a majority of the outstanding voting
securities of such Person or otherwise have the right to control the management
of such Person; (c) the financial results of such Person are not required, under
GAAP, to be reported on a consolidated basis with those of Borrower; and (d) the
Borrower does not become indirectly or contingently liable (as obligor,
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<PAGE>
guarantor, or otherwise) for any obligation of such Person, or otherwise assure
any creditor of such Person against loss.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Pension Plan" means an "employee pension benefit plan" (as such term is
defined in ERISA) from time to time maintained by the Borrower or a member of
the Controlled Group.
"Percentage Interest" means, for any Lender at any time, the percentage
that such Lender's Commitment is of the Total Commitment.
"Permitted Acquisition" means an acquisition by the Borrower, after the
date of this Agreement, of (a) all or substantially all of the assets (or of all
or substantially all of the assets of any division, business segment or
comparable line of business) of another Person, or (b) all of the outstanding
capital stock of another Person (including acquisitions by merger), in either
case, that does not otherwise cause the occurrence of a Default or Event of
Default, provided that (i) no later than twenty (20) Business Days prior to the
consummation of such acquisition, the Borrower delivers to the Agent the Pro
Forma Calculations with respect to such acquisition; and (ii) the Acquisition
Price of such acquisition, when aggregated with the Acquisition Prices of all
prior such acquisitions, does not exceed the sum of (A) twenty-five percent
(25%) of Borrower's Net Worth (excluding from such calculation, however, the
effect of the Borrower's receipt of Net Cash Proceeds in respect of issuances or
sales of capital stock after the Closing Date) as of the date of such
acquisition, and after giving effect thereto, plus (B) fifty percent (50%) of
the aggregate Net Cash Proceeds received by the Borrower in respect of issuances
or sales of capital stock after the Closing Date.
"Permitted Investment" means any Investment permitted under Section 6.6.
"Person" means an individual, a corporation, a partnership (whether
general, limited, or limited liability), a limited liability company, a trust,
an unincorporated association, a joint venture, a joint-stock company, a
government (including any political subdivision of a government), a Governmental
Authority or agency, or any other entity.
"Plan" means, at any time, an employee pension benefit plan which is
covered by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code and is either (a) maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member of
such Controlled Group or (b) maintained pursuant to a collective bargaining
agreement or any other arrangement under which more than one employer makes
contributions and to which the Borrower or any member of the Controlled Group is
then making or
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<PAGE>
accruing an obligation to make contributions or has within the preceding five
(5) plan years made contributions.
"Pro Forma Calculations" means, with respect to any transaction, pro forma
financial statements of the Borrower (a) prepared as of the last day of the then
most recently completed fiscal quarter of the Borrower, (b) giving pro forma
effect to such transaction as of such date, (c) establishing that, on a pro
forma basis, the Borrower would have been in compliance with each of the
financial covenants set forth in Sections 5.14, 5.15, 5.16 and 5.17 as of the
end of such most recently completed fiscal quarter notwithstanding the
consummation of such transaction (provided that financial covenants otherwise
required to be tested with respect to any period of four consecutive fiscal
quarters shall be calculated on the basis of the twelve-month period ended as of
the last day of such then most recently completed fiscal quarter and as if such
transaction had been consummated on the first day of such twelve-month period),
and (d) certified by the Borrower's chief financial officer as having been
prepared in accordance with the provisions of this Agreement as being accurate
in all material respects.
"Rental Items" means videotapes, videogames, audiotapes and related
equipment to the extent that such items were acquired by the Borrower for rental
to its customers or are held by the Borrower for rental to its customers.
"Rental Revenues" means revenues received by the Borrower for the rental of
Rental Items.
"Revolving Loan" means each Loan made by the Lenders under the facility
described in Section 2.1.1, as well as each Swing Line Borrowing deemed
converted into a Revolving Loan pursuant to Section 2.2.1), provided that (a) if
any Revolving Loan or Revolving Loans (or portions thereof) is/are combined or
subdivided pursuant to Section 2.6.2, the term "Revolving Loan" means such
combination or such subdivided portion thereof, as the case may be; (b) where
the context so requires, the term "Revolving Loan" means, with respect to a
particular Lender, the advance made (or required to be made) by such Lender in
the amount of such Lender's Percentage Interest of a borrowing under the
facility described in Section 2.1.1 (or, if less, the remaining unused portion
of such Lender's Commitment).
"Security Agreement" means the Borrower Security Agreement and each
Subsidiary Security Agreement.
"Store" means each location at which the Borrower engages in the rental of
Rental Items to the public.
"Subordinated Debt" means the obligations of the Borrower in respect of (a)
the High Yield Notes and (b) any other subordinated debt issued in accordance
with the provisions of Section 6.2(f).
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<PAGE>
"Subsidiary" means any corporation, association, limited liability company
or other business entity of which Borrower owns directly or indirectly more than
fifty percent (50%) of the voting securities, membership interests or other
equity interest thereof or in which Borrower otherwise owns a controlling
interest.
"Subsidiary Security Agreement" means a Security Agreement executed by a
Material Subsidiary in favor of the Agent substantially in the form attached
hereto as Exhibit C.
"Successor" means, for any corporation or banking association, any
successor by (a) merger or consolidation or (b) acquisition of substantially all
of the assets of the predecessor.
"Swing Line" means the subfacility for short-term borrowings described in
Section 2.1.2.
"Swing Line Borrowing" means a borrowing under the Swing Line.
"Swing Line Lender" means Societe Generale, acting in its capacity as the
lender under the Swing Line, and any successor to Societe Generale in that
capacity.
"Tax" means, for any Person, any tax, assessment, fee, duty, levy, impost
or other charge imposed by any Governmental Authority on such Person or on any
property, revenue, income, or franchise of such Person, and any interest or
penalty with respect to any of the foregoing.
"Total Commitment" means (subject to reduction or termination pursuant to
Section 2.3 or Section 7.2):
(a) from and including the date hereof to but not including the date
that is thirty-nine (39) months after the date hereof: Three Hundred Million
Dollars ($300,000,000);
(b) from and including the date that is thirty-nine (39) months after
the date hereof to but not including the date that is forty-two (42) months
after the date hereof: Two Hundred Sixty-Two Million Five Hundred Thousand
Dollars ($262,500,000);
(c) from and including the date that is forty-two (42) months after
the date hereof to but not including the date that is forty-five (45) months
after the date hereof: Two Hundred Twenty-Five Million Dollars ($225,000,000);
(d) from and including the date that is forty-five (45) months after
the date hereof to but not including the date that is forty-eight (48) months
after the date hereof: One Hundred Eighty-Seven Million Five Hundred Thousand
Dollars ($187,500,000);
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<PAGE>
(e) from and including the date that is forty-eight (48) months after
the date hereof to but not including the date that is fifty-one (51) months
after the date hereof: One Hundred Fifty Million Dollars ($150,000,000);
(f) from and including the date that is fifty-one (51) months after
the date hereof to but not including the date that is fifty-four (54) months
after the date hereof: One Hundred Twelve Million Five Hundred Thousand Dollars
($112,500,000);
(g) from and including the date that is fifty-four (54) months after
the date hereof to but not including the date that is fifty-seven (57) months
after the date hereof: Seventy-Five Million Dollars ($75,000,000);
(h) from and including the date that is fifty-seven (57) months after
the date hereof to but not including the date that is sixty-(60) months after
the date hereof: Thirty-Seven Million Five Hundred Thousand Dollars
($37,500,000); and
(i) on and after the date that is sixty (60) months after the Closing
Date: Zero ($0.00).
"Total Revenues" means, for any period, the Borrower's aggregate revenues
for such period, determined in accordance with GAAP.
"Unfunded Vested Liabilities" means, with respect to any Plan, at any time,
the amount (if any) by which (a) the present value of all vested nonforfeitable
benefits under such Plan exceeds (b) the fair market value of all Plan assets
allocable to such benefits, all determined as of the then most recent valuation
date for such Plan, but only to the extent that such excess represents a
potential liability of the Borrower or any member of the Controlled Group to the
PBGC or the Plan under Title IV of ERISA.
"Voluntary Reduction" has the meaning given in Section 2.3.1.
1.2 General Principles Applicable to Definitions; Certain Usages of Terms.
Definitions given in Section 1.1 shall be equally applicable to both singular
and plural forms of the terms therein defined, and references herein to "he" or
"it" shall be applicable to Persons whether masculine, feminine or neuter.
References herein to any document, including, without limitation, this
Agreement, shall be deemed references to such document as it now exists, and as,
from time to time hereafter, the same may be amended, supplemented or restated.
Unless otherwise specified, any reference in a Loan Document to an article,
section, paragraph, subparagraph, schedule or exhibit shall be deemed a
reference to an article, section, paragraph, subparagraph, schedule or exhibit
of or to such Loan Document. The word "or" shall not be limiting, but shall have
the meaning commonly ascribed to "and/or."
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1.3 Accounting Terms. Except as otherwise expressly provided herein,
accounting terms not specifically defined shall be construed, and all accounting
procedures shall be performed: (a) in accordance with generally accepted United
States accounting principles consistently applied ("GAAP") and as in effect on
the date of application, and (b) in the case of a Person whose financial results
would be reported, in accordance with GAAP, on a consolidated basis with the
results of Persons under such Person's control, on a consolidated basis.
ARTICLE II
THE LOANS
2.1 The Facility.
2.1.1 Revolving Line of Credit. Each Lender severally agrees, on the
terms and conditions of this Agreement, to make loans ("Revolving Loans") to the
Borrower from time to time on Business Days during the period beginning on the
Availability Date and ending on the day before the Maturity Date, in an
aggregate principal amount not exceeding at any one time (a) for any Lender, the
principal amount set forth below such Lender's name on the signature pages
hereto, subject to reduction or termination in accordance with Sections 2.3 and
7.2 (such amount, at any time, such Lender's "Commitment"), and (b) for all
Lenders, (i) the Total Commitment less (ii) the sum of (A) the aggregate of all
amounts reserved against availability pursuant to the definition of "Asset
Disposition" or Section 6.1, plus (B) the aggregate principal amount of all
Swing Line Borrowings that would remain outstanding immediately following the
making of any such Revolving Loan and the application of the proceeds thereof to
the payment of any outstanding Swing Line Borrowings. The line of credit
extended hereunder is a revolving line of credit, and, subject to the terms and
conditions hereof, the Borrower may borrow, repay and reborrow up to the maximum
principal amount provided for in this Section 2.1.1, at any time before the
Maturity Date.
2.1.2 Swing Line. The Swing Line Lender additionally agrees, on the
terms and conditions of this Agreement, to make advances to the Borrower from
time to time on Business Days during the period beginning on the Availability
Date and ending on the day before the Maturity Date, in an aggregate principal
amount not exceeding at any one time the lesser of (a) (i) the Total Commitment,
less (ii) the sum of (A) all amounts reserved against availability in respect of
Asset Dispositions or sales or closures of Stores, plus (B) the outstanding
principal of all Loans other than Swing Line Borrowings, and (b) Twenty Million
Dollars ($20,000,000). The Swing Line Lender's obligation to fund Swing Line
Borrowings shall be unaffected by its making of any Revolving Loans,
notwithstanding that the sum of the Swing Line Borrowings plus the Swing Line
Lender's Percentage Interest of the
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aggregate principal amount of the outstanding Revolving Loans, may exceed the
Swing Line Lender's Commitment.
2.2 Manner of Borrowing a Loan.
2.2.1 Revolving Loans.
(a) In connection with each Revolving Loan, the Borrower shall
deliver to the Agent, no later than 10:00 a.m. (Los Angeles, California
time), (i) at least one Business Day prior to the requested Funding Date in
the case of a Base Rate Loan, or (ii) at least three Business Days prior to
the requested Funding Date in the case of an IBOR Loan, a Notice of
Borrowing specifying the Funding Date of the requested Revolving Loan and
the amount thereof, which shall be in an amount equal to Two Million
Dollars ($2,000,000) or an integral multiple of One Million Dollars
($1,000,000) in excess thereof.
(b) If, as of 10:00 a.m. (Los Angeles, California time) on the
fourteenth day after the Swing Line Lender has funded any Swing Line
Borrowing, the Borrower has not repaid such Swing Line Borrowing in full
(or if, prior thereto, an Event of Default shall have occurred or the Loans
shall be accelerated for any reason whatsoever): (i) the Agent shall
promptly (or, if an Event of Default has occurred but the Loans have not
been accelerated, may) notify each Lender by telephone (confirmed promptly
by telex, facsimile transmission or cable), telex, facsimile transmission,
or cable of the amount of such Swing Line Borrowing; and (ii) each Lender
shall (subject to Section 2.1.1), before 12:00 noon (Los Angeles,
California time), on such date, pay to the Agent at its Los Angeles Branch,
Los Angeles, California (or at such other place as the Agent may from time
to time specify for such purpose), in immediately available funds, such
Lender's Percentage Interest of the principal amount of such Swing Line
Borrowing. Upon such funding, each Lender shall be deemed to have acquired
from the Swing Line Lender (and the Swing Line Lender shall be deemed to
have assigned to each such Lender) a percentage interest in such Swing Line
Borrowing equal to such Lender's Percentage Interest, and, for purposes of
determining the availability of Swing Line Borrowings or Revolving Loans,
such Swing Line Borrowing shall be deemed a Revolving Loan (and no longer a
Swing Line Borrowing); provided that the obligations of the Lenders under
this Section 2.2.1(b) shall not be subject to the notice or amount
requirements, or to satisfaction of conditions precedent, otherwise
applicable to the making of Revolving Loans. Each Lender's obligation to
fund, and to purchase from the Swing Line Lender, its Percentage Interest
of a Swing Line Borrowing pursuant to this Section 2.1.1(b) shall be
absolute and unconditional under any and all circumstances (including,
without limitation, irrespective of any intervening bankruptcy of the
Borrower or termination of the Total Commitment). It is not the parties'
intent that the obligations of the Lenders
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<PAGE>
under this Section 2.1.1(b) constitute guaranties or obligations of
suretyship. If and to the extent, however, that the obligations of any
Lender under this Section 2.1.1(b) are determined to be those of a
guarantor or surety, such Lender, with full knowledge of the consequences
thereof, hereby expressly waives the benefit of each and every right or
defense of a guarantor or surety the effect of which would relieve such
Lender of all or any portion of its obligations under this Section
2.1.1(b). In the event that any Lender fails to pay to the Agent when due
any amount it is required to fund under this Section 2.2.1(b), such Lender
and the Borrower severally agree to pay to the Agent, on demand, the amount
such Lender has failed to so pay, together with interest thereon for each
day from the date on which such payment was due until the date such amount
is repaid to the Agent, at (p) in the case of the Borrower, the Applicable
Interest Rate, or (q) in the case of such Lender, the Federal Funds Rate.
Any such repayment by the Borrower shall be without prejudice to any rights
it may have against the Lender that has failed pay when due any such
amount.
2.2.2 Swing Line Borrowings. In connection with each Swing Line
Borrowing, the Borrower shall deliver to the Agent, no later than 10:00 a.m.
(Los Angeles, California time) on the requested Funding Date, a Notice of
Borrowing specifying the Funding Date of the requested Swing Line Borrowing and
the amount thereof, which shall be in an amount equal to Five Hundred Thousand
Dollars ($500,000) or an integral multiple of Ten Thousand Dollars ($10,000) in
excess thereof.
2.2.3 General Provisions.
(a) Any Notice of Borrowing received after 10:00 a.m. (Los
Angeles, California time) on any day will be deemed to have been received
on the next succeeding Business Day. Each Notice of Borrowing shall be
irrevocable and shall constitute a representation and warranty by the
Borrower that, as of the date of the Notice of Borrowing, (i) no Default or
Event of Default has occurred and is continuing; and (ii) each of the
representations and warranties of the Borrower or any Material Subsidiary
set forth in any Loan Document are true and correct in all material
respects on and as of such date (except to the extent such representations
or warranties are conditioned by reference to a specific date, in which
case they shall be true and correct in all material respects as of such
date), with the same effect as though such representations and warranties
had been made on and as of such date.
(b) (i) On receipt of any Notice of Borrowing with respect to a
Revolving Loan, the Agent shall promptly notify each Lender by
telephone (confirmed promptly by telex, facsimile transmission or
cable), telex, facsimile transmission, or cable of the requested
Funding Date. Each Lender shall, before 12:00 noon (Los Angeles,
California
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time), on the Funding Date of the requested Revolving Loan, pay to the
Agent at its Los Angeles Branch, Los Angeles, California (or at such
other place as the Agent may from time to time specify for such
purpose), in immediately available funds, the lesser of (A) such
Lender's Percentage Interest of the aggregate principal amount of the
Revolving Loan requested in the Notice of Borrowing or (C) the maximum
amount such Lender is committed to advance pursuant to the terms of
Section 2.1.1.
(ii) Upon (A) fulfillment to the Agent's satisfaction of the
applicable conditions precedent set forth in Article III, and (B) in
the case of a Revolving Loan, after receipt by the Agent of
immediately available funds from the Lenders pursuant to the preceding
subparagraph (i), the Agent shall promptly make funds available to the
Borrower in the amount of the requested Revolving Loan or Swing Line
Borrowing, as the case may be, by wire transfer in accordance with
such written instructions as may be delivered by the Borrower.
2.3 Reductions of Commitments.
2.3.1 Voluntary Reductions. Upon not less than five (5) Business Days'
written notice to the Agent, the Borrower may terminate the Total Commitment, or
reduce it in part, provided that: (a) each partial reduction of the Total
Commitment pursuant to this Section 2.3.1 (each such partial reduction, a
"Voluntary Reduction") shall be in an amount equal to at least Five Million
Dollars ($5,000,000); (b) in no event may the Total Commitment be reduced to an
amount less than the greater of (i) the then-outstanding aggregate principal
balance of the Loans (after giving effect to any prepayment of the Loans made at
the time of any Voluntary Reduction), or (ii) Thirty Million Dollars
($30,000,000).
2.3.2 Mandatory Reductions. (a) To the extent that, by the date that
is six (6) months after the Borrower's receipt of any Net Available Cash in
respect of an Asset Disposition, the Borrower has not reinvested such Net
Available Cash in Additional Similar Assets (determined on a first-in, first-out
basis), or (b) to the extent that such Net Available Cash, when aggregated with
all prior Permitted Acquisitions effected with Net Available Cash during the
fiscal year in which such Net Available Cash is received, exceeds $50,000,000,
on the date such excess Net Available Cash is received (the amount of such
unreinvested Net Available Cash, or of such excess Net Available Cash, as the
case may be, the "Excess Disposition Proceeds"): the Total Commitment shall be
reduced by an amount equal to such Excess Disposition Proceeds.
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2.3.3 Effect of Reduction.
(a) Each Voluntary Reduction or Mandatory Reduction shall
proportionately reduce each Lender's Commitment such that, after such
reduction takes effect, each Lender's Commitment will be an amount equal to
its Percentage Interest (calculated immediately before such Voluntary
Reduction or Mandatory Reduction) of the Total Commitment, as reduced.
(b) No Voluntary Reduction or unscheduled Mandatory Reduction
shall affect the amount of any subsequent scheduled Mandatory Reduction in
the amount of the Total Commitment pursuant to the definition of "Total
Commitment", and, effective as of any Voluntary Reduction or unscheduled
Mandatory Reduction, the amount of the Total Commitment set forth in the
definition of "Total Commitment" for any time after such Voluntary
Reduction or unscheduled Mandatory Reduction (if applicable, as previously
reduced in respect of any prior Voluntary Reduction or unscheduled
Mandatory Reduction) shall be deemed to have been amended so as to reduce
such amount by the amount of such Voluntary Reduction or unscheduled
Mandatory Reduction.
2.4 Repayment of Principal.
2.4.1 Maturity Date. Subject to Section 2.4.2, the Borrower shall
repay to the Agent, for the account of the Lenders, the principal amount of each
Loan on or before the Maturity Date.
2.4.2 Mandatory Payments and Prepayments.
(a) If at any time the outstanding principal amount of the Loans
exceeds (i) the Total Commitment, less (ii) the aggregate of all amounts
then reserved against availability pursuant to the definition of "Asset
Disposition" or Section 6.1, by reason of a scheduled reduction in the
Total Commitment or otherwise, the Borrower shall pay to the Agent on such
date, for the account of the Lenders and for application to the repayment
of the Loans, the amount of such excess.
(b) Concurrently with each Mandatory Reduction of the Total
Commitment pursuant to Section 2.3.2, the Borrower shall prepay the
principal of the Loans in an amount equal to the lesser of (a) the amount
of such Excess Disposition Proceeds, or (b) the outstanding principal
amount of the Loans, irrespective of whether the outstanding principal
balance of the Loans would exceed the Total Commitment, as reduced pursuant
to Section 2.3.2 as a result of such Mandatory Reduction.
(c) (i) If, at the time of any payment or prepayment of
principal, there are outstanding any Swing Line Borrowings, such
payment or prepayment of principal shall be applied first
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to the payment or prepayment, as applicable, of outstanding Swing Line
Borrowings, and then in accordance with the following subparagraph
(ii).
(ii) Subject to the preceding subparagraph (i): unless otherwise
specified by the Borrower in writing at the time of any payment or
prepayment of principal, each payment or prepayment of principal shall
be applied first to the payment or prepayment, as applicable, of
outstanding Base Rate Loans, and second to the payment or prepayment,
as applicable of outstanding IBOR Rate Loans, in the order in which
their respective Applicable Interest Periods terminate (and, in the
case of IBOR Loans having Applicable Interest Periods ending on the
same date, pro rata in accordance with their outstanding principal
amounts or, if no Event of Default has occurred and is continuing and
the Borrower so directs at the time of such payment, in such manner as
the Borrower may direct to minimize the Borrower's liability under
Section 2.8).
Any such payment or prepayment of the principal of the Loans shall be
accompanied by the payment of such fees, expenses or other amounts as may then
be due and payable under the Loan Documents and of accrued but unpaid interest
on the principal so paid or prepaid.
2.5 Agent's Right to Fund. Unless the Agent shall have received notice from
a Lender prior to 12:00 noon (Los Angeles, California time) on the Funding Date
of any Revolving Loan that such Lender will not make available to the Agent such
Lender's Percentage Interest of the requested Revolving Loan ("such Lender's
Loan"), (a) the Agent may assume that such Lender has made such funds available
to the Agent on such Funding Date in accordance with Section 2.2 and (b) the
Agent may, in reliance upon such assumption, make available to the Borrower on
such Funding Date the amount of such Lender's Loan. If and to the extent that
(x) such Lender shall not have so made the amount of such Lender's Loan
available to the Agent and (y) the Agent shall have advanced the amount of such
Lender's Loan to the Borrower, such Lender and the Borrower severally agree to
pay to the Agent, on demand, the amount of such Lender's Loan, together with
interest thereon for each day from the date such amount is made available to the
Borrower until the date such amount is repaid to the Agent, at (p) in the case
of the Borrower, the Applicable Interest Rate, or (q) in the case of such
Lender, the Federal Funds Rate. Any such repayment by the Borrower shall be
without prejudice to any rights it may have against the Lender that has failed
to make available such Lender's Loan on any Funding Date.
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2.6 Interest on Loans.
2.6.1 General Provisions.
(a) The Borrower agrees to pay to Agent, for the account of each
Lender, interest on the unpaid principal amount of each Loan from the date
of such Loan until such Loan becomes due and payable at a per annum rate
equal to the Applicable Interest Rate, and, if default shall occur in the
payment when due of all or any portion of the principal of such Loan, from
the date such principal becomes due until it is paid in full at a per annum
rate equal to two percentage points (2.00%) above the Base Rate (changing
as the Base Rate changes) (the "Default Rate").
(b) Accrued but unpaid interest on each IBOR Loan shall be paid
on the last day of the Applicable Interest Period, on the date of any
payment of the principal of such IBOR Loan (to the extent accrued on the
principal amount paid), at the Maturity Date and, additionally, in the case
of an IBOR Loan having an Applicable Interest Period of six months, on the
day that is three months after the commencement of such Applicable Interest
Period.
(c) Accrued but unpaid interest on each Base Rate Loan shall be
paid on the last Business Day of each calendar quarter (the first such
payment due September 30, 1997), on the date of any payment of the
principal of the Base Rate Loans (to the extent accrued on the principal
amount paid) and at the Maturity Date.
(d) Unpaid interest accruing on amounts in default shall be
payable on demand.
2.6.2 Selection of Alternative Rate.
(a) (i) Each Swing Line Borrowing shall be a Base Rate Loan. The
Borrower may, subject to the requirements of this Section 2.6.2, on at
least three (3) Business Days' prior written notice, elect to have interest
accrue on any Revolving Loan or any portion thereof at an IBOR Rate for an
Applicable Interest Period. Such notice (an "Interest Rate Notice") shall
be deemed delivered on receipt by Agent, except that an Interest Rate
Notice received by the Agent after 10:00 a.m. (Los Angeles, California
time) on any Business Day shall be deemed to have been received on the
immediately succeeding Business Day. The Interest Rate Notice may be given
with, and contained in, any Notice of Borrowing with respect to a Revolving
Loan.
(ii) Each Interest Rate Notice shall identify, subject to the
conditions of this Section 2.6.2, the Revolving Loan or portions thereof
and the Applicable Interest Period which the Borrower selects. Any Interest
Rate Notice that specifies an IBOR Rate but fails to identify an Applicable
Interest Period shall be
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deemed to be a request for the designated IBOR Rate for an Applicable
Interest Period of one (1) month. The Borrower's right to select an IBOR
Rate to apply to a Revolving Loan or any portion thereof shall be subject
to the following conditions: (A) the aggregate amount of all Revolving
Loans or portions thereof to accrue interest at a particular IBOR Rate for
the same Applicable Interest Period shall Two Million Dollars ($2,000,000)
or an integral multiple of One Million Dollars ($1,000,000) in excess
thereof; (B) the Borrower shall not have selected more than twelve (12)
different IBOR Rates or Applicable Interest Periods to be applicable to
portions of the Revolving Loans at any one time; (C) an IBOR Rate may not
be selected for any Swing Line Borrowing; (D) an IBOR Rate may not be
selected for any Revolving Loan or portion thereof that is already accruing
interest at an IBOR Rate unless such selection is only to become effective
at the maturity of the Applicable Interest Period then in effect; (E)
neither the Agent nor any Lender shall have given notice pursuant to
Section 2.6.4 that the IBOR Rate selected by Borrower is not available; and
(F) no Default or Event of Default shall have occurred and be continuing.
(b) On receipt of any Interest Rate Notice, the Agent shall
promptly notify each Lender by telephone (confirmed promptly by telex or
facsimile transmission) of the information set forth in the Interest Rate
Notice. Each Interest Rate Notice shall be irrevocable, and shall
constitute a representation and warranty by the Borrower that, as of the
date of such Interest Rate Notice, no Event of Default or Default has
occurred and is continuing. If the Borrower delivers an Interest Rate
Notice with any Notice of Borrowing for a Loan and the Borrower thereafter
declines to take such Loan, or a condition precedent to the making of such
Loan is not satisfied or waived, Borrower shall indemnify the Agent, and
each Lender, for all losses and any costs which the Agent or any Lender may
sustain as a consequence thereof, including, without limitation, the costs
of redeployment of funds at rates lower than the cost to the Lenders of
such funds. A certificate of the Agent or any Lender setting forth the
amount due to it pursuant to this subparagraph (b) and the basis for, and
the calculation of, such amount shall, absent manifest error, be conclusive
evidence of the amount due pursuant to this subparagraph (b). Payment of
the amount owed shall be due within fifteen (15) days after the Borrower's
receipt of such certificate.
(c) Each IBOR Loan shall be allocated among the Lenders in
proportion to their respective Percentage Interests. In the absence of an
effective request for the application of an IBOR Rate (including, without
limitation, as of the last day of the Applicable Interest Period of any
IBOR Loan), the Loans shall accrue interest at the Adjusted Base Rate.
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2.6.3 Applicable Days for Computation of Interest. Computations of
interest accruing at an IBOR Rate shall be made on the basis of a year of three
hundred sixty (360) days, for the actual number of days (including the first day
but excluding the last day) occurring in the period for which such interest is
payable. Computations of interest accruing at the Adjusted Base Rate or at
Default Rate shall be made on the basis of a year of three hundred sixty-five or
three hundred sixty-six (365 or 366) days, as the case may be, in each case, for
the actual number of days (including the first day but excluding the last day)
occurring in the period for which such interest is payable.
2.6.4 Unavailable IBOR Rate. If the Agent determines that for any
reason fair and adequate means do not exist for establishing the IBOR Rate, or
if any Lender determines (and gives notice to the Agent) that accruing interest
on any Loan at an IBOR Rate by such Lender has become unlawful, or that the IBOR
Rate (exclusive of the Margin) does not accurately reflect the cost to such
Lender of making or maintaining IBOR Loans, the Agent shall give notice of that
fact to each Lender and to the Borrower, and such determination shall be
conclusive and binding absent manifest error. After such notice has been given
and until the Agent notifies the Borrower, or such Lender notifies the Borrower
and the Agent, that the circumstances giving rise to such notice no longer
exist, the IBOR Rate shall no longer be available in respect of Loans, and any
request by the Borrower to have interest accrue on a Loan at the IBOR Rate shall
be deemed to be a request for interest to accrue at the Adjusted Base Rate;
provided, however, that if it is unlawful for the affected Lender to maintain
any then outstanding IBOR Loans as IBOR Loans until the end of the relevant
Applicable Interest Period, such IBOR Loans shall automatically convert into
Base Rate Loans with effect from the date of such Lender's notice to the Agent,
and, if the interest rate applicable to Base Rate Loans is then lower than the
relevant IBOR Rate(s), the Borrower shall pay to each Lender, within thirty (30)
days following demand accompanied by a certificate of such Lender describing the
basis therefor and the calculation thereof, such amount or amounts as may be
necessary to compensate such Lender for any loss in connection therewith. If the
circumstances giving rise to the notice described herein cease to exist, the
Agent or the relevant Lender, as the case may be, shall, promptly upon becoming
aware of that fact, notify the Borrower and (if applicable) the Agent in writing
of that fact, and the Borrower shall then once again become entitled to request
that the IBOR Rate apply to Loans in accordance with Section 2.6.2.
2.7 Compensation for Increased Costs.
2.7.1 Borrower's Obligation to Compensate. In the event that after the
date hereof any change occurs in any applicable law, regulation, guideline,
treaty or directive or interpretation thereof by any authority charged with the
administration or interpretation thereof, or any condition is imposed by any
such authority after the date hereof or any change occurs in any condition
imposed by any such authority on or prior to the date hereof which:
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(a) subjects any Lender to any Tax, or changes the basis of
taxation of any payments to any Lender on account of principal of or
interest on any IBOR Loan, such Lender's Note (to the extent such Note
evidences IBOR Loans) or other amounts payable with respect to IBOR Loans
(other than a change in the rate of tax based solely on the overall net or
gross income of such Lender); or
(b) imposes, modifies or determines applicable any reserve,
deposit or similar requirements against any assets held by, deposits with
or for the account of, or loans or commitments by, any office of any Lender
in connection with its IBOR Loans (but only to the extent that any such
amount is in excess of, or was not applicable at the time of computation
of, the amounts provided for in the definition of the IBOR Rate); or
(c) imposes upon any Lender any other condition with respect to
its IBOR Loans or its obligation to make IBOR Loans; which, as a result
thereof, (i) increases the cost to any Lender of making or maintaining its
IBOR Loans or its Commitment hereunder, or (ii) reduces the net amount of
any payment received by any Lender in respect of its IBOR Loans (whether of
principal, interest, commitment fees or otherwise), or (iii) requires any
Lender to make any payment on or calculated by reference to the gross
amount of any sum received by it in respect of its IBOR Loans; or
(d) affects the amount of capital required or expected to be
maintained by banks generally or corporations controlling banks, and any
Lender reasonably determines that the capital such Lender or any
corporation controlling such Lender is required or expected to maintain, or
the amount by which such Lender or any corporation controlling such Lender
is required or expected to increase its capital, is increased by (or based
upon), the existence of this Agreement or of such Lender's Loans (whether
or not IBOR Loans) or Commitment hereunder;
by an amount which the affected Lender in its sole but reasonable judgment deems
material, then and in any such case the Borrower shall pay to the Agent, for the
account of such Lender, on demand, such amount or amounts as will compensate
such Lender (on an after-tax basis) for any increased cost, deduction or payment
actually incurred or made by such Lender in respect of such circumstances. The
demand for payment by any Lender shall be delivered to both the Agent and the
Borrower and shall state the subjection or change which occurred, or the reserve
or deposit requirements or other conditions which have been imposed upon such
Lender, or the request, direction or requirement with which it has complied,
together with the date thereof, the amount of such cost, reduction or payment
and the manner in which such amount has been calculated. The statement of any
Lender as to the additional amounts payable pursuant to this Section 2.7 shall,
absent manifest error, be conclusive evidence of the amounts payable hereunder.
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2.7.2 Effect of Invalidity or Inapplicability. The protection of this
Section 2.7 shall be available to each Lender regardless of any possible
contention of invalidity or inapplicability of the relevant law, regulation,
guideline, treaty, directive, condition or interpretation thereof. In the event
that the Borrower pays to any Lender all or any portion of the amount necessary
to compensate such Lender for any charge, deduction or payment incurred or made
by such Lender as provided in this Section 2.7, and such charge, deduction or
payment, or any part thereof, is subsequently returned to such Lender as a
result of the final determination of the invalidity or inapplicability of the
relevant law, regulation, guideline, treaty, directive or condition, then such
Lender shall remit to the Borrower the amount paid by the Borrower which has
actually been returned to such Lender (together with any interest actually paid
to Lender on such returned amount), less such Lender's costs and expenses
incurred in connection with such governmental regulation or any challenge made
by such Lender with respect to its validity or applicability.
2.7.3 Failure or Delay. No failure of any Lender to demand
compensation for any increased cost or reduction in amounts received or
receivable or for any reduction in return on capital shall constitute a waiver
of such Lender's right to demand such compensation; provided, however, that no
Lender shall be entitled under this Section 2.7 to any such compensation
attributable to any period preceding the date that is ninety (90) days prior to
the date of such Lender's demand.
2.8 Prepayments. Base Rate Loans may be repaid at any time without penalty
or premium. If any IBOR Loan (or portion thereof) is paid prior to the end of
the relevant Applicable Interest Period, a fee computed in the manner set out in
Schedule 1 shall be assessed and paid at the time of such prepayment. Such fee
shall apply in all circumstances where such a Loan (or portion thereof) is paid
prior to the end of the Applicable Interest Period, regardless of whether such
payment is voluntary, mandatory, or the result of acceleration or of the Agent's
or Lenders' collection efforts.
2.9 Notes. The Loans made by each Lender shall be evidenced by a promissory
note of the Borrower, substantially in the form of Exhibit A hereto, with
appropriate insertions, dated as of the date hereof and payable to the order of
such Lenders, in the face amount of such Lender's Commitment (the "Notes"). Each
Lender is hereby authorized to record the date and the amount of each Loan it
makes, and the date and amount of each payment of principal and interest
thereon, on a schedule annexed to its Note or maintained in connection
therewith. Any such recordation by any Lender shall constitute prima facie
evidence of the accuracy of the information so recorded; provided, however, that
neither the failure to make any such recordation, nor any error in any such
recordation, shall affect the Obligations.
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2.10 Manner of Payments.
2.10.1 Time, Place and Manner. All payments and prepayments of
principal and interest on any Loan, and all other amounts payable hereunder or
under any other Loan Document by the Borrower to the Agent or any Lender, shall
be made by paying the same in United States Dollars and in immediately available
funds to the Agent at its Los Angeles Branch, Los Angeles, California (or at
such other place as the Agent may from time to time specify for such purpose)
not later than 10:00 o'clock a.m. (Los Angeles, California time) on the date on
which such payment or prepayment is due.
2.10.2 Statements. Approximately ten (10) days prior to each date on
which any regularly scheduled installment of interest is due in respect of the
Loans, the Agent shall give written notice (which may be by telegram, facsimile
transmission, cable or telex) of the amounts that will be due on such date. The
calculation of the amounts due will be made on the assumption that no new
extensions of credit or payments will be made between the date of such notice
and the date on which such installment of interest is due, and that there will
be no changes in the relevant interest rate(s). Notwithstanding the foregoing to
the contrary, amounts due on any date on which interest is payable hereunder
shall be calculated in accordance with this Agreement, and the failure of the
Agent to give notice as provided in this Section 2.10.2 shall not affect the
Obligations.
2.10.3 Payments on Days Other than Business Days. Whenever any payment
hereunder or under any other Loan Document shall be stated to be due, and
whenever the last day of any Applicable Interest Period would otherwise occur,
on a day other than a Business Day, such payment shall be made, or the last day
of such Applicable Interest Period shall occur, as the case may be, on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation and payment of interest or facility or commitment
fees, as the case may be, unless such extension would cause such payment to be
made, or the last day of such Applicable Interest Period to occur, in the next
following calendar month, in which case such payment shall be due, or the last
day of such Applicable Interest Period shall occur, as the case may be, on the
next preceding Business Day.
2.10.4 Application of Payments. Any payment made by the Borrower
hereunder shall be applied first, against fees, expenses and indemnities then
due and payable hereunder; second, against accrued and unpaid interest; and
thereafter, against the principal of the Loans, in accordance with Section
2.4.2.
2.11 Fees.
2.11.1 Unused Commitment Fee. The Borrower agrees to pay to the Agent,
for the account of the Lenders in proportion to their Percentage Interests, an
unused commitment fee, computed daily at the
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rate of 0.50% per annum for the period commencing on the Closing Date and ending
on the Maturity Date, on the difference between (a) the Total Commitment and (b)
the aggregate outstanding principal amount of all Loans (including Swing Line
Borrowings), payable in arrears on the last Business Day of each calendar
quarter, on the Maturity Date, and on demand after the occurrence of any Default
or Event of Default but prior to termination of the Commitments. Computations of
the unused commitment fee shall be made on the basis of a year of three hundred
sixty (360) days for the actual number of days (including the first day but
excluding the last day) occurring in the period for which such fee is payable.
2.11.2 Loan Fees. On or before the Closing Date, the Borrower agrees
to pay to the Agent, in accordance with that certain letter agreement dated as
of July 18, 1997, among the Borrower, Societe Generale, DLJ Capital Funding,
Inc. and Goldman Sachs Credit Partners, L.P., the aggregate fees provided for
therein, to be distributed among the Agent, the Documentation Agent, the
Administrative Agent and the Lenders in accordance with such arrangements as the
relevant parties may agree to.
2.11.3 Agency Fees. The Borrower shall pay to the Agent, for its own
account, on the Closing Date and on each anniversary of the Closing Date during
the term of the Loans, an agency fee in an amount equal to the product of (a)
$2,500 and (b) the number of Lenders party to the Loan Agreement as of the
Closing Date or such anniversary, as the case may be.
2.11.4 Nonrefundable. Each of the fees provided for under this Section
2.11 shall be fully earned as of the day it is due hereunder, and shall be
nonrefundable.
2.12 Sharing of Payments, Etc. Each borrowing of Loans from the Lenders
under Section 2.1 shall be made pro rata in accordance with each Lender's
Percentage Interest. Each payment and prepayment of the Loans, and each payment
of interest on the Loans, shall be made pro rata to each Lender in accordance
with its Percentage Interest. If any Lender shall obtain any payment in respect
of the Borrower's Obligations, under this Agreement or the Notes, or any other
Loan Document (whether voluntary or involuntary, through the exercise of any
right of set-off or otherwise), in excess of the share which it would have been
entitled to receive had such payment been made to the Agent, such Lender shall
forthwith notify the Agent and shall purchase from the other Lenders such
participations in the Loans made by them as shall be necessary to cause such
purchasing Lender to share the excess payment ratably with each of them;
provided that if all or any portion of such excess payment is afterward
recovered from such purchasing Lender, the purchase shall be rescinded and the
purchase price restored, without interest, to the extent of such recovery. The
Borrower authorizes the purchase of such participations and agrees that any
Lender so purchasing a participation from another Lender may exercise all of its
rights to payment (including
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the right of set off) with respect to such participation as fully as if such
Lender were the direct creditor of the Borrower (in addition to in respect of
its own Loans) in respect of such participation.
2.13 Withholding Taxes. If the Borrower shall be required by law to deduct
or withhold any Taxes or other amounts from or in respect of any sum payable
hereunder or under any other Loan Document to any Lender or the Agent, then:
2.13.1 the sum otherwise payable hereunder or under such other Loan
Document shall be increased as necessary so that, after making all required
deductions and withholdings (including deductions and withholdings applicable to
additional sums payable under this Section 2.13), such Lender or the Agent, as
the case may be, receives and retains an amount equal to the sum it would have
received and retained had no such deductions or withholdings been made;
2.13.2 the Borrower shall make such deductions and withholdings;
2.13.3 the Borrower shall pay the full amount deducted or withheld to
the relevant taxing authority or other authority in accordance with applicable
law; and
2.13.4 the Borrower shall also pay to each affected Lender, or to the
Agent for the account of such Lender, at the time each payment of interest
hereunder is made, such further amounts as such Lender specifies are necessary
to preserve the after-tax yield the Lender would have received had such taxes or
other withholding amounts not been imposed.
2.14 Guaranties.
2.14.1 Guaranties. The Obligations shall be jointly and severally
guaranteed by each of the Material Subsidiaries, as evidenced by and subject to
the terms of the Guaranties.
2.14.2 Certain Acknowledgments by Borrower. The Borrower recognizes
and acknowledges the credit facility made available hereunder is being
established and will be maintained in the manner provided herein and in the
other Loan Documents at the express request of the Borrower, to accommodate the
administrative and operational requirements of the Borrower and such Persons as
may, at any time during the continuance hereof, become Subsidiaries.
Specifically, the credit facility might have been established to provide for
direct borrowings by Borrower and by each Subsidiary, subject to individual
borrowing limits consistent with the Lenders' prudent lending practices, based
on each such Person's borrowing capacity, with additional credit needs of such
Person in excess of such borrowing limit being accommodated by loans made to
such Person by the Borrower or other Subsidiaries having excess borrowing
capacity. For administrative and operational reasons imposed
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by the Borrower as aforesaid, however, the credit facility provided hereby is
being established and will be maintained as described above, but with the
intention (but without limiting in any manner the obligations of Borrower to
repay any and all Loans in accordance with the terms hereof and of the Notes)
that the Borrower and the Material Subsidiaries ultimately share, among
themselves, repayment obligations under the Loan Documents to the same extent as
if such borrowings had been made under the alternative, individualized
arrangement described above. In addition, it is further recognized and
acknowledged that Borrower, and each Subsidiary, will directly and indirectly
benefit from the expansion of Borrower's and its Subsidiaries' collective
business activities, as facilitated by the Loans.
2.15 Designated Senior Indebtedness. The Borrower acknowledges and agrees
that the Obligations are intended to, and shall, constitute "Designated Senior
Indebtedness" for all purposes of the High Yield Notes and the Indenture.
ARTICLE III
CONDITIONS OF LENDING
3.1 Conditions to Availability. The obligation of each Lender to deliver
its Loan proceeds to the Agent, and the obligation of the Agent to disburse such
proceeds to the Borrower, on the date of the initial Loan hereunder are subject,
in addition to the satisfaction of the conditions precedent to all Loans set
forth in Section 3.2 and the special condition set forth in Section 3.3, to the
satisfaction of the following conditions precedent on or before the earlier of
(a) September 30, 1997, or (b) the date of the initial Loan (the date as of
which the conditions precedent set forth in this Section 3.1 are satisfied, the
"Availability Date"):
3.1.1 Execution and Delivery of Loan Documents. The Agent shall have
received each of the following, in each case duly executed and delivered by the
Borower:
(a) this Agreement;
(b) the Borrower Security Agreement; and
(c) the Notes; and
the Agent and each Lender shall have received, in form and substance
satisfactory to it, the Borrower Disclosure Letter.
3.1.2 Corporate Authority. The Agent shall have received, in form and
substance satisfactory to it:
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(a) a certified copy of resolutions adopted by the Board of
Directors of the Borrower authorizing the execution, delivery and
performance of the Loan Documents; and
(b) evidence of the authority and specimen signatures of the
individuals who have signed the Loan Documents on behalf of the Borrower,
together with such other evidence of corporate existence, authority or good
standing in any jurisdiction as the Agent or any Lender may reasonably
require.
3.1.3 Legal Opinion. The Agent shall have received a written legal
opinion of counsel for the Borrower (selected by the Borrower and reasonably
acceptable to the Agent), in form and substance reasonably satisfactory to the
Agent, addressed to the Agent and the Lenders and addressing such matters as the
Agent or any Lender may reasonably require.
3.1.4 Perfected Security Interests. The Agent shall have received
evidence, reasonably satisfactory to it, that the security interests created by
the Security Agreement have been duly perfected by the filing of all Financing
Statements, and the taking of all such other or additional acts, as the Agent
may reasonably deem necessary or advisable to create a valid and perfected Lien
in the Collateral enforceable in all jurisdictions to secure the Obligations.
The Agent shall have also received such evidence as it may reasonably require
(a) that its Liens in the Collateral have priority over any and all other Liens
therein except for (i) purchase money Liens covering only assets purchased by
the Borrower in the ordinary course of business and permitted to exist pursuant
to Section 6.4, (ii) Liens of lessors under Capital Leases permitted to exist
pursuant to Section 6.4, (iii) other Liens, in existence as of the date hereof,
permitted to exist pursuant to Section 6.4, and (iv) the Liens in favor of the
Existing Agent to be released as a condition to the making of the initial Loans,
and (b) that the Collateral is free and clear of all Liens, except as permitted
by this Agreement.
3.1.5 Termination of Commitments and Liens under Existing Credit
Agreement. The Borrower and the Existing Agent shall have executed and delivered
an agreement providing for (i) the termination of the commitments of the
Existing Lenders under the Existing Credit Agreement, and (ii) the release of
the Liens securing the obligations of the Borrower under the Existing Credit
Agreement and related documents, in each case, effective on or before the
Availability Date, and the Borrower shall have delivered a copy thereof to
Agent.
3.1.6 High Yield Offering. Borrower shall have consummated the
issuance of High Yield Notes in an aggregate principal amount of at least
$200,000,000, on substantially the terms and conditions set forth in the High
Yield Offering Memorandum.
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3.1.7 Payment of Fees. The Borrower shall have paid all accrued and
unpaid fees, costs and expenses due hereunder and under that certain letter
agreement referred to in Section 2.11.2.
3.1.8 Other Information. The Agent, and each Lender, shall have
received such other statements, opinions, certificates, documents and
information with respect to the matters contemplated by this Agreement as it may
reasonably request.
If the Availability Date has not occurred by September 30, 1997, then the
Lenders' Commitments hereunder shall terminate.
3.2 Conditions Precedent to all Loans. The obligation of each Lender to
deliver its Loan proceeds to the Agent, and the obligation of the Agent to
disburse such proceeds to the Borrower on the date of any Loan hereunder, are
subject to the satisfaction, as reasonably determined by the Agent, of the
following conditions precedent:
3.2.1 Notice of Borrowing. The Borrower shall have timely delivered to
the Agent a Notice of Borrowing with respect to the requested Loan.
3.2.2 Absence of Defaults, Accuracy of Representations. At the date of
each Loan:
(a) no Default or Event of Default shall have occurred and be
continuing or will occur as a result of the making of the Loan; and
(b) each of the representations and warranties of the Borrower or
any Material Subsidiary set forth in any Loan Document shall be true and
correct in all material respects on the date of such Loan (except to the
extent such representations or warranties are conditioned by reference to a
specific date, in which case they shall be true and correct in all material
respects as of such date), with the same effect as though such
representations and warranties had been made on and as of such date.
The Borrower's delivery of any Notice of Borrowing shall be deemed the
Borrower's representation and warranty that, as of the date of such Notice of
Borrowing and as of the date of the requested Loan, each of the foregoing
conditions will be satisfied.
3.3 Special Condition Precedent to Initial Loans. The obligation of each
Lender to deliver its Loan proceeds to the Agent, and the obligation of the
Agent to disburse such proceeds to the Borrower on the date of the initial Loans
hereunder, are subject, in addition to the satisfaction of each of the
conditions precedent set forth in Section 3.1 and Section 3.2, to the condition
that, on or before the earlier of (a) the Funding Date of the initial Loans
hereunder, or (b) the date that is seven (7) Business Days (or such greater
period of time as the
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Agent may agree to in its reasonable discretion) after the Availability Date,
the Agent shall have received (i) termination statements or releases, as the
case may be, duly executed by the Existing Agent, with respect to each of the
financing statements or other security interest perfection documents theretofore
filed or recorded of record with respect to the Existing Facility, and (ii) the
stock certificates or other instruments listed on Schedule 2 to the Borrower
Security Agreement, together with the stock powers or other documents of
assignment required pursuant to Section 3 of the Security Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Agent and the Lenders as follows, which
representations and warranties shall survive the execution of this Agreement:
except as set forth in the Borrower Disclosure Letter (which indicates which
sections of this Agreement are qualified by the disclosures set forth therein,
provided that inadvertent failure to indicate all sections of this Agreement
that a particular disclosure is intended to qualify shall not constitute a
breach hereunder):
4.1 Corporate Existence and Power. The Borrower is a corporation duly
incorporated, validly existing and active under the laws of the state of Oregon.
The Borrower is duly qualified to do business in each other jurisdiction where
the nature of its activities or the ownership of its properties requires such
qualification, except where the failure to so qualify has not had and is not
reasonably likely to have a Material Adverse Effect on the Borrower. The
Borrower has full corporate power, authority and legal right to carry on its
business as presently conducted, to own and operate its properties and assets,
and to execute, deliver and perform the Loan Documents.
4.2 Corporate Authorization. The execution, delivery and performance by the
Borrower of this Agreement and the other Loan Documents, and any borrowing
hereunder or thereunder, have been duly authorized by all necessary corporate
action of the Borrower, do not require any shareholder approval or the approval
or consent of any trustee or the holders of any Indebtedness of the Borrower,
except such as have been obtained (certified copies thereof having been
delivered to the Agent), do not contravene any law, regulation, rule or order
binding on it or its Articles of Incorporation or Bylaws and do not contravene
the provisions of or constitute a default under any indenture, mortgage,
contract or other agreement or instrument to which the Borrower is a party or by
which the Borrower or any of its properties may be bound or affected.
4.3 Government Approvals, Etc. No Government Approval or filing or
registration with any Governmental Authority is required for the
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execution, delivery and performance by the Borrower of the Loan Documents or in
connection with any of the transactions contemplated thereby, except such as
have been heretofore obtained and are in full force and effect (certified copies
thereof having been delivered to the Agent).
4.4 Binding Obligations, Etc. This Agreement has been duly executed and
delivered by the Borrower and constitutes, and the other Loan Documents when
duly executed and delivered will constitute, the legal, valid and binding
obligations of the Borrower enforceable against the Borrower in accordance with
their respective terms.
4.5 Litigation. Except as reflected in the financial statements referred to
in Section 4.6, there are no actions, proceedings, investigations, or claims
against or affecting the Borrower or any Subsidiary now pending before any
arbitrator or court or other Governmental Authority (nor, to the knowledge of
the Borrower has any thereof been threatened) which, if determined adversely to
the Borrower or such Subsidiary, would be reasonably likely to have a Material
Adverse Effect on the Borrower or any Material Subsidiary.
4.6 Financial Condition. The consolidated balance sheets of the Borrower as
at March 31, 1997, and the related consolidated statements of operations,
changes in shareholders' equity and cash flows for the period then ended, copies
of which have been furnished to the Agent and each Lender, fairly present the
financial condition of the Borrower as at such date, all determined in
accordance with GAAP. The Borrower did not have on such date any contingent
liabilities for Taxes, unusual forward or long-term commitments or unrealized or
anticipated losses from any unfavorable commitments, except as referred to or
reflected or provided for in the balance sheets or the related notes. Since the
date of such financial statements there has been no material adverse change in
the financial condition, operations, or business of the Borrower.
4.7 Indebtedness; Title and Liens.
4.7.1 Neither the Borrower nor any Subsidiary is liable in respect of
any Indebtedness other than in respect of (i) the High Yield Notes; (ii) to the
extent that they constitute Indebtedness, obligations described in clauses (i)
through (iv) of the definition of "Lien"; (iii) accounts payable and other
liabilities that, in each case, do not constitute Funded Debt and have been
incurred in the ordinary course of business; (iv) the Obligations; and (v) with
respect to any Funding Date occurring after the Closing Date, other Indebtedness
permitted under Section 6.2. The Obligations are prior in right of payment to
any and all obligations of the Borrower in respect of the High Yield Notes, as
and to the extent provided in the Indenture.
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4.7.2 The Borrower, and (to the extent applicable) each Subsidiary,
has good and marketable title to each of the properties and assets reflected in
the balance sheets referred to in Section 4.6 (except for such assets as (i)
have been since sold or otherwise disposed of in the ordinary course of business
or (ii) that, in the aggregate, are insignificant to the proper conduct of the
Borrower's business). No assets or revenues of the Borrower or any Subsidiary
are subject to any Lien except as permitted by this Agreement. Except to the
extent that failure to be so in compliance has not had, and cannot reasonably be
expected to have, a Material Adverse Effect on the Borrower or any Material
Subsidiary: (x) all properties of the Borrower and each Subsidiary, and such
Person's use thereof, comply in all material respects with applicable zoning and
use restrictions and with applicable laws and regulations relating to health,
safety and the environment; and (y) without limiting the generality of the
foregoing clause (x), the Borrower, and each Subsidiary, is in compliance in all
material respects with all laws and regulations relating to pollution, hazardous
substances and environmental control in all jurisdictions in which the Borrower
or such Subsidiary, as the case may be, is doing business. The Borrower, in the
ordinary course of business, conducts a review of the effect of existing laws
and regulations pertaining to the environment and existing claims advanced under
or in respect of environmental laws and regulations on its business, operations
and properties and those of its Material Subsidiaries, and, as a result thereof,
the Borrower has reasonably concluded that such environmental laws and claims
have not had, and cannot reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Borrower or any Material Subsidiary.
4.8 Taxes. The Borrower, and each Subsidiary, (a) has filed all United
States federal and Oregon state income tax returns and reports required of it;
(b) except to the extent that the failure to do so has not had, and is not
reasonably likely to have, a Material Adverse Effect on the Borrower or any
Material Subsidiary, (i) has filed all other tax returns and reports required of
it and (ii) has paid all Taxes which are due and payable, and (b) has provided
adequate reserves for payment of any Tax the payment of which is being
contested. The charges, accruals and reserves on the books of the Borrower or
any Subsidiary in respect of Taxes for all fiscal periods to date are accurate
in all material respects. There are no material questions or disputes between
the Borrower or any Subsidiary and any Governmental Authority with respect to
any Taxes except as disclosed in the balance sheet referred to in Section 4.6.
4.9 Laws, Orders; Other Agreements. Except to the extent that such
occurrence has not had, and is not reasonably likely to have, a Material Adverse
Effect on the Borrower or any Material Subsidiary, neither the Borrower nor any
Subsidiary (a) is in violation of, or subject to any contingent liability on
account of, any laws, statutes, rules, regulations and orders of any
Governmental Authority, or (b) is
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in material breach of or default under any agreement to which it is a party or
which is binding on it or any of its assets.
4.10 Lien Priority. On the date of any Loan: (a) Financing Statements will
have been duly filed in all places where filing is necessary, and all other or
additional acts will have been taken as are necessary, to perfect the Agent's
Liens on the Collateral; (b) each of the Security Agreements will constitute a
valid and perfected Lien on the Collateral to which it relates, enforceable in
all jurisdictions, to secure (i) in the case of the Borrower Security Agreement,
all Obligations or (ii) in the case of a Subsidiary Security Agreement, the
obligations under the Loan Documents of the Material Subsidiary party thereto;
(c) the Agent's Liens on the Collateral have priority over any and all other
security interests or other Liens therein except (i) for purchase money Liens,
to the extent permitted under Section 6.4(c), on assets purchased by the
Borrower or the relevant Material Subsidiary in the ordinary course of business,
(ii) the Liens of lessors under Capital Leases, to the extent permitted under
Section 6.4(d), and (iii) other Liens, in existence as of the date hereof,
permitted to exist under Section 6.4; and (d) the Collateral is free and clear
of all Liens except for Liens permitted hereunder.
4.11 Federal Reserve Regulations. The Borrower is not engaged principally
or as one of its important activities in the business of extending credit for
the purpose of purchasing or carrying any margin stock (within the meaning of
Federal Reserve Regulation U), and no part of the proceeds of any Loan will be
used to puchase or carry any such margin stock or to extend credit to others for
the purpose of purchasing or carrying any such margin stock, or for any other
purpose that violates the applicable provisions of any Federal Reserve
Regulation. The Borrower will furnish to the Agent or any Lender, on request, a
statement conforming with the requirements of Regulation U.
4.12 ERISA.
4.12.1 The present value of all benefits vested under all Pension
Plans did not, as of the most recent valuation date of such Pension Plans,
exceed the value of the assets of the Pension Plans allocable to such vested
benefits by an amount that would (a) represent a potential material liability of
the Borrower or (b) affect materially the ability of the Borrower to perform its
Obligations.
4.12.2 No Plan or any trust created thereunder, or any trustee or
administrator thereof, has engaged in a "prohibited transaction" (as such term
is defined in Section 406 of ERISA or Section 4975 of the Code) that could
subject such Plan or any other Plan, any trust created thereunder, or any
trustee or administrator thereof, or any party dealing with any Plan or any such
trust, to the tax or penalty on prohibited transactions imposed by Section 502
of ERISA or Section 4975 of the Code.
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4.12.3 No Pension Plan, or any trust created thereunder, has been
terminated, except in accordance with the Code, ERISA, and the regulations of
the Internal Revenue Service and the PBGC as applicable to solvent plans in
which benefits of participants are fully protected. No "reportable event", as
defined in Section 4043 of ERISA, has occurred for which notice has not been
waived or for which alternative notice procedures are permitted.
4.12.4 No Pension Plan, or any trust created thereunder, has incurred
any "accumulated funding deficiency" (as such term is defined in Section 302 of
ERISA), whether or not waived, since the effective date of ERISA.
4.12.5 The required allocations and contributions to Pension Plans
will not violate Section 415 of the Code.
4.12.6 The Borrower has no withdrawal liability to any trust created
pursuant to a multi-employer pension or benefit plan, nor would it be subject to
any such withdrawal liability in excess of One Million Dollars ($1,000,000) if
it withdrew from any such plan or if its participation therein were otherwise
terminated.
4.13 Patents, Licenses, Franchises. The Borrower owns or possesses all the
patents, trademarks, service marks, trade names, copyrights, licenses,
franchises, permits and rights with respect to the foregoing necessary to own
and operate its properties and to carry on its business, as presently conducted
and presently planned to be conducted, without conflict with the rights of
others, except to the extent that the failure to do so has not had, and is not
reasonably likely to have, a Material Adverse Effect on the Borrower.
4.14 Not Investment Company, Etc. The Borrower is not now, and after the
application by the Borrower of the proceeds of any Loan will not be, subject to
regulation under the Investment Company Act of 1940, the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, any
state public utilities code or any other federal or state statute or regulation
limiting its ability to incur Indebtedness.
4.15 Insurance. The properties of the Borrower, and of each Subsidiary, are
insured with financially sound and reputable insurance companies that are not
Affiliates of the Borrower, in such amounts, with such deductibles and covering
such risks as are customarily carried by companies engaged in similar businesses
and owning similar properties in localities where the Borrower or such
Subsidiary operates.
4.16 Certain Representations Regarding Subsidiaries and Material
Subsidiaries. As of the date of this Agreement, the Borrower has only three
Subsidiaries, each of which is wholly-owned by the Borrower and none of which is
a Material Subsidiary: (i) Hollywood Video Superstores, Inc., an Oregon
corporation, (ii) Title Wave, Inc., a
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Delaware corporation, and (iii) Hollywood Video, Inc., a Wisconsin corporation.
All of the Borrower's (and each Material Subsidiary's, if any) shares of each of
its Subsidiaries have been validly issued and are fully paid and nonassessable.
As of the date on which any Material Subsidiary comes into existence (and
thereafter, on each date as of which the Borrower's representations and
warranties are made, or deemed made, pursuant hereto):
4.16.1 Each Material Subsidiary is an entity duly incorporated or
formed, validly existing and in good standing under the laws of the state of its
organization. Each Material Subsidiary is duly qualified to do business in each
other jurisdiction where the nature of its activities or the ownership of its
properties requires such qualification, except where the failure to so qualify
has not had, and is not reasonably likely to have, a Material Adverse Effect on
such Material Subsidiary. Each Material Subsidiary has full corporate or
organizational power, authority and legal right, as the case may be, to carry on
its business as presently conducted, to own and operate its properties and
assets, and to execute, deliver and perform the Loan Documents to which it is,
or is to become, a party.
4.16.2 The execution, delivery and performance by each Material
Subsidiary of the Loan Documents to which it is a party have been duly
authorized by all necessary corporate action of such Material Subsidiary, do not
require any shareholder, partner or member approval, as the case may be, or the
approval or consent of any trustee or the holders of any Indebtedness of the
Borrower, except such as have been obtained (certified copies thereof having
been delivered to the Agent), do not contravene any law, regulation, rule or
order binding on it or its Articles of Incorporation or Bylaws or other charter
documents, and do not contravene the provisions of or constitute a default under
any indenture, mortgage, contract or other agreement or instrument to which the
Borrower is a party or by which such Material Subsidiary or any of its
properties may be bound or affected.
4.16.3 No Government Approval or filing or registration with any
Governmental Authority is required for the execution, delivery and performance
by any Material Subsidiary of the Loan Documents to which it is a party or in
connection with any of the transactions contemplated thereby, except such as
have been heretofore obtained and are in full force and effect (certified copies
thereof having been delivered to the Agent).
4.16.4 Each of the Loan Documents to which any Material Subsidiary is
a party has been duly executed and delivered by such Material Subsidiary and
constitutes the legal, valid and binding obligation of such Material Subsidiary
enforceable against such Material Subsidiary in accordance with its terms.
4.16.5 Such Material Subsidiary owns or possesses all the patents,
trademarks, service marks, trade names, copyrights, licenses,
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franchises, permits and rights with respect to the foregoing necessary to own
and operate its properties and to carry on its business, as presently conducted
and presently planned to be conducted, without conflict with the rights of
others, except to the extent that the failure to do so has not had, and is not
reasonably likely to have, a Material Adverse Effect on such Material
Subsidiary.
4.17 Representations as a Whole. This Agreement, the other Loan Documents,
the financial statements referred to in Section 4.6, and all other instruments,
documents, certificates and statements furnished to the Agent or any Lender by
the Borrower, taken as a whole, do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements contained herein or therein not misleading. The Borrower has
disclosed to the Lenders in writing any and all facts, known to the Borrower's
general counsel or to any of the officers of the Borrower listed in the
definition of "Officer's Certificate", which could reasonably be expected to
have a material adverse effect on the business, operations or financial
condition of the Borrower or the ability of the Borrower to perform its
Obligations.
ARTICLE V
AFFIRMATIVE COVENANTS
So long as any Lender shall have any Commitment hereunder, and until
payment in full of each Loan and the Notes and performance of all other
Obligations, the Borrower agrees that, unless the Agent (with the consent of the
Majority Lenders) shall otherwise give its prior written consent:
5.1 Use of Proceeds. The Borrower shall use the proceeds of the Loans for
general corporate purposes, including, without limitation, the refinancing of
Indebtedness in existence as of the date hereof, new Store expansion and
acquisitions.
5.2 Payment. The Borrower will pay the principal of and interest on the
Loans in accordance with the terms of this Agreement and the Notes, and shall
pay when due all other amounts payable by the Borrower hereunder or under any
other Loan Document.
5.3 Preservation of Corporate Existence, Etc. The Borrower (a) shall
preserve and maintain, and (except to the extent otherwise expressly permitted
hereunder) shall cause each Subsidiary to preserve and maintain, its corporate
(or other entity, as the case may be) existence, rights, franchises and
privileges in the jurisdiction of its formation, and (b) except where the
failure to do so could not reasonably be expected to have a Material Adverse
Effect on the Borrower or any Material Subsidiary, (i) shall qualify and remain
qualified (and shall cause each Subsidiary to qualify and remain qualified) as a
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foreign corporation (or other entity, as the case may be) in each jurisdiction
where such qualification is necessary or desirable in view of its business and
operations or the ownership of its properties; and (ii) shall own or possess
(and shall cause each Subsidiary to own or possess) all the patents, trademarks,
service marks, trade names, copyrights, licenses, franchises, permits and rights
with respect to the foregoing necessary to own and operate its properties and to
carry on its business, as at any time conducted, without conflict with the
rights of others.
5.4 Visitation Rights. At any reasonable time, and from time to time upon
reasonable notice, the Borrower shall permit, and shall cause each of its
Subsidiaries to permit, the Agent or any Lender, or the representatives of the
Agent or any Lender, to examine and make copies of and abstracts from its
records and books of account, to visit its properties and to discuss the
affairs, finances and accounts of the Borrower or such Subsidiary with any of
its officers, directors or employees, and (provided that the Borrower shall make
the arrangements therefor) with the Borrower's independent public accountants.
5.5 Keeping of Books and Records. The Borrower shall keep, and shall cause
each of its Subsidiaries to keep, adequate records and books of account in which
complete entries will be made, in accordance with GAAP, reflecting all of its
financial transactions.
5.6 Maintenance of Property, Etc. The Borrower shall maintain and preserve,
and shall cause each Subsidiary to maintain and preserve, all of its properties
(except with respect to properties that, in the aggregate, are insignificant to
the proper conduct of the Borrower's business) in good working order and
condition, ordinary wear and tear excepted, and will from time to time make (and
cause each Subsidiary to make) all needed repairs, renewals, or replacements so
that the efficiency of such properties shall be fully maintained and preserved.
5.7 Compliance With Laws, Etc. Except to the extent that failure to do so
would not result in a Material Adverse Effect on the Borrower or any Material
Subsidiary: (i) the Borrower shall comply, and shall cause each of its
Subsidiaries to comply, in all material respects with all laws, regulations,
rules, and orders of Governmental Authorities, except any thereof whose validity
is being contested in good faith by appropriate proceedings upon stay of
execution of the enforcement thereof and with provision having been made to the
satisfaction of the Agent for the payment of any fines, charges, penalties or
other costs in respect thereof in the event the contest is determined adversely
to the Borrower or the affected Subsidiary; and (ii) without limiting the
generality of the foregoing clause (i), the Borrower shall conduct its
operations, and keep and maintain its property, in compliance with all
environmental laws, regulations, rules and orders (and shall cause each of its
Subsidiaries to do so) except, in each case, to the extent that noncompliance
would not result in a Material Adverse Effect on the Borrower or any Material
Subsidiary.
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5.8 Other Obligations. The Borrower shall pay and discharge, and shall
cause each Subsidiary to pay and discharge, all Indebtedness, Taxes, and other
obligations for which the Borrower or such Subsidiary is liable or to which the
Borrower's or such Subsidiary's income or property is subject and all claims for
labor and materials or supplies which, if unpaid, might become by law a Lien
upon assets of the Borrower or any Subsidiary, except (a) any thereof the
validity or amount of which is being contested in good faith (and, if necessary,
by appropriate proceedings upon stay of execution of the enforcement thereof)
and with provision having been made to the satisfaction of the Agent for the
payment thereof in the event the contest is determined adversely to the
Borrower; and (b) any trade payables, arising from the purchase of inventory,
that are paid in accordance with industry practice and prior to the time any
collection proceeding therefor is commenced by any vendor.
5.9 Insurance.
5.9.1 The Borrower shall keep in force, and shall cause each of its
Subsidiaries to keep in force, upon all of their respective properties and
operations policies of insurance carried with financially sound and reputable
companies in such amounts and covering all such risks as from time to time may
be customary in the industry and in the locations in which the Borrower or the
relevant Subsidiary is engaged in business and as shall be reasonably
satisfactory to the Agent, which insurance shall in any event include:
(a) insurance against loss or damage to any of the Collateral by
fire or any of the risks covered by insurance known as "all risk coverage",
in an amount not less than the full replacement cost thereof, each such
policy to contain a replacement cost endorsement reasonably satisfactory to
the Agent;
(b) business interruption or loss of income insurance;
(c) commercial general liability insurance against claims for
personal injury, including, but not limited to, bodily injury, death or
property damage occurring on, in or about the premises of the Borrower and
its Subsidiaries, including any real property and adjoining ways; and
(d) products liability and contractual liability insurance
coverage or endorsements.
From time to time, on request, the Borrower will furnish to the Agent
certificates of insurance or duplicate policies evidencing such coverages. If
the Borrower shall fail to maintain or cause to be maintained any of the
foregoing insurance as and when required hereby, or if any such insurance shall
be materially reduced, canceled, surrendered or not renewed (and not replaced so
as to avoid any lapse in the required coverages), the Agent may (but is not
required to do so),
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in its own name only, for the benefit of itself and the Lenders or for the
benefit of the Borrower, or both, obtain all or a portion of such insurance from
any carrier selected by the Agent in its sole discretion, and the Borrower shall
reimburse the Agent, within fifteen (15) days after the Agent's demand, for any
premiums or other costs associated with obtaining such insurance. Sums paid by
the Agent hereunder shall bear interest at the Default Rate.
5.9.2 All insurance required by this Section 5.9 shall be provided by
policies written on terms, in amounts, and by companies, reasonably satisfactory
to the Agent; provided that (a) the Borrower and its Subsidiaries may maintain a
system of self-insurance in an aggregate amount, and with respect to such risks,
as are both (i) customary for prudently managed corporations engaged in the same
or similar businesses as the Borrower and its Subsidiaries, owning or operating
similar properties as the Borrower and its Subsidiaries, and having a credit
standing similar to that of the Borrower and its Subsidiaries, and (ii)
reasonably acceptable to the Agent; (b) the Agent, and each Lender, shall be
named as additional insured on all liability policies, as its interests may
appear; and (c) (i) losses under all policies insuring the Collateral, other
than policies insuring property subject to a Lien in favor of another creditor,
shall be payable to the Agent, as its interests may appear, and (ii) payments by
any insurer in respect of business interruption or loss of income coverage at
any time that an Event of Default has occurred and is continuing shall be
payable to the Agent, in each case, pursuant to a loss payee endorsement
reasonably satisfactory to the Agent.
5.9.3 At least twenty (20) days prior to the expiration of each such
policy, the Borrower shall furnish the Agent with evidence, reasonably
satisfactory to the Agent of the continuation or replacement of such policy,
maintaining in force such coverages as are required by this Agreement. All such
policies shall contain provisions to the effect that (a) except in the case of
liability insurance, they shall provide coverage to the Agent and the Lenders
notwithstanding any breach by the Borrower or any Subsidiary of the Borrower (or
by any predecessor of the Borrower or of any Subsidiary of the Borrower) of any
representation or warranty, (b) there shall be no recourse to the Agent or to
any Lender for payment of premiums or other amounts with respect thereto, (c)
they shall not be subject to co-insurance, (d) they may not be canceled (except
for non-payment of premiums or fraud), or amended to reduce any limitation of
liability, to increase the amount of any deductible or co-insurance, or to add
any exclusions to the coverage provided thereunder, without at least thirty (30)
days' prior written notice to the Agent, and (e) they may not be canceled for
non-payment of premiums or for fraud without at least ten (10) days' prior
written notice to the Agent. Upon the Agent's (or any Lender's) reasonable
request, the Borrower shall cause copies of all bills, statements or other
documents relating to the foregoing insurance to be sent or mailed directly to
the Agent, and shall in any event give notice to each
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insurer providing any such insurance policy of the Agent's security
interest therein.
5.10 Financial Information. The Borrower will deliver to the Agent and the
Lenders:
5.10.1 Annual Audited Financial Statements. As soon as available and
in any event within ninety (90) days after the end of each fiscal year of the
Borrower, the Borrower's Report on Form 10-K (including, without limitation, the
balance sheet of the Borrower as of the end of such fiscal year and the related
statement of operations, statement of changes in shareholders' equity and
statement of cash flows for such year, accompanied by the audit report thereof
by independent certified public accountants of nationally recognized standing
selected by the Borrower and approved by the Agent (which approval shall not be
unreasonably withheld or delayed, and the Agent's consent to Price Waterhouse
L.L.P. being hereby given) which report shall be prepared in accordance with
GAAP and shall not be qualified by reason of restricted or limited examination
of any material portion of the Borrower's records and shall contain no
disclaimer of opinion), together with (a) any related annual report to the
Borrower's shareholders, and (b) if, as of the last day of the fiscal year being
reported on, the Borrower had any Material Subsidiaries, related consolidating
financial statements of the Borrower and its Subsidiaries for such fiscal year,
prepared in accordance with GAAP (but which need not be audited).
5.10.2 Quarterly Reports.
(a) As soon as available and in any event within sixty (60) days
after the end of each of the first three fiscal quarters of the Borrower,
(i) the Borrower's Report on Form 10-Q (including, without limitation, a
balance sheet and statement of operations, statement of changes in
shareholders' equity and statement of cash flows of the Borrower (in each
case, unaudited) as of the end of such fiscal quarter (including the fiscal
year to the end of such fiscal quarter)); (ii) if, as of the last day of
such fiscal quarter, the Borrower had any Material Subsidiaries, related
consolidating financial statements of the Borrower and its Subsidiaries for
such fiscal quarter, prepared in accordance with GAAP; and (iii) an
Officer's Certificate to the effect that the unaudited balance sheet and
related statements included therein have been prepared in accordance with
GAAP, except for the absence of footnote disclosure, and present fairly the
financial position and results of operations of the Borrower as of the end
of and for such fiscal quarter (subject to normal year-end audit
adjustments) and whether, since the then most recent fiscal year-end report
delivered pursuant to Section 5.10.1, there has been any material adverse
change in the financial condition or operations of the Borrower as shown on
the balance sheet as of said date and, if any such material adverse change
has occurred, the nature thereof.
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(b) As soon as available and in any event within sixty (60) days
after the end of each of the Borrower's fiscal quarters, the unaudited
statement of financial performance for the Borrower's stores for such
fiscal quarter, prepared in a manner consistent with those heretofore
delivered to the Existing Lenders under the Existing Credit Agreement and
accompanied by an Officer's Certificate, all in form reasonably acceptable
to the Agent.
5.10.3 Quarterly Compliance Certificates. As soon as available and in
any event within sixty (60) days after the close of each of the first three
fiscal quarters of the Borrower and within one hundred twenty (120) days after
the close of each of the Borrower's fiscal years, a compliance certificate of
Borrower, in form reasonably acceptable to the Agent, (a) certifying that, as of
the close of such fiscal quarter no Default or Event of Default had occurred and
was continuing, and, (b) setting forth calculations demonstrating compliance as
of the end of such fiscal quarter with the financial covenants set forth in
Sections 5.14 through 5.17 and Sections 6.2(d), (e) and (f) and (g), 6.4(c) and
(e), 6.6.2, 6.6.4, 6.6.5, 6.7 and 6.11, and (ii) separately showing the
calculation, and certifying as to the accuracy, of the Associated Cash Charges.
5.10.4 Monthly Store Sales Comparisons. As soon as available and in
any event within thirty (30) days after the end of each calendar month, same
store sales comparisons of the Borrower for such month, accompanied by an
Officer's Certificate, all in form reasonably acceptable to the Agent.
5.10.5 Annual Budget: Financial Projections. As soon as available and
in any event within one hundred twenty (120) days after the end of each of the
Borrower's fiscal years (after the fiscal year ending in 1997), the Borrower's
annual operating budget and financial projections (presented in a quarterly
format) for the period beginning on the first day of the then-current fiscal
year and ending December 31, 2003, substantially in the form previously
delivered to the Lenders in connection with this Agreement and otherwise in form
reasonably acceptable to the Agent.
5.10.6 Shareholder, SEC and Government Reports. As soon as available,
all reports sent by the Borrower to its shareholders and all quarterly and
annual reports filed by the Borrower with the Securities and Exchange Commission
and each other Governmental Authority having jurisdiction over the Borrower.
5.10.7 Subordinated Debt. Concurrently with the delivery thereof to
any holder (or trustee for the holders of) any Subordinated Debt, copies of all
notices or other communications delivered by the Borrower or any Subsidiary with
respect to such Subordinated Debt.
5.10.8 Other Information. All other statements, reports and other
information as the Agent or any Lender may reasonably request concerning the
financial condition and business affairs of the Borrower.
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5.11 Notification. Promptly after learning thereof, the Borrower shall
notify the Agent and Lenders of (a) the details of any action, proceeding,
investigation or claim against or affecting the Borrower or any Subsidiary,
instituted before any arbitrator or court or other Governmental Authority or, to
the Borrower's knowledge threatened to be instituted, which, if determined
adversely would be likely to have a Material Adverse Effect on the Borrower or
any Material Subsidiary; (b) any substantial dispute between the Borrower or any
Subsidiary and any Governmental Authority; (c) any labor controversy which has
resulted in or, to the Borrower's knowledge, threatens to result in a strike
which would materially affect the business operations of the Borrower or any
Material Subsidiary; (d) if the Borrower or any member of the Controlled Group
gives or is required to give notice to the PBGC of any "reportable event" (as
defined in subsections (b)(l), (2), (5) or (6) of ss. 4043 of ERISA) with
respect to any Plan (or the Internal Revenue Service gives notice to the PBGC of
any "reportable event", as defined in subsection (c)(2) of ss. 4043 of ERISA,
and the Borrower obtains knowledge thereof) which might constitute grounds for a
termination of such Plan under Title IV of ERISA, or knows that the plan
administrator of any Plan has given or is required to give notice of any such
reportable event, the notice of such reportable event given or required to be
given to the PBGC; and (e) the occurrence of any Default or Event of Default.
5.12 Indemnity of Material Subsidiaries. The Borrower shall indemnify and
hold harmless each Material Subsidiary from and against any liability (in the
form of indebtedness repaid to the Lenders in respect of the Obligations,
including (if applicable) by way of foreclosure under any Subsidiary Security
Agreement at any time hereafter executed by such Material Subsidiary for the
benefit of the Lenders) in excess of the benefit realized by such Material
Subsidiary from the proceeds of Loans. As between and among Borrower and the
Material Subsidiaries, Borrower and the other Material Subsidiaries shall be
responsible to reimburse each Material Subsidiary in respect of amounts paid by
such Material Subsidiary under its Guaranty, to the end that Borrower, and each
Material Subsidiary, ultimately bears the burden of payment of its respective
share of the Obligations.
5.13 Delivery of Subsidiary Documents; Additional Payments; Additional
Acts.
5.13.1 Within ten (10) Business Days after (a) any Subsidiary (other
than a Material Subsidiary) becomes a Material Subsidiary, or (b) the Borrower
forms or acquires, by merger or otherwise, a Material Subsidiary: (i) the
Borrower shall give the Agent written notice thereof, and (ii) the Borrower
shall cause such Material Subsidiary to execute and deliver to Agent a Guaranty,
a Subsidiary Security Agreement and such Financing Statements (or amendments to
existing Financing Statements) as the Agent may request for purposes of
perfecting its Liens on the Collateral subject to such Subsidiary Security
Agreement.
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5.13.2 From time to time and upon demand by the Agent, the Borrower
shall (a) pay or reimburse the Agent and the Lenders for all Taxes imposed on
this Agreement and any other Loan Document; (b) obtain and promptly furnish to
the Agent evidence of all such approvals of any Governmental Authority as may be
required to enable the Borrower to comply with its obligations under the Loan
Documents; and (c) execute and deliver (and cause each Material Subsidiary to
executed and deliver) all such other instruments, and perform all such other
acts, as the Agent or any Lender may reasonably request to carry out the
transactions contemplated by this Agreement and the other Loan Documents.
5.14 Net Worth. The Borrower shall maintain at all times a Net Worth equal
to or greater than the sum of:
(a) Two Hundred Seventy Million Dollars ($270,000,000), plus
(b) Seventy-five percent (75%) of the Borrower's cumulative Net Income
for those fiscal quarters of the Borrower ended after March 31, 1997, in
which the Borrower's Net Income was greater than zero, plus
(c) one hundred percent (100%) of the amount, if any, by which the
shareholders' equity of the Borrower increases after March 31, 1997 as a
result of the issuance of common stock or the conversion of debt securities
into common stock in connection with the acquisition of another Person (or
of some or all of the assets of another Person), plus
(d) ninety percent (90%) of the amount, if any, by which the
shareholders' equity of the Borrower increases after March 31, 1997, as a
result of all other issuances of common stock or conversions of debt
securities into common stock.
5.15 Leverage Ratio. The Borrower shall maintain for each period of four
consecutive fiscal quarters a Leverage Ratio that does not exceed 3.50.
5.16 Interest Coverage Ratio. The Borrower shall maintain for each period
of four consecutive fiscal quarters an Interest Coverage Ratio of at least 2.00.
5.17 Average Per Store Contribution to Profit. The Borrower shall maintain
for each period of four consecutive fiscal quarters of the Borrower, an Average
Per Store Contribution to Profit of Ninety Thousand Dollars ($90,000). As used
herein, "Average Per Store Contribution to Profit" means, for any period of four
fiscal quarters of the Borrower, (a) the sum of Borrower's (i) Operating Income,
(ii) General and Administrative Expense, and (iii) Amortization of Intangibles
for such period (in each case, determined in the same manner in which such
amount is determined for purposes of preparing the Borrower's financial
statements in accordance with GAAP and in a manner consistent with the
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financial statements referred to in Section 4.6, but limited to amounts properly
allocable to Stores); divided by the time-weighted average number of such Stores
of the Borrower open during such period of four consecutive fiscal quarters
(determined in accordance with the Borrower's current practices for determining
such time-weighted average, as delivered to the Lenders in connection with this
Agreement).
ARTICLE VI
NEGATIVE COVENANTS
So long as any Lender shall have any Commitment hereunder, and until
payment in full of each Loan and the Notes and performance of all other
Obligations, the Borrower agrees that, unless the Agent (with the consent of the
Majority Lenders) shall otherwise give its prior written consent:
6.1 Liquidation, Merger, Sale of Assets. The Borrower shall not (and shall
not permit any Subsidiary to):
(a) merge with or into any other Person, except (i) in a transaction
in which the Borrower is involved, in which the Borrower is the surviving
entity and if, immediately after giving effect to such transaction, the
surviving entity will have a Net Worth equal to at least the Net Worth of
the Borrower immediately prior to giving effect to such transaction, or
(ii) in a transaction in which a Material Subsidiary is involved, in which
such Material Subsidiary is the surviving entity (unless the transaction
involves the merger of a Material Subsidiary into the Borrower), and
provided that such transaction, if it involves any Person other than the
Borrower or a Subsidiary, constitutes a Permitted Acquisition;
(b) liquidate or dissolve (except that any Subsidiary may liquidate or
dissolve into the Borrower or, if it is a Subsidiary of a Material
Subsidiary, into such Matrial Subsidiary);
(c) enter into any consolidation, joint venture, partnership or other
combination with any other Person, except to the extent permitted under
Section 6.6.4; or
(d) contract to effect, or consummate, an Asset Disposition except
with the prior written consent of the Majority Lenders and provided that
(i) as and when Net Available Cash is received, except to the extent that
the Borrower has effected a reduction of the Total Commitment and repayment
of the outstanding Loans in the amount thereof, such Net Available Cash is
either (A) applied to repayment of the outstanding Loans (without a related
reduction in the Total Commitment) and the amount thereof reserved against
availability under the Facility, pending their reinvestment in
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Additional Similar Assets or application pursuant to Sections 2.3.2 and
2.4.2 or (B) to the extent that there is not sufficient availability under
the Facility to reserve the full amount thereof, deposited with the Agent,
to be held as Collateral, pursuant to documentation in form and substance
reasonably satisfactory to the Agent, pending such reinvestment or other
application; provided further, however, that to the extent that such Net
Available Cash, when aggregated with all prior acquisitions of Additional
Similar Assets effected with Net Available Cash during the then current
fiscal year, exceeds $50,000,000, any and all Excess Disposition Proceeds
are applied upon receipt in accordance with Sections 2.3.2 and 2.4.2.
Upon any sale or other transfer, to a Person other than the Borrower or a
Material Subsidiary, of the Borrower's, or any Material Subsidiary's, entire
interest in any assets effected in accordance with the provisions of the Loan
Documents, then the Agent shall (i) release its Lien on the assets subject to
such sale or transfer; and (ii) in the case of the Borrower's sale or transfer
of its entire interest in a Material Subsidiary, release (A) the Agent's pledge
of and Lien on the outstanding capital stock of such Material Subsidiary and its
Lien on the assets of such Material Subsidiary, and (B) the Guaranty of such
Material Subsidiary; provided, in any such case, that, if any Default or Event
of Default shall have occurred and be continuing, all proceeds of such sale or
transfer (net of expenses of the types described in clauses (a)(i), (a)(ii),
(b)(i), (b)(ii), or (b)(iii) of the definition of "Net Available Cash") shall be
paid over or otherwise delivered to the Agent, to be held as Collateral pending
their return to the control of the Borrower or application to the Obligations in
accordance with the provisions of this Agreement and the other Loan Documents.
In addition, if at any time a Material Subsidiary shall cease to be a Material
Subsidiary, then, upon the Agent's receipt of the Borrower's request therefor,
together with such evidence as the Agent may reasonably request establishing
that such Material Subsidiary is no longer a Material Subsidiary (and provided
that no Default or Event of Default shall have occurred and be continuing), the
Agent shall release (1) the Agent's Lien on the assets of such Material
Subsidiary and (2) the Guaranty of such Material Subsidiary.
6.2 Indebtedness. The Borrower shall not create, incur, become liable for
or suffer to exist (or permit any Subsidiary to create, incur or become liable
for or suffer to exist) any Indebtedness other than the following (determined on
a consolidated basis):
(a) the Loans (including any Guaranty of the Loans);
(b) Funded Debt, other than Capital Leases, in existence as of the
date hereof and identified in the Borrower Disclosure Letter;
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(c) Funded Debt incurred in the ordinary course of the Borrower's
business to finance the acquisition of Rental Items, secured solely by a
purchase money Lien on the Rental Items so acquired (to the extent such
Lien is permitted under Section 6.4(c));
(d) Funded Debt in the form of Capital Leases (including Capital
Leases in existence as of the date hereof and identified in the Borrower
Disclosure Letter) the aggregate principal amount of which (determined in
accordance with GAAP and measured in connection with each entry into a
Capital Lease after the date hereof, at the time such obligation is
incurred), does not exceed an amount equal to five percent (5%) of the
Borrower's Total Revenues for the period of four fiscal quarters then most
recently ended;
(e) Indebtedness under the High Yield Notes, subject to the limitation
that the aggregate original principal amount of the High Yield Notes,
whenever issued, shall not exceed $300,000,000;
(f) subordinated debt (in addition to the Indebtedness under the High
Yield Notes) (i) issued in an aggregate principal amount over the term of
the Loans that does not exceed the difference between (A) $300,000,000,
less (B) the aggregate original principal amount of all High Yield Notes,
whenever issued; and (ii) that (A) contains subordination provisions
acceptable to the Majority Lenders, (B) matures after the Maturity Date and
provides for no amortization of principal until after the Maturity Date,
and (C) is unsecured; provided that, no later than twenty (20) Business
Days prior to the incurrence thereof, the Borrower delivers to the Agent
the Pro Forma Calculations with respect to the incurrence of such
Indebtedness;
(g) additional Funded Debt not exceeding at any one time an amount
equal to five percent (5%) of the Borrower's Net Worth;
(h) obligations of such Person under any interest rate swap agreement,
interest rate cap agreement or other financial agreement or arrangement
designed solely to protect the Borrower or any Subsidiary against
fluctuations in interest rates; provided that no such agreement or other
arrangement increases the Indebtedness of the Borrower at any time except
as a result of fluctuations in interest rates or by reason of fees,
indemnities and compensation payable thereunder;
(i) guaranties permitted to exist under Section 6.3;
(j) to the extent that they constitute Indebtedness, obligations
described in clauses (i) through (iv) of the definition of "Lien";
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(k) accounts payable and other liabilities, in each case, that do not
constitute Funded Debt and that have been, or are, incurred in the ordinary
course of such Person's business; and
(l) Indebtedness of a Subsidiary to the Borrower or to another
Subsidiary in respect of an Investment permitted to be held by the Borrower
or such other Subsidiary, as the case may be, under Section 6.6.2.
6.3 Guaranties, Etc. The Borrower shall not (and shall not permit any
Subsidiary to) assume, guaranty, endorse or otherwise become or remain directly
or contingently liable for, or obligated to purchase, pay or provide funds for
the payment of or otherwise assure a creditor against loss in respect of, any
obligation or Indebtedness of any other Person, except that (a) the Borrower and
its Subsidiaries may endorse negotiable instruments for deposit or collection,
or incur similar liabilities in the ordinary course of business, and (b)
provided that the incurring of such obligation would otherwise constitute a
Permitted Investment under Section 6.6.2, (i) the Borrower may guaranty Funded
Debt of one or more Subsidiaries incurred in compliance with Section 6.2 or any
other obligation of one or more Subsidiaries incurred in a transaction not
constituting a Default or Event of Default; (ii) any Subsidiary may guaranty
Funded Debt of one or more of its own Subsidiaries incurred in compliance with
Section 6.2 or any other obligation of one or more of its own Subsidiaries
incurred in a transaction not constituting a Default or Event of Default; and
(c) any Subsidiary required, under the terms of the Indenture (as in effect on
August 13, 1997, or as amended with the prior written consent of the Majority
Lenders), to guaranty the Borrower's obligations with respect to the High Yield
Notes may so guaranty such obligations, provided that such Subsidiary's
obligations under such guaranty are contractually subordinated to the payment of
the Obligations, and to the payment of such Subsidiary's obligations under its
Guaranty (if any), to the same extent that the Borrower's obligations in respect
of the High Yield Notes are subordinated to the Obligations.
6.4 Liens. The Borrower shall not create, assume or suffer to exist (or
permit any Subsidiary to create, assume or suffer to exist) any Lien on any of
its assets, except for (determined, in each case, on a consolidated basis): (a)
existing Liens securing liabilities reflected in the balance sheets referred to
in Section 4.6 or disclosed in the Borrower Disclosure Letter; (b) Liens in
favor of the Agent under the Security Agreements or any other Loan Document; (c)
purchase money Liens covering videotapes or videogames purchased by the Borrower
in the ordinary course of business, provided that such purchase money Liens do
not secure at any time an amount in excess of five percent (5%) of the
Borrower's Total Revenues for the period of four fiscal quarters then most
recently ended; (d) Liens securing Indebtedness under Capital Leases incurred in
compliance with Section 6.2; (e) additional Liens (including, without
limitation, Liens existing on assets at the time they are, or the Person owning
them is, acquired by the Borrower or any
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Subsidiary) which do not at any one time, in the aggregate, secure Indebtedness
exceeding an amount equal to five percent (5%) of the Borrower's Net Worth; (f)
judgment Liens, to the extent that the existence thereof does not constitute an
Event of Default; and (g) Liens securing the extension, renewal or refinancing
of the Indebtedness secured by Liens previously existing in compliance with this
Section 6.4, provided that (i) each such Lien is limited to the property
theretofore encumbered by such Lien (and proceeds thereof) and (ii) the
principal amount of the Indebtedness so extended, renewed or refinanced is not
increased.
6.5 Location of Inventory. The Borrower shall not move, and shall not
permit any Material Subsidiary to move, the location of its inventory except (a)
in the ordinary course of its business and (b) to a location within the United
States.
6.6 Investments. The Borrower shall not make or permit to remain
outstanding (and shall not permit any Subsidiary to make or permit to remain
outstanding) any Investment, except that the Borrower and its Subsidiaries may:
6.6.1 Own, purchase or acquire (i) time deposits maturing within one
year at commercial banks organized or licensed to conduct a banking business
under the laws of the United States of America or any state thereof having
capital, surplus and undivided profits of not less than One Hundred Million
Dollars ($100,000,000); (ii) marketable general obligations of the United States
or a state thereof or marketable obligations fully guaranteed by the United
States; and (iii) short-term commercial paper with the highest rating of a
generally recognized rating service;
6.6.2 Make or maintain Investments in Subsidiaries (including
Subsidiaries acquired as Permitted Acquisitions), provided that (a) the
Borrower's Aggregate Investments in Subsidiaries that are not Material
Subsidiaries do not exceed five percent (5%) of the Borrower's Net Worth; and
(b) the Borrower's Aggregate Investments in all Subsidiaries do not exceed the
sum of (i) ten percent (10%) of the Borrower's Net Worth (excluding from such
calculation the effect of the Borrower's receipt of Net Cash Proceeds in respect
of issuances or sales of capital stock after the Closing Date), plus (ii)
twenty-five percent (25%) of the aggregate Net Cash Proceeds received by the
Borrower in respect of issuances or sales of capital stock after the Closing
Date;
6.6.3 Make or permit to remain outstanding an Investment that
constitutes a Permitted Acquisition;
6.6.4 Make or permit to remain outstanding a Passive Investment
provided that, upon consummation thereof, the Borrower's Aggregate Investments
in Passive Investments do not exceed the sum of (a) (i) five percent (5%) of the
Borrower's Net Worth, less (ii) the Borrower's Aggregate Investments in
Ancillary Businesses permitted under
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Section 6.11; plus (b) twenty percent (20%) of the aggregate Net Cash Proceeds
received by the Borrower in respect of issuances or sales of capital stock after
the Closing Date; and
6.6.5 Make or permit to remain outstanding loans to Affiliates,
officers, stockholders or employees of the Borrower or of any Subsidiary,
provided, however, that all loans made or permitted to remain outstanding
pursuant to this Section 6.6.5 shall not, in the aggregate, exceed at any one
time outstanding the sum of Five Million Dollars ($5,000,000).
6.7 Operating Lease Obligations. The Borrower shall not create or suffer to
exist (and shall not permit any Subsidiary to create or suffer to exist) any
obligations for the payment of rent for any property under any operating lease
or agreement to lease, (a) except for rent due in respect of Borrower's or any
Subsidiary's lease of its stores and (b) except for rent due under operating
leases (other than leases for stores) entered into in the ordinary course of
business where the aggregate undiscounted rental obligations (calculated on the
assumption that each such lease continues until its stated termination date and
without giving effect to any renewal option unless such option has been
exercised) for all such leases outstanding at any time does not exceed at such
time an amount equal to ten percent (10%) of the Borrower's Net Worth.
6.8 Limitations on Prepayment or Amendment of Subordinated Debt. The
Borrower shall not, and shall not permit any Subsidiary to: (a) make any
payments in respect of the principal of any Subordinated Debt, (b) make any
payment or transfer of assets in respect of the defeasance of any Subordinated
Debt, (c) repurchase, redeem or otherwise acquire any Subordinated Debt, (d)
make any payment in respect of Subordinated Debt more than one (1) Business Day
prior to the date on which it becomes due and payable, (e) at any time that a
Default or Event of Default has occurred and is continuing, make any payment of
interest or any other amount due in respect of Subordinated Debt, or (f) amend,
or consent to any amendment of, the documentation governing any Subordinated
Debt.
6.9 ERISA Compliance. Neither Borrower nor any member of the Controlled
Group nor any Plan of any of them shall (a) engage in any "prohibited
transaction" (as such term is defined in ss. 406 of ERISA or ss. 4975 of the
Code; (b) incur any "accumulated funding deficiency" (as such term is defined in
ss. 302 of ERISA) whether or not waived; (c) terminate any Pension Plan in a
manner which could result in the imposition of a Lien on any property of
Borrower or any member of the Controlled Group pursuant to ss. 4068 of ERISA; or
(d) violate state or federal securities laws applicable to any Plan.
6.10 Transactions with Affiliates. The Borrower shall not (and shall not
permit any Subsidiary to) enter into any transaction with any Affiliate of the
Borrower except (a) upon fair and reasonable terms no less favorable to the
Borrower or the affected Subsidiary than would obtain in a comparable
arm's-length transaction with a Person not an Affiliate of the Borrower; and (b)
(i) if any such transaction (or series of related such transactions) involves
aggregate payments in excess of $1,000,000 in any fiscal year, such
transaction(s) is(are) (A)
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set forth in writing and (B) approved by a majority of the disinterested members
of the Borrower's Board of Directors; and (c) if any such transaction (or series
of related transactions) involves aggregate payments in excess of $5,000,000 in
any fiscal year, such transaction(s) are additionally determined to be fair,
from a financial standpoint, to the Borrower or the relevant Subsidiary by a
nationally recognized consulting, accounting, appraisal or investment banking
firm.
6.11 Change in Business. The Borrower shall not (and shall not permit any
Subsidiary to) engage in any material line of business substantially different
from those lines of business carried on by the Borrower on the date hereof;
except that the Borrower may, either directly or through one or more
Subsidiaries, engage in one or more Ancillary Businesses, provided that the sum
of Borrower's Aggregate Investments in such Ancillary Businesses, plus
Borrower's Aggregate Investments in Passive Investments permitted under Section
6.6.4(a), does not at any time exceed five percent (5%) of the Borrower's Net
Worth.
6.12 Accounting Change. The Borrower, and each of its Subsidiaries, shall
maintain a fiscal year ending on December 31 and shall not make any significant
change in accounting policies or reporting practices other than changes required
by GAAP or otherwise required by law.
ARTICLE VII
EVENTS OF DEFAULT
7.1 Events of Default. The occurrence of any of the following events (for
whatever reason, and whether voluntarily or involuntarily, by operation of law
or otherwise) shall constitute an "Event of Default" hereunder:
7.1.1 Loan Payment Default. The Borrower shall fail to pay when due
any amount of principal on any Loan; or
7.1.2 Other Payment Default. (a) The Borrower shall fail to pay any
interest on any Loan and such failure shall remain unremedied for two (2)
Business Days, or (b) the Borrower, or any Material Subsidiary, shall fail to
pay any other amount payable by it hereunder or under any Loan Document and such
failure shall remain unremedied for five (5) days; or
7.1.3 Breach of Warranty. Any representation or warranty made or
deemed made by the Borrower or any Material Subsidiary under or in connection
with this Agreement or any other Loan Document, or set forth in any other
certificate or document delivered in connection herewith or therewith, shall
prove to have been incorrect in any material respect when made or deemed made;
or
7.1.4 Breach of Certain Covenants; Failure of Security. (a) The
Borrower shall fail to perform or observe any covenant set forth in Sections
5.11(e), 5.14 through 5.17 or 6.1 through 6.12 or in Section 5 or 8 of the
Borrower Security Agreement, or any Material Subsidiary
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shall fail to perform any covenant set forth in Section 5 or 8 of the Subsidiary
Security Agreement to which it is a party; or (b) (i) any Material Subsidiary
shall disavow, or purport to revoke, its obligations under its Guaranty or
Subsidiary Security Agreement; or (ii) this Agreement, any Security Agreement or
any Guaranty shall fail to be valid or enforceable in any material respect.
7.1.5 Breach of Other Covenants. The Borrower, or any Material
Subsidiary, shall fail to perform or observe any other covenant, obligation or
term of this Agreement or any other Loan Document and such failure shall remain
unremedied for thirty (30) days after written notice thereof shall have been
given to the Borrower by the Agent; or
7.1.6 Material Adverse Changes: Extraordinary Situation. There shall
occur (a) any occurrence having, or that could reasonably be expected to have, a
Material Adverse Effect on the Borrower or any Material Subsidiary, or (b) any
extraordinary situation, in either case, which gives the Lenders reasonable
grounds to believe that the Borrower may not, or will be unable to, perform or
observe in the normal course, in any material respect, its obligations under the
Loan Documents; or
7.1.7 Cross-Default.
(a) (i) The Borrower, or any Subsidiary, shall fail to pay when
due (whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise) any principal of any Indebtedness the outstanding
principal amount of which, at the time of such failure, exceeds Two Million
Dollars ($2,000,000) but does not exceed Ten Million Dollars ($10,000,000),
or any interest or premium thereon, and such failure shall continue after
the expiration of the applicable grace period, if any, specified in the
agreement or instrument relating to such Indebtedness; or (ii) the
Borrower, or any Subsidiary, shall fail to perform any term or covenant on
its part to be performed under any agreement or instrument relating to any
such Indebtedness and required to be performed, and such failure shall
continue after the expiration of the applicable grace period, if any,
specified in such agreement or instrument, if the effect of such failure to
perform is to accelerate or to legally and in accordance with the
applicable documents permit the acceleration of the maturity of such
Indebtedness; or
(b) (i) the Borrower, or any Subsidiary, shall fail to pay when
due any amount due in respect of any Indebtedness the outstanding principal
amount of which, at the time of such failure, exceeds Ten Million Dollars
($10,000,000), or (ii) any event shall occur that, with or without the
giving of notice or the lapse of time, or both, (A) causes, or would cause,
the acceleration of any Indebtedness of the Borrower or any Subsidiary
having at the time an outstanding principal amount in excess of Ten Million
Dollars ($10,000,000), or (B) entitles, or would entitle, the holders of
any such Indebtedness to accelerate, or to require the repurchase,
redemption, defeasance, repayment or retirement of, such Indebtedness
(including, without limitation, the occurrence of any "Change of Control",
as defined in the Indenture), and, in either
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case (but only if the agreement or instrument governing such Indebtedness
specifically provides a grace period with respect to such failure or
occurrence), such event continues beyond the earlier of (1) the date that
is five (5) Business Days after the occurrence thereof or (2) the
expiration of the applicable grace period specified in the agreement or
instrument governing such Indebtedness;
provided, however, in any such case, that mere allegations of a default by
the Borrower under any agreement or instrument governing any such
Indebtedness shall not, without more, be an Event of Default hereunder (it
being understood that the delivery by any affected Person, in writing, of a
notice of default, or of a notice asserting that a default exists,
constitutes more than a mere allegation); or
7.1.8 Voluntary Bankruptcy, Etc. The Borrower, or any Material
Subsidiary, shall: (a) file a petition seeking relief for itself under Title 11
of the United States Code, as now constituted or hereafter amended, or file an
answer consenting to, admitting the material allegations of or otherwise not
controverting, or fail timely to controvert a petition filed against it seeking
relief under Title 11 of the United States Code, as now constituted or hereafter
amended; or (b) file such petition or answer with respect to relief under the
provisions of any other now existing or future applicable bankruptcy,
insolvency, or other similar law of the United States of America or any state
thereof or of any other country or jurisdiction providing for the
reorganization, winding-up or liquidation of corporations or an arrangement,
composition, extension or adjustment with creditors; or
7.1.9 Involuntary Bankruptcy, Etc. (a) An order for relief shall be
entered against the Borrower or any Material Subsidiary under Title 11 of the
United States Code, as now constituted or hereafter amended, which order is not
stayed within sixty (60) days thereafter; or (b) there shall be entered an
order, judgment or decree by operation of law or by a court having jurisdiction
in the premises, which is not stayed within sixty (60 days after its entry, (i)
(A) adjudging the Borrower or any Material Subsidiary a bankrupt or insolvent
under, or (B) ordering relief against it under, or (C) approving as properly
filed a petition seeking relief against it under, the provisions of any other
bankruptcy, insolvency or other similar law of the United States of America or
any state thereof or of any other country or jurisdiction (whether now existing
or hereafter becoming applicable) providing for the reorganization, winding-up
or liquidation of corporations or any arrangement, composition, extension or
adjustment with creditors, or (ii) appointing a receiver, liquidator, assignee,
sequestrator, trustee or custodian of the Borrower or any Material Subsidiary or
of any substantial part of the property of Borrower or any Material Subsidiary,
or ordering the reorganization, winding-up or liquidation of its affairs; or (c)
a period of sixty (60) days shall expire after the filing of any involuntary
petition against the Borrower or any Material Subsidiary seeking any of the
relief specified in Section 7.1.8 or this Section 7.1.9 without the petition
being dismissed prior to that time; or
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7.1.10 Insolvency, Etc. The Borrower, or any Material Subsidiary,
shall (a) make a general assignment for the benefit of its creditors, or (b)
consent to the appointment of, or taking of possession by, a receiver,
liquidator, assignee, trustee, or custodian of all or a substantial part of the
property of the Borrower or any Material Subsidiary, or (c) admit its insolvency
or inability to pay its debts generally as they become due, or (d) fail
generally to pay its debts as they become due, or (e) take any action (or suffer
any action to be taken by its directors or shareholders) looking to the
dissolution or liquidation of the Borrower or such Material Subsidiary (other
than a voluntary liquidation, by the Borrower, of a Material Subsidiary); or
7.1.11 ERISA. The Borrower, or any member of the Controlled Group,
shall fail to pay when due an amount or amounts aggregating in excess of One
Million Dollars ($1,000,000) that it shall have become liable to pay to the PBGC
or to a Plan under Section 515 of ERISA or Title IV of ERISA; or notice of
intent to terminate a Plan or Plans (other than a multi-employer plan, as
defined in Section 4001(3) of ERISA), having aggregate Unfunded Vested
Liabilities in excess of One Million Dollars ($1,000,000) shall be filed under
Title IV of ERISA by the Borrower, any member of the Controlled Group, or any
plan administrator of any such Plan, or any combination of the foregoing; or the
PBGC shall institute proceedings under Title IV of ERISA to terminate any such
Plan or Plans; or
7.1.12 Judgments; Recorded Tax Liens. (a) One or more final judgments
or orders for the payment of money exceeding, in the aggregate, Two Million
Dollars ($2,000,000), or its equivalent in another currency, shall be rendered
against the Borrower or any Subsidiary and such judgment or order shall continue
unsatisfied and in effect for a period of thirty (30) consecutive days without
having being vacated, discharged or satisfied, or stayed or bonded pending
appeal; or (b) the filing or recording, by any Governmental Authority with
respect to any assets of the Borrower or any Material Subsidiary, of any one or
more notices of lien in respect of unsatisfied, undischarged or unreleased
claims for Taxes (other than ad valorem real or personal property taxes that are
not yet delinquent) aggregating in excess of Two Million Dollars ($2,000,000),
if such condition remains in effect for thirty (30) consecutive days.
7.1.13 Government Approvals, Etc. (a) Any approval of any Governmental
Authority or registration or filing with any Governmental Authority now or
hereafter required in connection with the performance by the Borrower or any
Material Subsidiary of its obligations under this Agreement or any other Loan
Document is revoked, withdrawn or withheld or shall fail to remain in full force
and effect; or (b) any Governmental Authority shall take any act that, in the
reasonable opinion of the Agent, deprives the Borrower or any Material
Subsidiary of any substantial right, privilege or franchise or substantially
restricts the exercise thereof, where the effect of such act, if not revoked or
rescinded, could reasonably be expected to have a Material Adverse Effect on the
Borrower or any Material Subsidiary and such act shall not be revoked or
rescinded within thirty (30) days after it shall have become effective; or
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7.1.14 Change of Control. Mark J. Wattles shall cease to be the record
and beneficial owner of at least six million (6,000,000) shares (adjusted to
take into account any stock splits or reverse stock splits occurring after the
Closing Date) of the common stock of the Borrower.
7.2 Consequences of Default.
7.2.1 If any of the Events of Default described in Section 7.1.8 or
Section 7.1.9 shall occur: (a) the Total Commitment and the Lenders' respective
Commitments shall immediately terminate, and the principal of and the interest
on the Loans and all other sums payable by Borrower hereunder, under the Notes
and under the other Loan Documents shall become immediately due and payable, all
without protest, presentment, notice or demand, all of which the Borrower
expressly waives.
7.2.2 If any other Event of Default shall occur and be continuing,
then in any such case and at any time thereafter so long as any such Event of
Default shall be continuing: (a) the Agent (i) shall, at the request of the
Majority Lenders, or (ii) may, with the consent of the Majority Lenders,
immediately terminate (by written notice to the Borrower) the Total Commitment
and the Lenders' respective Commitments, and (b) if Loans shall have been made,
the Agent (i) shall, at the request of the Majority Lenders, or (ii) may, with
the consent of the Majority Lenders, declare (by written notice to the Borrower)
the principal of and the interest on the Loans and the Notes and all other sums
payable by the Borrower hereunder or under the Notes or any other Loan Document
to be immediately due and payable, whereupon the same shall become immediately
due and payable, all without protest, presentment, notice, or demand, all of
which the Borrower expressly waives. In addition, regardless of whether the
Borrower's obligations to repay the Loans shall have been accelerated pursuant
to the preceding sentences, the Agent may, at its option, realize on any or all
of the Collateral by exercising any rights or remedies provided in the Security
Agreement or in any other Loan Document or otherwise available under applicable
law.
ARTICLE VIII
THE AGENT
8.1 Authorization and Action. Each Lender hereby (subject to Section 8.6)
irrevocably appoints and authorizes the Agent to take such action as agent on
its behalf and to exercise such powers under this Agreement and the other Loan
Documents as are delegated to the Agent by the terms hereof and thereof,
together with such powers as are reasonably incidental thereto. The Agent shall
have no duties or responsibilities except those expressly set forth in this
Agreement. The duties of the Agent shall be mechanical and administrative in
nature; the Agent shall not have by reason of this Agreement a fiduciary
relationship in respect of any Lender, and nothing in this Agreement or the
other Loan Documents, expressed or implied, is intended to or shall be so
construed as to impose upon the Agent any obligations in respect of this
Agreement or the other Loan Documents except as expressly set
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forth herein. As to any matters not expressly provided for by this Agreement,
including enforcement or collection of the Loans, the Agent shall not be
required to exercise any discretion or take any action, but shall be required to
act or to refrain from acting (and shall be fully protected in so acting or
refraining) upon the instructions of the Majority Lenders, and such instructions
shall be binding upon all Lenders and any holders of any Note; provided,
however, that:
(a) the Agent shall not be required to take any action which
exposes the Agent to personal liability or which is contrary to the Loan
Documents or applicable law;
(b) if the Agent so requests, the Agent shall first be
indemnified to its satisfaction by the Lenders against any and all
liability and expense that may be incurred by it by reason of taking or
continuing to take any action upon the instructions of the Majority
Lenders;
(c) without the consent of all Lenders, the Agent shall not:
(i) (except in connection with a sale or transfer of assets
permitted under the terms of the Loan Documents or as otherwise
expressly permitted hereunder or under any other Loan Document)
release any Collateral or Guaranty;
(ii) change the Total Commitment (other than changes made
pursuant to Section 2.3);
(iii) change any Lender's Commitment (other than changes
made pursuant to Section 2.3);
(iv) change the definition of "Majority Lenders";
(v) change the conditions precedent set forth in Article
III; or
(vi) change the time of payment or rates of interest, the
time of payment or amounts of fees, or the timing of payments or
amounts of principal, due in respect of Loans; and
(d) the terms of Section 2.5, Section 2.11.3 and this Article
VIII shall not be amended without the prior written consent of the Agent
(acting for its own account).
In the absence of instructions from the Majority Lenders, the Agent shall have
authority (but no obligation), in its sole discretion, to take or not to take
any action (unless this Agreement specifically requires the consent of the
Lenders or the consent of the Majority Lenders therefor), and any such action or
failure to act shall be binding on all the Lenders and on all holders of the
Notes; provided, however, that, upon any Lender's request that the Agent deliver
a notice to the Borrower pursuant to Section 7.1.5, the Agent shall, if it
concurs in such Lender's determination that the Borrower has failed to perform
or observe any covenant, obligation or term of any Loan Document
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described therein, promptly deliver such notice. Each Lender, and each holder of
any Note, shall execute and deliver such additional instruments, including
powers of attorney in favor of the Agent, as may be necessary or desirable to
enable the Agent to exercise its powers hereunder. With respect to matters
requiring the consent or approval of all Lenders at any given time, all then
existing Defaulting Lenders will be disregarded and excluded, and, for voting
purposes only, "all Lenders" shall be deemed to mean "all Lenders other than
Defaulting Lenders". Notwithstanding the foregoing, if a Defaulting Lender shall
dispute the Agent's determination of the defaulted status of such Lender, such
Lender may give written notice to Agent and each other Lender setting forth the
basis upon which such Lender disputes Agent's determination; under such
circumstances, the Lenders shall attempt in good faith to resolve such dispute
within the ninety (90)-day period following Agent's original determination, and
during such period the suspension of voting rights for such Defaulting Lender
referred to in the preceding sentence shall not apply, provided that if such
dispute is not resolved within such 90-day period, then such suspension of
voting rights shall thereafter apply. The provisions of the immediately
preceding sentence shall not alter or condition any other provision of this
Agreement with respect to a failure on the part of any Lender to fund its
Percentage Interest of any Loan or otherwise to perform its obligations under
the Loan Documents.
8.2 Duties and Obligations.
8.2.1 Limitations on Obligations. Neither the Agent nor any of its
directors, officers, agents or employees shall be liable for any action taken or
omitted to be taken by it or any of them under or in connection with this
Agreement except for its or their own gross negligence or willful misconduct.
Without limiting the generality of the foregoing, the Agent:
(a) may treat each Lender that is a party hereto as the party
entitled to receive payments hereunder until the Agent receives written
notice of the assignment of such Lender's interest herein, signed by such
Lender and made in accordance with the terms hereof and an Assignment
Agreement, duly executed by such Lender and its assignee, in substantially
the form of Exhibit D (each such agreement, an "Assignment Agreement");
(b) may consult with legal counsel (including counsel for the
Borrower), independent public accountants and other experts selected by it,
and shall not be liable for any action taken or omitted to be taken in good
faith by it in accordance with the advice of such experts;
(c) (i) makes no warranty or representation to any Lender, and
(ii) shall not be responsible to any Lender for any statements, warranties
or representations made in or in connection with this Agreement, the other
Loan Documents or in any instrument or document furnished pursuant hereto
or thereto;
(d) shall not have any duty to ascertain or to inquire as to the
performance of any of the terms, covenants, or conditions of the Loan
Documents on the part of the Borrower or any Subsidiary
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or as to the use of the proceeds of any Loan or as to the existence or
possible existence of any Default or Event of Default;
(e) shall not be responsible to any Lender for the due execution,
legality, validity, enforceability, genuineness, effectiveness, or value of
this Agreement or any other Loan Document or of any instrument or document
furnished pursuant hereto or thereto; and
(f) shall incur no liability under or in respect of this
Agreement (i) by acting upon any oral or written notice, consent,
certificate or other instrument or writing (which may be by telegram,
facsimile transmission, cable or telex) believed by it to be (A) genuine
and (B) signed or sent by the proper party or parties or (ii) by acting
upon any representation or warranty of the Borrower or any Material
Subsidiary made or deemed to be made hereunder.
8.2.2 Use of Agents, Employees, Etc. The Agent may execute any of its
duties under this Agreement or any other Loan Document by or through agents,
employees or attorneys-in-fact, and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Agent shall not be
responsible for the negligence or misconduct of any agent or attorney-in-fact
that it selects with reasonable care.
8.2.3 Payments, Deliveries to Lenders. The Agent shall account to each
Lender for such Lender's Percentage Interest of payments of principal of,
interest on and fees in respect of the Loans (other than fees payable to the
Agent for its own account) received by the Agent from the Borrower or any
Material Subsidiary, and shall promptly remit to the Lenders entitled thereto
all such payments. The Agent shall transmit to each Lender copies of all
documents received from the Borrower or any Material Subsidiary pursuant to the
requirements of this Agreement, other than documents which by the terms of this
Agreement the Borrower is obligated to deliver directly to the Lenders.
8.2.4 Provision of Information Regarding Withholding. Each Lender, and
each assignee of any Lender, organized outside of the United States shall
furnish to the Agent in a timely fashion such documentation (including, but not
by way of limitation, IRS Forms Nos. 1001 and 4224) as may be required by
applicable law or regulations to establish such Lender's status for tax
withholding purposes.
8.3 Dealings Between Agent and Borrower. With respect to its Commitment and
the Loans made by it, the Agent shall have the same rights and powers under this
Agreement and the other Loan Documents as any other Lender and may exercise the
same as though it were not the Agent, and the term "Lender" shall, unless
otherwise expressly indicated, include the Agent in its individual capacity. The
Agent may accept deposits from, lend money to, act and generally engage in any
kind of business with the Borrower and its Subsidiaries, and any Person that may
do business with the Borrower or any of its Subsidiaries, all as if the Agent
were not the Agent hereunder and without any duty to account therefor to the
Lenders.
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8.4 Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender and based
upon such documents, information and investigation into the business, prospects,
operations, property, financial and other condition and creditworthiness of the
Borrower as it has deemed appropriate, made its own credit analysis and decision
to enter into this Agreement and the other Loan Documents, as applicable. Each
Lender also acknowledges that it will, independently and without reliance upon
the Agent or any other Lender and based upon such documents, information and
investigation as it shall deem appropriate at the time, continue to make its own
credit analysis and decisions with respect to the taking or not taking of any
action under this Agreement or the other Loan Documents. Except for notices,
reports and other documents expressly required by this Agreement or any other
Loan Document to be furnished to the Lenders by the Agent, the Agent shall have
no duty or responsibility to provide any Lender with any credit or other
information concerning the business, prospects, operation, financial or other
condition or creditworthiness of the Borrower or any of its Subsidiaries that
may come into the possession of the Agent or any of its Affiliates or any
officer, director, employee, agent or attorney-in-fact of the Agent or any of
its Affiliates (collectively, the "Agent-Related Persons").
8.5 Indemnification by Lenders. The Lenders agree to indemnify the Agent
and each other Agent-Related Person (to the extent not reimbursed by the
Borrower and without limiting the obligation of the Borrower to do so), ratably
according to their respective Percentage Interests, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever that may be
imposed on, incurred by or asserted against such Agent-Related Person in any way
relating to or arising out of (a) this Agreement or any other Loan Document or
(b) any action taken or omitted by or on behalf of the Agent under this
Agreement or any other Loan Document or otherwise in connection with the making,
funding, administration or enforcement of the Loans or the preservation of any
right in respect thereof, except any such as result from such Agent-Related
Person's gross negligence or willful misconduct. Without limiting the generality
of the foregoing, each Lender agrees to reimburse the Agent promptly on demand,
in proportion to its Percentage Interest, for any out-of-pocket expenses,
including legal fees, incurred by the Agent in connection with the
administration or enforcement of or the preservation of any rights under this
Agreement or any other Loan Document (to the extent that the Agent is not
reimbursed for such expenses by the Borrower and without limiting the obligation
of the Borrower to do so).
8.6 Successor Agent. The Agent may give written notice of its resignation
at any time to the Lenders and the Borrower, and may be removed at any time,
with cause, by the Majority Lenders. Upon any such resignation or removal, the
Majority Lenders shall have the right (with the approval (not to be unreasonably
withheld) of the Borrower, unless (i) such successor Agent is DLJ Capital
Funding, Inc., the Documentation Agent or a Co-Agent, or (ii) an Event of
Default has occurred and is continuing) to appoint a successor Agent, who shall
concurrently assume the rights and obligations of the Swing Line Lender
hereunder (including the Swing Line Lender's commitment to fund Swing Line
Borrowings and its interest in outstanding advances under the Swing Line). If no
successor
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Agent shall have been so appointed by the Majority Lenders and shall have
accepted such appointment within thirty (30) days after the Agent's giving of
notice of resignation or the Majority Lenders' removal of the Agent, then the
Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a
bank organized under the laws of the United States or of any state thereof, or
any Affiliate of such bank, having a combined capital and surplus of at least
Five Hundred Million Dollars ($500,000,000). Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Agent and Swing Line Lender, and the retiring Agent
and Swing Line Lender shall be discharged from its duties and obligations under
this Agreement. Until such acceptance by a successor Agent and Swing Line
Lender, the retiring Agent shall continue as "Agent" and "Swing Line Lender"
hereunder. Notwithstanding any retiring Agent's resignation or removal hereunder
as Agent, the provisions of this Article VIII shall inure to its benefit as to
any actions taken or omitted to be taken by it while it was Agent under this
Agreement. Any company into which the Agent may be merged or converted, or with
which it may be consolidated, and any company resulting from any merger,
conversion or consolidation to which the Agent shall be a party, and any company
to which the Agent may sell or transfer all or substantially all of its agency
relationships, shall be the successor to the Agent without the execution or
filing of any paper or further act, anything herein to the contrary
notwithstanding.
8.7 Administrative Agent; Documentation Agent; Co-Agents. No Lender
identified in this Agreement or any other Loan Document as "Administrative
Agent" or "Documentation Agent" or "Co-Agent" shall have any right, power,
obligation, liability, responsibility or duty under this Agreement or any other
Loan Document other than those that are applicable to all Lenders as such; and
no other Person identified in this Agreement or any other Loan Document as
"Administrative Agent" or "Documentation Agent" or "Co-Agent" shall have any
right, power, obligation, liability, responsibility or duty under this Agreement
or any other Loan Document other than those, if any, that are expressly
applicable to such Person. Without limiting the generality of the foregoing, no
Lender or other Person so identified shall have or be deemed to have any
fiduciary relationship with any Lender. Each Lender acknowledges that it has not
relied, and will not rely, on any of the Lenders or other Persons so identified
in deciding to enter into this Agreement or any of the other Loan Documents or
in taking or not taking action hereunder or thereunder.
ARTICLE IX
MISCELLANEOUS
9.1 No Waiver; Remedies Cumulative. No failure by the Agent or any Lender
to exercise, and no delay in exercising, any right, power or remedy under this
Agreement or any other Loan Document shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or remedy under this
Agreement or any other Loan Document preclude any other or further exercise
thereof or the exercise of any other right, power, or remedy. The exercise of
any right, power, or remedy shall in no event (a) constitute a cure or waiver of
any Default or
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Event of Default under this Agreement or any other Loan Document or (b)
prejudice the rights of the Agent or any Lender in the exercise of any right
hereunder or thereunder. The rights and remedies provided herein and therein are
cumulative and not exclusive of any right or remedy provided by law.
9.2 Governing Law. This Agreement and the other Loan Documents (except, in
the case of any other Loan Document, to the extent otherwise provided therein)
shall be governed by, and construed in accordance with, the laws of the State of
New York, U.S.A., without regard to principles of conflicts of law.
9.3 Mandatory Arbitration. Any controversy or claim between or among the
parties, including those arising out of or relating to this Agreement or the
other Loan Documents and any claim based on or arising from an alleged tort,
shall, at the request of any party, be determined by arbitration. The
arbitration shall be conducted in accordance with the United States Arbitration
Act (Title 9, U.S. Code), notwithstanding any choice of law provision in this
Agreement, and under the Commercial Rules of the American Arbitration
Association ("AAA"), and shall be conducted in California or Oregon or such
other jurisdiction that has adopted the most recent revision of Article 8 of the
Uniform Commercial Code in existence as of the date of this Agreement as the
parties to such arbitration may agree. The arbitrator(s) shall give effect to
the statutes of limitation applicable under the law governing this Agreement, as
provided in Section 9.2, in determining any claim. Any controversy concerning
whether an issue is arbitrable shall be determined by the arbitrator(s).
Judgment upon the arbitration award may be entered in any court having
jurisdiction. No provision of this Section 9.3 shall limit the right of any
party to this Agreement (a) to exercise self-help remedies such as setoff,
foreclosure against or sale of any Collateral, or (b) to obtain provisional or
ancillary remedies from a court of competent jurisdiction before, after, or
during the pendency of any arbitration or other proceeding. The exercise of any
such remedy shall not waive the right of either party to resort to arbitration.
9.4 Notices. All notices and other communications provided for in this
Agreement, or that any party shall desire to deliver to any other party with
respect to the transactions contemplated hereby, shall be in writing or (unless
otherwise specified) by telex, facsimile transmission, telegram or cable, and
shall be mailed (with first class postage prepaid) or sent or delivered to each
party (a) at the address set forth under its name on the signature pages hereof,
or (b) at such other address as shall be designated by such party in a written
notice to each other party delivered in accordance with the provision of this
Section 9.4. Except as otherwise specified: (x) all notices or other
communications sent by mail, if duly given, shall be effective three (3)
Business Days after deposit into the mails, (y) all notices or other
communications sent by a nationally recognized overnight courier service, if
duly given, shall be effective one (1) Business Day after delivery to such
courier service (with the relevant fees paid or duly provided for), and (z) all
other notices or other communications, if duly given or made, shall be effective
upon receipt.
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9.5 Assignment and Participations.
9.5.1 Agreement Binding. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective Successors and assigns,
provided that the Borrower may not assign or otherwise transfer all or any part
of its rights or obligations hereunder or under any other Loan Document without
the prior written consent of the Agent and all the Lenders, and any such
assignment or transfer purported to be made without such consent shall be
ineffective.
9.5.2 Sale of Participations.
(a) Any Lender may at any time sell participation interests in
its Loans and Commitment to any other Person, provided that no such
participation shall, without the consent of the Borrower, require the
Borrower to file a registration statement with the Securities and Exchange
Commission or apply to qualify such participation under the securities laws
of any jurisdiction. Such sales may be made without the consent of the
Agent, the Borrower or any other Lender; provided, however, that (i) the
selling Lender shall have provided the Borrower and the Agent with prior
written notice of the proposed sale of any participation interest in any
Loan or in such Lender's Commitment; and (ii) the selling Lender retains
the right to vote as a Lender hereunder in respect of the interest sold
without being bound to (A) obtain the consent of its participant or (B)
exercise its rights in accordance with instructions received from its
participant, except that the participant's consent may be required for (w)
proposed increases in the Total Commitment; (x) proposed changes to the
timing or amount of principal payments; (y) proposed changes to the timing,
rate(s) or amount(s) of payments of interest or fees; or (z) proposed
releases of any Collateral or Guaranties for which the consent of such
Lender would be required hereunder.
(b) All amounts payable by the Borrower hereunder or under any
other Loan Document (including, without limitation, amounts payable to any
Lender selling a participation under Section 2.7 or Section 2.13), shall be
determined as if such Lender had not sold such participation; provided that
the Borrower and each Lender hereby acknowledge and agree that, for
purposes of Sections 9.6.1 and 9.7, (i) such participation shall give rise
to a direct obligation of the Borrower to the participant, and such
participant shall be considered to be a "Lender".
(c) No Lender shall, as between (i) the Borrower, the Agent or
any other Lender and (ii) such Lender, be relieved of any of its
obligations hereunder or under any other Loan Document as a result of any
such sale of a participation.
9.5.3 Assignments. Any Lender may at any time:
(a) assign to any other Lender or to any Affiliate of any Lender,
or
(b) after first obtaining the approval of (i) unless the
assigning Lender is the Documentation Agent or Administrative
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Agent, or an Affiliate thereof, Agent, and (ii) unless any Event of Default
has occurred and is continuing, Borrower (in either case, which approval
will not be unreasonably withheld),
assign, to any Eligible Assignee, all or a portion of its rights and obligations
under this Agreement (including without limitation all or a portion of its
Commitment and the Loans owing to it); provided that no such assignment shall,
without the consent of the Borrower, require the Borrower to file a registration
statement with the Securities and Exchange Commission or apply to qualify such
participation under the securities laws of any jurisdiction; and provided
further that (p) (i) each such assignment shall be of a constant, and not a
varying, percentage of the assigning Lender's rights and obligations under this
Agreement and other Loan Documents, and the assignment shall cover the same
percentage of such Lender's Commitment and Loans, and (ii) the commitment of the
Swing Line Lender to fund Swing Line Borrowings and the Swing Line Lender's
interest in outstanding Swing Line Borrowings may not be assigned to any Person
other than a Person who concurrently becomes both a successor Agent pursuant to
Section 8.6 and the Swing Line Lender, (q) unless the Agent and (unless any
Event of Default has occurred and is continuing) the Borrower otherwise consent,
the aggregate amount of the Commitment of the assigning Lender being assigned
pursuant to each such assignment to any Person other than a Person that is
already a Lender (determined as of the date of the Assignment Agreement with
respect to such assignment) shall in no event be less than Five Million Dollars
($5,000,000) and shall be an integral multiple of One Million Dollars
($1,000,000), (r) after giving effect to such assignment (unless the assignment
is of the assigning Lender's entire remaining interest in the Loans), the
aggregate amount of the Commitment retained by the assigning Lender shall in no
event be less than Five Million Dollars ($5,000,000), (s) the parties to each
such assignment shall execute and deliver to the Agent (to the extent
applicable, for its acceptance and the acceptance of the Borrower), an
Assignment Agreement, and (t) the Agent shall receive from the assignor a
processing fee of Three Thousand Dollars ($3,000). Unless the Agent or (where
the Borrower's consent is required) the Borrower gives written notice to the
assigning Lender that it objects to the proposed assignment (together with a
written explanation of the reasons behind such objection) within ten (10)
Business Days following receipt of the assigning Lender's written request for
approval of the proposed assignment, the Agent or the Borrower, as the case may
be, shall be deemed to have approved such assignment. Upon such execution,
delivery, approval and acceptance, and upon the effective date specified in the
applicable Assignment Agreement, (x) the assignee thereunder shall be a party
hereto and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment Agreement, have the rights and
obligations of a Lender hereunder, and (y) the assigning Lender thereunder
shall, to the extent that rights and obligations hereunder have been assigned by
it pursuant to such Assignment Agreement, relinquish its rights (other than
rights of indemnification) and be released from its obligations under this
Agreement (and, if such assignment is of such Lender's entire remaining
Commitment, shall cease to be a party hereto).
9.5.4 Assignments or Pledges to Federal Reserve Bank. Any Lender may
pledge or assign all or any part of its interest under the
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Loan Documents for security purposes to any Federal Reserve Bank pursuant to
Regulation A of the Board of Governors of the Federal Reserve System and any
operating circular issued by the pledgee Federal Reserve Bank; provided that (a)
no Lender shall, by reason of such pledge or assignment, be relieved of any of
its obligations hereunder or under any other Loan Document, and (b) in no event
shall such Federal Reserve Bank be considered to be a "Lender" or be entitled to
require the pledging/assigning Lender to take, or omit to take, any action in
respect of the Loans.
9.5.5 Certain Effects of Assignments, Participations and Pledges.
(a) Upon its receipt of an Assignment Agreement executed by an
assigning Lender and an assignee, together with the processing fee referred
to in Section 9.5.3 and any withholding documentation required to be
delivered pursuant to Section 8.2.4, the Agent shall (subject to the
provisions of Section 9.5.3 relating to the Agent's right of consent to
assignments): (i) accept such Assignment Agreement by executing a
counterpart thereof, (ii) record the information contained therein in the
Agent's records relating to the Loans; and (iii) give prompt notice thereof
to the Borrower (including, to the extent that the Borrower's consent
thereto is required, the delivery of a counterpart thereof to the Borrower
for its execution and return to the Agent for transmittal to the assigning
Lender). The Agent shall maintain a copy of each Assignment Agreement
delivered to it and accepted as provided herein.
(b) The assignee of any permitted sale or assignment (including
assignments for security and sales of participations) shall have the same
rights and benefits against the Borrower and otherwise under the Loan
Documents (excepting however, in the case of sales of participations, the
right to grant or withhold consents or otherwise vote in respect thereof
and the right to payment of certain increased costs and amounts in respect
of withholding taxes, as provided in Section 9.5.2(b)), including the right
of setoff, and in the case of any outright assignment (as distinguished
from an assignment for security or the sale of a participation) the same
obligations in respect thereof, as if such assignee were an original
Lender. Except to the extent otherwise required by the context of this
Agreement, the word "Lender" where used in this Agreement shall mean and
include any holder of a Note originally issued to a Lender hereunder, and
each such holder shall be bound by and have the benefits of this Agreement
the same as if such holder had been a signatory hereto. Any outright
assignment of a Lender's interest hereunder to another Lender made in
conformance with the terms of this Section 9.5 shall result in a
corresponding adjustment to the selling and purchasing Lenders' Commitments
and Percentage Interests. At the request of any assignee of a Lender, the
assigning Lender shall, upon the effectiveness of any assignment (or as
promptly thereafter as practicable), surrender its Note to the Agent to be
exchanged for new Note(s) in the name(s) of the assigning Lender (if it
retains any interest hereunder) and its assignee, to reflect the
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Commitment(s) of the assigning Lender and its assignee after giving effect to
such assignment.
9.5.6 Confidentiality. The Agent, and each of the Lenders, understands
that some of the information and documents furnished to it pursuant to this
Agreement or the other Loan Documents may be confidential, and agrees that it
will keep all non-public information, documents and agreements so furnished to
it confidential and will make no disclosure to other Persons of such information
or agreements until it shall have become public, except (a) to the extent
required in connection with matters involving operations under or enforcement or
amendment of the Loan Documents; (b) in accordance with the Agent's or such
Lender's obligations under law or regulations or pursuant to subpoenas or other
legal process to make information available to governmental agencies and
examiners or to others; (c) to any corporate parent or (if such Affiliate is a
financial institution) other Affiliate of Agent or such Lender, solely for
purposes of the administration or enforcement of the Loans, so long as such
parent or other Affiliate agrees to accept such information or agreement subject
to the restrictions provided in this Section 9.5.6; (d) to any participant of
the Agent or such Lender that agrees to keep such information, documents or
agreement confidential in accordance with the restrictions provided in this
Section 9.5.6; (e) to the Agent or to any other Lender and such Agent's and such
other Lender's respective counsel and other professional advisors so long as
such Persons are instructed to keep such information confidential in accordance
with the provisions of this Section 9.5.6; (f) to proposed assignees and
participants that agree to keep such information, documents or agreements
confidential in accordance with the restrictions provided in this Section 9.5.6;
or (g) with the prior written consent of the Borrower.
9.5.7 Representations of Lenders. Each Lender represents and warrants
to the Borrower, the Agent and each of the other Lenders as follows:
(a) Such Lender is an Eligible Assignee described in clause (a)
of the definition of "Eligible Assignee" (and each Guarantor shall be
entitled to rely on such representation and warranty);
(b) Such Lender has experience and expertise in the making of
loans such as the Loans; and
(c) Such Lender will make its Loans for its own account in the
ordinary course of its business and without a view to distribution of such
Loans within the meaning of the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, or other federal securities
laws (it being understood that, subject to the provisions of the Loan
Documents relating to the transfer of interests thereunder, the disposition
of such Loans, or any interests therein, shall at all times remain within
such Lender's exclusive control).
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9.6 Indemnification by Borrower; Expenses.
9.6.1 Indemnification. Whether or not the transactions contemplated
hereby shall be consummated, the Borrower shall pay, indemnify and hold each
Agent-Related Person, and each of the Documentation Agent, the Administrative
Agent, each Co-Agent and each Lender and their respective officers, directors,
employees, counsel, agents and attorneys-in-fact (each, an "Indemnified
Person"), harmless from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, charges, expenses
or disbursements (including reasonable attorneys' fees, which may include the
allocated charges of internal legal counsel), of any kind or nature whatsoever,
that may at any time (including at any time following repayment of the Loans and
the termination, resignation or replacement of the Agent or the replacement of
any Lender) (collectively, "Indemnified Liabilities") be imposed on, incurred by
or asserted against any such Indemnified Person in any way arising out of or in
connection with or by reason of, or in connection with the preparation of a
defense of, any claim, litigation, investigation or proceeding relating to or
arising out of or in connection with (a) this Agreement or any other Loan
Document, (b) the High Yield Offering, (c) the transactions contemplated hereby
or thereby, (d) the use of any Loan proceeds, or (e) any action taken or omitted
by any such Indemnified Person under or in connection with any of the foregoing;
provided that (x) the Borrower shall have no obligation hereunder to any
Indemnified Person with respect to Indemnified Liabilities arising from the
gross negligence or willful misconduct of such Indemnified Person; and (y) no
Indemnified Person that is (i) an Initial Purchaser, as defined in the Purchase
Agreement dated August 7, 1997 (the "Purchase Agreement") for the purchase and
sale of the High Yield Notes, or (ii) an officer, employee or person who
controls any Initial Purchaser within the meaning of the Securities Act and the
Exchange Act (as such terms are defined in the Purchase Agreement) (any such
Person, in its capacity as an Initial Purchaser or an officer, employee or
person who so controls any Initial Purchaser (and not in its capacity as a
Lender, Agent or Agent-Related Person, Documentation Agent, Administrative Agent
or Co-Agent or an officer, director, employee, counsel, agent or
attorney-in-fact of any of the foregoing), a "High Yield Offering Person"),
shall be entitled to be indemnified under clause (b) of this Section 9.6.1 for
Indemnified Liabilities imposed on, incurred by or asserted against such
Indemnified Person solely in its capacity as a High Yield Offering Person, it
being the intent that each such Person's rights of indemnity with respect to the
High Yield Offering and the purchase and sale of the High Yield Notes, in such
Person's capacity as a High Yield Offering Person, shall arise solely under, and
be governed exclusively by, the Purchase Agreement. All amounts owing under this
Section 9.6.1 shall be paid promptly upon demand. At the election of any
Indemnified Person, the Borrower shall defend such Indemnified Person in respect
of any Indemnified Liabilities using legal counsel selected by the Borrower and
reasonably satisfactory to such Indemnified Person at the sole cost and expense
of the Borrower. Without limiting the generality of the foregoing, in the event
that any Indemnified Person becomes involved in any capacity other than in such
Person's capacity as a High Yield Offering Person in any action, proceeding or
investigation brought by or against any Person in connection with or as a result
of the Loans or any matter referred to in this Agreement or any other Loan
Document or the
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transactions contemplated hereby or thereby, the Borrower shall periodically
reimburse such Indemnified Person for its legal and other expenses (including
the cost of any investigation and preparation) incurred in connection therewith.
9.6.2 Expenses. The Borrower shall pay immediately upon demand (a) all
reasonable costs, fees and expenses, including reasonable attorneys' fees and
expenses, incurred by the Agent in connection with the preparation, review,
execution and delivery of, and the exercise of its duties under, this Agreement
and the other Loan Documents, and the preparation of amendments, supplements and
waivers hereunder and thereunder; (b) all reasonable costs, fees and expenses,
including reasonable attorneys' fees and expenses, incurred by the Agent or the
Lenders in connection with the enforcement, preservation or protection (or
attempted enforcement, preservation or protection) of any rights or remedies of
the Agent or the Lenders under this Agreement or any other Loan Document
(including in connection with any "workout" or restructuring relating to this
Agreement or any bankruptcy or insolvency case involving Borrower or any of its
Subsidiaries or other Affiliates); and (c) all reasonable costs, fees and
expenses incurred by Agent and the Lenders for appraisals, audits, environmental
inspections and reviews, searches and filings in connection with any of the
foregoing. As used herein, the term "reasonable attorneys' fees and expenses"
shall include, without limitation, reasonable allocable costs and expenses of
the Agent's and the Lenders' in-house legal counsel and staff, and "reasonable
costs, fees and expenses" shall include, without limitation, reasonable
allocable costs, fees and expenses of the Agent's and the Lenders' internal
appraisal, audit, environmental and other similar services, and reasonable fees
and disbursements of expert witnesses and other consultants.
9.7 Setoff. In addition to all Liens upon, and rights of setoff against,
the monies, securities or other property of the Borrower given to the Agent or
any Lender by law, the Agent, and each Lender, shall have a lien upon and a
right of setoff against all monies, securities and other property of the
Borrower now or hereafter in the possession of or on deposit with such Person,
whether held in a general or special account or deposit or for safekeeping or
otherwise, and, subject to any contrary provision of this Agreement to the
contrary, every such Lien and right of setoff may be exercised without demand
upon or prior notice to the Borrower. Each Person exercising any such right of
setoff shall notify the Agent and the Borrower thereof promptly thereafter, but
no failure to give any such notice shall affect the validity of the relevant
setoff. No Lien or right of setoff shall be deemed to have been waived by any
act or conduct on the part of the Agent or any Lender, or by any neglect to
exercise such right of setoff or to enforce such Lien, or by any delay in so
doing, and every right of setoff and Lien shall continue in full force and
effect until such right of setoff or Lien is specifically waived or released by
an instrument in writing executed by the Person entitled thereto.
9.8 No Third Party Beneficiaries. This Agreement and the other Loan
Documents are made and entered into for the sole protection and legal benefit of
the Borrower, the Agents, the Lenders, the Arrangers and the Indemnified Persons
and their respective permitted Successors and assigns, and, except as expressly
provided (a) in Section 9.5.2(b)
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with respect to participants, or (b) in Section 9.5.7(a) with respect to
permitted reliance thereon by the Guarantors, no other Person shall be a direct
or indirect legal beneficiary of, or have any direct or indirect cause of action
or claim in connection with, this Agreement or any of the other Loan Documents.
9.9 Severability; Independence of Covenants.
9.9.1 Severability. Any provision of this Agreement or any other Loan
Document that is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction only, be ineffective to the extent of such prohibition or
unenforceability, without (a) invalidating the remaining provisions hereof or
(b) affecting the validity or enforceability of such provision in any other
jurisdiction. To the extent permitted by applicable law, the parties waive any
provision of law which renders any provision hereof prohibited or unenforceable
in any respect.
9.9.2 Independence of Covenants. All covenants hereunder shall be
given independent effect so that if a particular action or condition is not
permitted by any one or more of such covenants, the fact that it would be
permitted by an exception to, or be otherwise within the limitations of, another
covenant shall not avoid the occurrence of an Event of Default or Default if
such action is taken or such condition exists.
9.10 Survival. The representations, warranties and indemnities of the
Borrower in favor of the Agent and the Lenders, and the representations,
warranties and indemnities of the Lenders in favor of the Agent, shall survive
indefinitely and, without limiting the foregoing, shall survive the execution
and delivery of this Agreement and the other Loan Documents, the making of any
Loan, the expiration of the Total Commitment and the repayment of all Loans and
other amounts due hereunder.
9.11 Conditions Not Fulfilled; Limitation on Liability.
9.11.1 Conditions Not Fulfilled. If no Loan is made hereunder owing to
nonfulfillment of any condition precedent specified in Article III, no party
hereto shall be responsible to any other party for any damage or loss by reason
thereof, except that the Borrower shall in any event be liable to pay the fees,
Taxes, and expenses for which it is obligated hereunder.
9.11.2 Limitation on Liability. To the extent permitted by applicable
law, no claim may be made by the Borrower, any Lender or any other Person
against the Agent or any Agent-Related Person, the Administrative Agent, the
Documentation Agent, any Co-Agent or any Lender, or the Affiliates, directors,
officers, employees, attorneys or agents of any of them, for any special,
indirect, consequential or punitive damages in respect of any claim for breach
of contract or any other theory of liability arising out of or related to the
transactions contemplated by this Agreement, or any act, omission or event
occurring in connection therewith; and the Borrower and each Lender hereby
waive, release and agree not to sue upon any claim for any such damages, whether
or not accrued and whether or not known or suspected to exist in
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its favor; provided, however, that if a Lender refuses to fund a Loan and a
court of competent jurisdiction finds that such refusal was without
justification and in bad faith, such Lender may be liable to the Borrower for
the Borrower's reasonable and foreseeable damages resulting from such refusal to
fund. If for any reason any Lender breaches its obligation to make any Loan
hereunder, neither the Agent nor any other Lender shall be responsible to the
Borrower for any damage or loss by reason thereof, nor shall the Borrower, or
any other Lender, be excused from its own performance hereunder.
9.12 Entire Agreement; Amendment. This Agreement, together with the
Exhibits and Schedules hereto and the letter agreement referred to in Section
2.11.2, comprise the entire agreement of the parties, and may not be amended or
modified except by written agreement of the Borrower and the Agent executed in
conformance with the terms of Section 8.1. No provision of this Agreement may be
waived except in writing, and then only in the specific instance and for the
specific purpose for which given.
9.13 WAIVER OF JURY TRIAL. THE PARTIES HERETO (a) WAIVE ANY RIGHT TO A
TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE, DETERMINE OR DEFEND ANY
RIGHTS UNDER OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY
AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE
FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH, OR ARISING FROM ANY
RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT, AND (b) AGREE THAT (i) ANY SUCH ACTION OR PROCEEDING SHALL NOT BE
TRIED BEFORE A JURY, AND (ii) ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART
OR COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF
THE PARTIES HERETO TO THE WAIVER OF THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY.
NOTHING IN THIS SECTION 9.13 IS INTENDED TO LIMIT THE TERMS OF SECTION 9.3.
9.14 Headings. The headings of the various provisions of this Agreement are
for convenience of reference only, do not constitute a part hereof, and shall
not affect the meaning or construction of any provision hereof.
9.15 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto on 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.
[The rest of this page has been intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers or agents thereunto duly authorized as of
the date first written above.
BORROWER:
HOLLYWOOD ENTERTAINMENT CORPORATION
By: DONALD J. EKMAN
-------------------------------------
Name: Donald J. Ekman
-----------------------------------
Title: Senior Vice President
----------------------------------
Address: 25600 S.W. Pkwy. Ctr. Dr.
Wilsonville, Oregon 97070
Attn: Donald J. Ekman
Telephone: (503) 570-1600
Telefax: (503) 570-1680
AGENT:
SOCIETE GENERALE
By: J. BLAINE SHAUM
-------------------------------------
Name: J. Blaine Shaum
-----------------------------------
Title: Regional Manager
- - ----------------------------------
Address: One Montgomery Street
Suite 3220
San Francisco, California 94104
Attn: Alec Neville
Telephone: (415) 433-8400
Telefax: (415) 989-9922
ADMINISTRATIVE AGENT: DONALDSON, LUFKIN & JENRETTE SECURITIES
CORPORATION
By: ERIC SWANSON
-------------------------------------
Name: Eric Swanson
-----------------------------------
Title: Managing Director
----------------------------------
Address: 2121 Avenue of The Stars
---------------------------
Los Angeles, CA 90067
---------------------------
Attn:
Telephone: (310) 282-7447
Telefax: (310) 282-6178
<PAGE>
DOCUMENTATION AGENT: GOLDMAN SACHS CREDIT PARTNERS L.P.
By: JOHN E. URBAN
-------------------------------------
Name: John E. Urban
-----------------------------------
Title: Authorized Signer
----------------------------------
Address: ________________________________
________________________________
________________________________
Attn:
Telephone:
Telefax:
LENDERS AND CO-AGENTS: SOCIETE GENERALE
By: J. BLAINE SHAUM
-------------------------------------
Name: J. Blaine Shaum
-----------------------------------
Title: Regional Manager
----------------------------------
Commitment: $25,000,000
Percentage Interest: 8.3333333333%
Address: One Montgomery Street
Suite 3220
San Francisco, California 94104
Attn: Alec Neville
Telephone: (415) 433-8400
Telefax: (415) 989-9922
DLJ CAPITAL FUNDING, INC.
By: ERIC SWANSON
-------------------------------------
Name: Eric Swanson
-----------------------------------
Title: Managing Director
----------------------------------
Commitment: $22,000,000
Percentage Interest: 7.3333333333%
Address: 2121 Avenue of The Stars
---------------------------
Los Angeles, CA 90067
---------------------------
Attn:
Telephone: (310) 282-7447
Telefax: (310) 282-6178
<PAGE>
GOLDMAN SACHS CREDIT PARTNERS L.P.
By: JOHN E. URBAN
-------------------------------------
Name: John E. Urban
-----------------------------------
Title: Authorized Signer
----------------------------------
Commitment: $22,000,000
Percentage Interest: 7.3333333333%
Address: _______________________________
_______________________________
_______________________________
Attn:
Telephone:
Telefax:
CREDIT LYONNAIS LOS ANGELES BRANCH as a
Co-Agent and a lender
By: DIANNE M. SCOTT
-------------------------------------
Name: Dianne M. Scott
Title: Vice President and Manager
Commitment: $19,000,000
Percentage Interest: 6.3333333333%
Address: 515 South Flower Street,
Suite 2200
Los Angeles, California 90071
Attn: Eric Dulot
Telephone: (213) 362-5954
Telefax: (213) 623-3437
DEUTSCHE BANK AG, NEW YORK BRANCH, as a
Co-Agent and a Lender
By: JOEL D. MAKOWSKY
-------------------------------------
Name: Joel D. Makowsky
-----------------------------------
Title: Assistant Vice President
----------------------------------
By: SHERYL L. PAYNTER
-------------------------------------
Name: Sheryl L. Paynter
-----------------------------------
Title: Associate
----------------------------------
Commitment: $19,000,000
Percentage Interest: 6.3333333333%
Address: 31 West 52nd Street
New York, New York 10019
Attn: Susan O'Connor
Telephone: (212) 469-8208
Telefax: (212) 469-7936
<PAGE>
KEYBANK NATIONAL ASSOCIATION,
as a Co-Agent and a Lender
By: MARY YOUNG
-------------------------------------
Name: Mary Young
Title: Commercial Banking Officer
Commitment: $19,000,000
Percentage Interest: 6.3333333333%
Address: 700 Fifth Avenue, 48th Floor
Seattle, Washington 98104
Attn: Mary Young
Telephone: (206) 684-6085
Telefax: (206) 684-6035
U.S. BANK NATIONAL ASSOCIATION
By: JANET JORDAN
-------------------------------------
Name: Janet E. Jordan
Title: Vice President
Commitment: $19,000,000
Percentage Interest: 6.3333333333%
Address: 555 S.W. Oak Street, Suite 400
Portland, Oregon 97204
Attn: Janet E. Jordan
Telephone: (503) 275-5871
Telefax: (503) 275-5428
BARCLAYS BANK PLC, as a Co-Agent and
a Lender
By: KEITH F. ARNSDORFF
-------------------------------------
Name: Keith F. Arnsdorff
Title: Associate Director
Commitment: $19,000,000
Percentage Interest: 6.3333333333%
Address: 222 Broadway
New York, New York 10038
Attn: Keith F. Arnsdorff
Telephone: (212) 412-6883
Telefax: (212) 412-2441
<PAGE>
THE SUMITOMO BANK, LIMITED
By: CAROLE A. DALEY
-------------------------------------
Name: Carole A. Daley
-----------------------------------
Title: Vice President and Manager
----------------------------------
By: J. WILLIAM BLOOM
-------------------------------------
Name: J. William Bloom
-----------------------------------
Title: Vice President
----------------------------------
Commitment: $17,000,000
Percentage Interest: 5.6666666667%
Address: U.S. Commercial Banking Dept.
100 Pine Street, Suite 3300
San Francisco, California
94111-5219
Attn: J. William Bloore
Telephone: (415) 394-0870
Telefax: (415) 394-9797
UNION BANK OF CALIFORNIA, N.A.
By: ALISON AMONETTE
-------------------------------------
Name: Alison Amonette
-----------------------------------
Title: Vice President
----------------------------------
Commitment: $17,000,000
Percentage Interest: 5.6666666667%
Address: 400 California Street,
17th Floor
San Francisco, California 94104
Attn: Alison Amonette
Telephone: (415) 765-3696
Telefax: (415) 765-2634
VAN KAMPEN AMERICAN CAPITAL PRIME RATE
INCOME TRUST
By: JEFFREY W. MAILLET
-------------------------------------
Name: Jeffrey W. Maillet
-----------------------------------
Title: Senior Vice President & Director
----------------------------------
Commitment: $17,000,000
Percentage Interest: 5.6666666667%
Address: One Parkview Plaza
Oakbrook Terrace, Illinois
60181
Attn: Jeffrey W. Maillet
Telephone: (630) 684-6438
Telefax: (630) 684-6740, 6741
<PAGE>
THE BANK OF NOVA SCOTIA
By: MIKE BROWN
-------------------------------------
Name: Mike Brown
Title: Officer
By: DARYL HOGGE
-------------------------------------
Name: Daryl Hogge
Title: Officer
Commitment: $12,000,000
Percentage Interest: 4.0000000000%
Address: 888 S.W. Fifth Avenue
Suite 750
Portland, Oregon 97204
Attn: Daryl Hogge
Telephone: (503) 222-5233
Telefax: (503) 222-5502
THE FUJI BANK, LIMITED - SAN FRANCISCO
AGENCY
By: KEIICHI OZAWA
-------------------------------------
Name: Keiichi Ozawa
Title: Joint General Manager
Commitment: $12,000,000
Percentage Interest: 4.0000000000%
Address: 601 California Street, Suite 500
San Francisco, California 94111
Attn: Richard De Baere
Telephone: (415) 296-5454
Telefax: (415) 362-4613
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By: TOSHIHIRO HAYASHI
-------------------------------------
Name: Toshihiro Hayashi
Title: Senior Vice President
Commitment: $12,000,000
Percentage Interest: 4.0000000000%
Address: 520 Madison Avenue, 26th Floor
New York, New York 10022
Attn: Beatrice Kossodo
Telephone: (212) 891-8363
Telefax: (212) 644-6825
(212) 593-4691
<PAGE>
THE SAKURA BANK, LTD., SAN FRANCISCO
AGENCY
By: SEIICHI TAGUSARI
-------------------------------------
Name: Seiichi Tagusari
Title: General Manager
Commitment: $12,000,000
Percentage Interest: 4.0000000000%
Address: 345 California Street,
Suite 1100
San Francisco, California 94104
Attn: J.E. Best
Telephone: (415) 765-0881
Telefax: (415) 765-0860
SUNTRUST BANK CENTRAL FLORIDA, N.A.
By: JANET P. SAMMONS
-------------------------------------
Name: Janet P. Sammons
-----------------------------------
Title: Vice President
----------------------------------
Commitment: $12,000,000
Percentage Interest: 4.0000000000%
Address: 200 S. Orange Avenue
Orlando, Florida 32801
Attn: Kim Evans
Telephone: (407) 237-4311
Telefax: (407) 237-4253
TRANSAMERICA BUSINESS CREDIT CORPORATION
By: PERRY VAVOULES
-------------------------------------
Name: Perry Vavoules
Title: Senior Vice President
Commitment: $12,000,000
Percentage Interest: 4.0000000000%
Address: 555 Theodore Fremd Avenue,
Suite C-301
Rye, New York 10580
Attn: Ron Walker
Telephone: (914) 925-7233
Telefax: (914) 921-0110
<PAGE>
CITY NATIONAL BANK
By: GEORGE HAYRAPETIAN
-------------------------------------
Name: George Hayrapetian
-----------------------------------
Title: Vice President
----------------------------------
Commitment: $8,000,000
Percentage Interest: 2.6666666667%
Address: 400 North Roxbury Drive,
3rd Floor
Beverly Hills, California 90210
Attn: George Hayrapetian
Telephone: (310) 888-6114
Telefax: (310) 888-6152
BANQUE WORMS CAPITAL CORPORATION
By: DOMINIQUE PICON
-------------------------------------
Name: Dominique Picon
-----------------------------------
Title: CFO
-----------------------------------
By: MICHELE M. FLEMING
-------------------------------------
Name: Michele M. Fleming
-----------------------------------
Title: VP & General Counsel
----------------------------------
Commitment: $5,000,000
Percentage Interest: 1.6666666667%
Address: 450 Park Avenue, Suite 2900
New York, New York 10022-2698
Attn: Gregory Allard
Telephone: (212) 758-6375
Telefax: (212) 888-6797
<PAGE>
SCHEDULE 1 TO REVOLVING CREDIT AGREEMENT
PREPAYMENT FEES
The amount of the fee to be paid pursuant to Section 2.8 of the Revolving
Credit Agreement ("Prepayment Fee") shall depend on the following:
(1) The amount by which interest rates have changed between the Reference
Date and the Prepayment Date. For purposes hereof:
(a) "Reference Date" means the date the relevant IBOR Rate first
became applicable;
(b) "Prepayment Date" means the date the Borrower, either voluntarily
or involuntarily, prepays all or any portion of an IBOR Loan; and
(c) The following U.S. Treasury rates shall be used as a benchmark to
measure changes in interest rate levels:
(i) A "Reference Rate" equal to the average interest rate yield
at the Reference Date for U.S. Government Securities having
maturities of approximately ninety (90) days will be determined
in the manner described below for determining applicable rates,
but will be established as of the Reference Date for the
Applicable Interest Period. This rate shall represent interest
rate levels at the time a particular IBOR Rate is selected.
(ii) An "Applicable Rate", determined as described below, shall
represent interest rate levels as of the Prepayment Date:
(A) The Applicable Rate shall be equal to the average
interest rate yield, at the time of the relevant prepayment,
for U.S. Government Securities having maturities equivalent
to the remaining portion of the Applicable Interest Period.
(B) The Applicable Rate shall be determined from the Federal
Reserve Statistical Release (Publication H.15 (519)) in the
"This Week" (most recent week) column under the heading
"U.S. Government Securities - Treasury Bills - Secondary
Market", interpolated to the nearest month. Rates listed in
the Federal Reserve Statistical Release for maturities of
less than one year are on a discount rate basis, and these
rates shall be converted to a coupon equivalent basis, based
upon a 360-day year. The Statistical Release published on
Monday shall be used for calculation of a Prepayment Fee
payable on the following Tuesday through the following
Monday, with appropriate adjustment if the day of
publication changes.
(2) The amount of principal prepaid.
<PAGE>
(3) A prepayment fee factor (see "PREPAYMENT FEE FACTOR SCHEDULE" below).
The prepayment fee factor represents the economic loss to the Agent
and Lenders that would result from a prepayment of $1.00 of principal
if interest rates were to drop by one percent from the time the
relevant IBOR Rate first became effective.
CALCULATION OF PREPAYMENT FEE
(1) If the Reference Rate is lower than or equal to the Applicable Rate,
the Prepayment Fee shall be zero.
(2) If the Applicable Rate is lower than the Reference Rate, the
Prepayment Fee shall be equal to:
(a) the difference between the Reference Rate and the Applicable Rate
(expressed as a decimal), multiplied by
(b) the appropriate factor from the PREPAYMENT FEE FACTOR SCHEDULE,
multiplied by the principal amount that is being prepaid.
Example:
(1) An IBOR Loan in the principal amount of $2,000,000 is fully prepaid
two months prior to the expiration of the Applicable Interest Period.
(2) At the commencement of the Applicable Interest Period, a Reference
Rate of 7.00% was assigned to the IBOR Loan.
(3) The Applicable Rate (as determined by current 2-month U.S. Treasury
rates) is 6.50%. Rates are therefore judged to have dropped by 0.50%
since the rate was fixed, and a Prepayment Fee is payable.
(4) A prepayment fee factor of .20 is determined from the table below, and
the Prepayment Fee is computed as follows:
Prepayment Fee = (.50) x (.20) x ($2,000,000) = $2,000.
2
<PAGE>
PREPAYMENT FEE FACTOR SCHEDULE
Months Remaining in the
Applicable Interest Period Prepayment Fee Factor
-------------------------- ---------------------
0 0.00
1 0.10
2 0.20
3 0.31
6 0.61
If the time remaining in the Applicable Interest Period is between any two
time periods in the above table, the Agent shall interpolate between the
prepayment fee factors corresponding to the two time periods that are closest to
the time remaining in the Applicable Interest Period.
The Agent and Lenders are not required to actually reinvest the prepaid
principal in any U.S. Government Treasury obligations as a condition to
receiving a Prepayment Fee calculated in accordance with this Schedule 1.
3
Exhibit 12.1
<TABLE>
<CAPTION>
HOLLYWOOD ENTERTAINMENT CORPORATION
Computation of Ratio of Earnings to Fixed Charges
6 Months Ended
Year Ended December 31, June 30,
1992 1993 1994 1995 1996 1996 1997
---------- ---------- --------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Computation of ratio of earnings to fixed charges
Pre-tax income from continuing operations 1,957 3,406 12,502 18,661 34,282 11,119 3,123
Fixed Charges:
Interest Expense 333 322 795 490 4,339 1,625 3,617
Rental Expense (1/3) 490 702 3,100 8,433 18,033 7,645 13,497
Capitalized Interest 458 100 224
---------- ---------- --------- ---------- --------- ---------- -----------
Total fixed charges 823 1,024 3,895 8,923 22,830 9,370 17,338
---------- ---------- --------- ---------- --------- ---------- -----------
Earnings before income taxes and fixed
charges, exluding capitalized interest 2,780 4,430 16,397 27,584 56,654 20,389 20,237
---------- ---------- --------- ---------- --------- ---------- -----------
Ratio of earnings to fixed charges 3.38 4.33 4.21 3.09 2.48 2.18 1.17
========== ========== ========= ========== ========= ========== ===========
Computation of pro forma ratio of earnings to
fixed charges adjusted for litigation settlement
Fixed charges, as above 17,338
-----------
Earnings before income taxes and fixed charges,
excluding capitalized interest, as above 20,237
Adjustments:
Increase assuming lack of litigation settlement 18,874
-----------
Earnings before income taxes, fixed charges,
capitalized interest, and litigation settlement 39,111
-----------
Pro forma ratio of earnings to fixed charges, as
adjusted for litigation settlement 2.26
===========
Computation of pro forma ratio of earnings to fixed
charges adjusted for interest expense relative to
the Notes
Fixed charges, as above 22,830 17,338
Adjustments:
Estimated net increase in interest expense 16,911 7,128
---------- -----------
Proforma fixed charges adjusted for interest 39,741 24,466
---------- -----------
Earnings before income taxes and fixed charges,
excluding capitalized interest, as above 56,654 20,237
---------- -----------
Pro forma ratio of earnings to fixed charges,
as adjusted for interest expense relative to the Notes 1.43 (1)
========== ===========
Computation of pro forma ratio of earnings to fixed charges
adjusted for interest expense relative to the Notes and
for litigation settlement
Proforma fixed charges adjusted for interest, as above 24,466
-----------
Earnings before income taxes, fixed charges, excluding
capitalized interest, and litigation settlement as above 39,111
-----------
Pro forma ratio of earnings to fixed charges,
adjusted for interest expense relative to the Notes
and for litigation settlement 1.60
===========
(1) Earnings inadequate to cover fixed charges by $4.2 million
</TABLE>
Exhibit 23.1
CONSENT OF PRICE WATERHOUSE LLP
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of our report dated
February 20, 1997, except as to Note 11, which is dated as of March 15, 1997,
appearing on page F-1 of Hollywood Entertainment Corporation's Annual Report on
Form 10-K for the year ended December 31, 1996. We also consent to the reference
to us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Portland, Oregon
September 10, 1997
EXHIBIT 23.2
CONSENT OF COOPERS & LYBRAND L.L.P
We consent to the incorporation by reference in this Registration Statement
on Form S-4 (File No. 333- ), of our report dated February 14, 1995, except for
Note 3 as to which the date is March 29, 1995, on our audit of the financial
statements of Hollywood Entertainment Corporation for the year ended December
31, 1994, which report appears in the Annual Report on Form 10-K for the year
ended December 31, 1996 of Hollywood Entertainment Corporation. We also consent
to the references to our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P
Portland, Oregon
September 5, 1997
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)
U.S. TRUST COMPANY OF CALIFORNIA, N.A.
(Exact name of trustee as specified in its charter)
95-4311476
(I.R.S. employer
identification No.)
515 South Flower Street, Suite 2700
Los Angeles, CA 90071
(Address of principal (Zip Code)
executive offices)
DWIGHT LIU
515 South Flower Street, Suite 2700
Los Angeles, California 90071
(213) 861-5000
(Name, address, including zip code and telephone number of agent for service)
----------------------------
Hollywood Entertainment Corporation
(Exact name of obligor as specified in its charter)
OREGON 93-0981138
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
<PAGE>
25600 SW Parkway Center Drive
Wilsonville, Oregon 97070
(Address of principal chief executive offices)
10 5/8% Senior Subordinated Notes Due 2004
(Title of indenture securities)
<PAGE>
GENERAL
-------
1. General Information.
--------------------
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Comptroller of the Currency
490 L'Enfant Plaza East, S.W.
Washington, D.C. 20219
Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington, D.C. 20429
Federal Reserve Bank (12th District)
San Francisco, California
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. Affiliations with the Obligor
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15.
The obligor currently is not in default under any of its outstanding securities
for which U.S. Trust Company of California, N.A. is Trustee. Accordingly,
responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15 of Form T-1
are not required under General Instruction B.
<PAGE>
16. List of Exhibits
----------------
T-1.1 - A copy of the Articles of Association of U.S. Trust Company of
California, N.A. currently in effect; incorporated herein by reference to
Exhibit T-1.1 filed with Form T-1 Statement, Registration No. 33-33031.
T-1.2 - Included in Exhibit T-1.1
T-1.3 - Included in Exhibit T-1.1
T-1.4 - A copy of the By-Laws of U.S. Trust Company of California, N.A., as
amended to date; incorporated by reference to Exhibit T-1.4 filed with Form T-1
Statement, Registration No. 33-54136.
T-1.6 - The consent of the trustee required by Section 321(b) of the Trust
Indenture Act of 1939; incorporated herein by reference to Exhibit T-1.6 filed
with Form T-1 Statement, Registration No. 33-33031.
T-1.7 - A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining authority
NOTE
- ----
As of September 3, 1997 had 20,000 shares of Capital Stock outstanding, all of
which are owned by U.S. Trust Corporation
The responses to Items 2, 5, 6, 7, 8, 9, 10, 11 and 14 set forth the information
requested as though U. S. Trust Company of California, N.A. and U.S. Trust
Corporation were the "trustee."
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
<PAGE>
Pursuant to the requirements of the Trust Indenture of Act of 1939, the trustee,
U.S. Trust Company of California, N.A., a corporation organized and existing
under the laws of the State of California, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Los Angeles, and State of
California, on the 3rd day of September, 1997.
U.S. TRUST COMPANY OF CALIFORNIA, N.A.
Trustee
By: KIMBERLY A. VANN
-------------------------------------
Kimberly A. Vann
Authorized Signatory
<PAGE>
U.S. Trust Company Call Date: 06/30/97 ST-BK: 06-0784 FFIEC 033
of California, N.A. Page RC-1
515 South Flower Street, Vendor ID: D Cert #: 33332
Suite 2700
Los Angeles, CA 90071 9
Transit #: 12204024 Transmitted to EDS as 0052287 on 7/29/97 at 10:28:02 CST
Consolidated Report of Condition for Insured Commercial
and State-chartered Savings Banks for June 30,1997
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
<TABLE>
<CAPTION>
Schedule RC - Balance Sheet
C200 -
Dollar Amounts in Thousands
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
1. Cash and balances due from depository institutions (from Schedule RC-A): RCON
----
a. Noninterest-bearing balances and currency and coin (1) ___________________________ 0081 ...... 6,819 1.a
b. Interest bearing balances (2) ____________________________________________________ 0071 ...... 82 1.b
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A) _______________________ 1754 ...... 0 2.a
b. Available-for-sale securities (from Schedule RC-B, column D) _____________________ 1773 ...... 87,907 2.b
3. Federal funds sold and securities purchased under agreements to resell _______________ 1350 ...... 24,000 3.
4. Loans and lease financing receivables: RCON
a. Loans and leases, net of unearned income ----
(from Schedule RC-C) _________________________________________ 2122 ...... 138,343 ................... 4.a
b. LESS: Allowance for loan and lease losses ___________________ 3123 ...... 2,055 ................... 4.b
c. LESS: Allocated transfer risk reserve _______________________ 3128 ...... 0 ................... 4.c
d. Loans and leases, net of unearned income,
allowance, and reserve (item 4.a minus 4.b and 4.c) ______________________________ 2125 ...... 136,288 4.d
5. Trading assets _______________________________________________________________________ 3545 ...... 0 5.
6. Premises and fixed assets (including capitalized leases) _____________________________ 2145 ...... 7,066 6.
7. Other real estate owned (from Schedule RC-M) _________________________________________ 2150 ...... 0 7.
8. Investments in unconsolidated subsidiaries and associated companies
(from Schedule RC-M) _________________________________________________________________ 2130 ...... 0 8.
9. Customers' liability to this bank on acceptances outstanding _________________________ 2155 ...... 0 9.
10. Intangible assets (from Schedule RC-M) _______________________________________________ 2143 ...... 2,493 10.
11. Other assets (from Schedule RC-F) ____________________________________________________ 2160 ...... 4,633 11.
12. Total assets (sum of items 1 through 11) _____________________________________________ 2170 ...... 269,288 12.
- --------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE>
U.S. Trust Company Call Date: 06/30/97 ST-BK: 06-0784 FFIEC 033
of California, N.A. Page RC-1
515 South Flower Street, Vendor ID: D Cert #: 33332
Suite 2700
Los Angeles, CA 90071 10
Transit #: 12204024 Transmitted to EDS as 0052287 on 7/29/97 at 10:28:02 CST
Schedule RC - Continued
Dollar Amounts in Thousands
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES
13. Deposits: RCON
a. In domestic offices (sum of totals of ----
columns A and C from Schedule RC-E) ______________________________________________ 2200 ...... 233,509 13.a
RCON
----
(1) Noninterest-bearing (1) _________________________________ 6631 ...... 26,255 ................... 13.a.1
(2) Interest-bearing ________________________________________ 6636 ...... 207,254 ................... 13.a.2
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs ____________________ ...................
(1) Noninterest-bearing _________________________________________________________ ...................
(2) Interest-bearing ____________________________________________________________ ...................
14. Federal funds purchased and securities sold under agreements to repurchase ___________ 2800 ...... 0 14.
15. a. Demand notes issued to the U.S. Treasury _________________________________________ 2840 ...... 0 15.a
b. Trading liabilities ______________________________________________________________ 3548 ...... 0 15.b
16. Other borrowed money (includes mortgage indebtedness and obligations
under capitalized leases):
a. With a remaining maturity of one year or less ____________________________________ 2332 ...... 0 16.a
b. With a remaining maturity of more than one year through three years ______________ A547 ...... 0 16.b
c. With a remaining maturity of more than three years _______________________________ A548 ...... 0 16.c
17. Not applicable
18. Bank's liability on acceptances executed and outstanding _____________________________ 2920 ...... 0 18.
19. Subordinated notes and debentures ____________________________________________________ 3200 ...... 0 19.
20. Other liabilities (from Schedule RC-G) _______________________________________________ 2930 ...... 4,664 20.
21. Total liabilities (sum of items 13 through 20) _______________________________________ 2948 ...... 238,173 21.
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus ________________________________________ 3838 ...... 5,000 23.
24. Common stock _________________________________________________________________________ 3230 ...... 2,000 24.
25. Surplus (exclude all surplus related to preferred stock) _____________________________ 3839 ...... 12,745 25.
26. a. Undivided profits and capital reserves ___________________________________________ 3632 ...... 11,328 26.a
b. Net unrealized holding gains (losses) on available-for-sale securities ___________ 8434 ...... 42 26.b
27. Cumulative foreign currency translation adjustments __________________________________ ..............
28. a. Total equity capital (sum of items 23 through 27) ________________________________ 3210 ...... 31,115 28.
29. Total liabilities and equity capital (sum of items 21 and 28) ________________________ 3300 ...... 269,288 29.
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that best describes
the most comprehensive level of auditing work performed for the bank by independent
external auditors as of any date during 1996 _________________________________________ 6724 ...... N/A M.1
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other
with generally accepted auditing standards by certified external auditors (may be required by state chartering
public accounting firm which submits a report on the bank authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external
conducted in accordance with generally accepted auditing auditors
standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by
submits a report on the consolidated holding company (but external auditors
not on the bank separately) 7 = Other audit procedures (excluding tax preparation
3 = Directors' examination of the bank conducted in accordance work)
with generally accepted auditing standards by a certified 8 = No external audit work
public accounting firm (may be required by state chartering
authority)
- --------------
(1) Includes total demand deposits and noninterest-bearing time and savings deposits.
(2) Includes limited life preferred stock and related surplus.
</TABLE>
LETTER OF TRANSMITTAL
To Exchange
105/8% Senior Subordinated Notes Due 2004
Of
Hollywood Entertainment Corporation
(The "Company")
- --------------------------------------------------------------------------------
| THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON |
| _________, 1997, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS OF 105/8% |
| SENIOR SUBORDINATED NOTES DUE 2004 MAY BE WITHDRAWN AT ANY TIME PRIOR TO |
| THE EXPIRATION DATE. |
- --------------------------------------------------------------------------------
TO:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY, EXCHANGE AGENT
By Mail, By Hand or Overnight Delivery:
c/o Continental Stock Transfer & Trust Company
Two Broadway, 19th Floor
New York, New York 10004
Attention: Reorganization Department
By Facsimile:
(212) 509-5150
Phone Number
(212) 509-4000 Ext. 227
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OR TELEX, OTHER THAN AS
SET FORTH 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. Except as otherwise
provided herein, all signatures on this Letter of Transmittal must be guaranteed
in accordance with the procedures set forth herein. See Instruction 1.
HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE THE EXCHANGE OFFER CONSIDERATION
PURSUANT TO THE EXCHANGE OFFER MUST VALIDLY TENDER (AND NOT WITHDRAW) THEIR
SENIOR SUBORDINATED NOTES TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
<PAGE>
This Letter of Transmittal is to be used only if 105/8% Senior Subordinated
Notes due 2004 (the "Securities" or the "Old Notes") of the Company are to be
physically delivered to the Exchange Agent or delivered by book-entry transfer
to the Exchange Agent's account at The Depository Trust Company ("DTC") (a
"BookEntry Transfer Facility")- pursuant to the book-entry transfer procedures
set forth in the Prospectus of the Company dated _________, 1997 (as the same
may be amended or supplemented from time to time, the "Prospectus") under the
heading "The Exchange Offer -- Procedure for Tendering Old Notes" and
"Book-Entry Transfer." See Instruction 2. Delivery of documents to a BookEntry
Transfer Facility does not constitute delivery to the Exchange Agent.
Holders whose Old Notes are not immediately available or who cannot deliver
their Old Notes and all other required documents to the Exchange Agent, or who
cannot complete the procedure for book-entry transfer, prior to the Expiration
Date, may nevertheless tender their Old Notes in accordance with the guaranteed
delivery procedures set forth in the Prospectus under the heading "The Exchange
Offer -- Procedure for Tendering Old Notes" and "Guaranteed Delivery
Procedures." See Instruction 2.
All capitalized terms used herein and not otherwise defined herein are used
herein with the meanings ascribed to them in the Prospectus.
HOLDERS WHO WISH TO TENDER THEIR OLD NOTES MUST, AT A MINIMUM, COMPLETE
COLUMNS (1) THROUGH (3) IN THE BOX HEREIN ENTITLED "DESCRIPTION OF SECURITIES
TENDERED" AND SIGN IN THE APPROPRIATE BOX BELOW. If only those columns are
completed, the holder will be deemed to have tendered all the Old Notes, listed
in the table. If a holder wishes to tender less than all of such Old Notes,
column (4) must be completed in full, and such holder should refer to
Instruction 5.
2
<PAGE>
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER TO THE EXCHANGE AGENT'S ACCOUNT AT A BOOK-ENTRY TRANSFER
FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: _________________________________________________
Account Number: ____________________________
Transaction Code Number: ___________________
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED
PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Holder(s): _______________________________________________
Window Ticket No. (if any): ____________________________________________________
Date of Execution of Notice of Guaranteed Delivery: ____________________________
Name of Institution which Guaranteed Delivery: _________________________________
Account Number: ____________________________
Transaction Code Number: ___________________
3
<PAGE>
DESCRIPTION OF SECURITIES TENDERED
<TABLE>
<CAPTION>
(1) (2) (3) (4)
- ---------------------- ---------------------------- ----------------------- ---------------------
NAME(S) AND SECURITY NUMBER(S)* TOTAL PRINCIPAL PRINCIPAL AMOUNT
ADDRESS(ES) OF AMOUNT OF TENDERED (IF LESS
HOLDER(S) (PLEASE SECURITIES* THAN ALL)*
FILL IN, IF BLANK,
EXACTLY AS NAME(S)
APPEAR(S) ON
SECURITIES
- ---------------------- ---------------------------- ----------------------- ---------------------
<S> <C> <C> <C>
Total:
- ---------------------- ---------------------------- ----------------------- ---------------------
- --------------------------------------------------------------------------------
* Need not be completed by holders tendering by book-entry transfer (see
below).
** Completion of column (3) will constitute the tender by you of all
Securities delivered unless otherwise specified in column (4). See
Instruction 5.
- --------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
By execution hereof, the undersigned hereby acknowledges he has received
and reviewed the Prospectus and this Letter of Transmittal relating to the
Company's offer to exchange (the "Exchange Offer") the Old Notes for 105/8%
Series B Senior Subordinated Notes due 2004 (the "New Notes") and otherwise upon
the terms and subject to the conditions set forth in the Prospectus. The
undersigned hereby acknowledges that the undersigned will not be entitled to any
payment in respect of accrued and unpaid interest on the Securities tendered
herewith and accepted pursuant to the Exchange Offer.
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the principal amount of Securities
indicated above.
Subject to, and effective upon, the acceptance by the Company of the
principal amount of Securities tendered hereby for exchange pursuant to the
terms of the Exchange Offer, the undersigned hereby irrevocably sells, assigns
and transfers to, or upon the order of, the Company, all right, title and
interest in and to, and any and all claims in respect of or arising or having
arisen as a result of the undersigned's status as a holder of, all Securities
tendered hereby, waives any and all rights with respect to the Securities
tendered hereby (including, without limitation, the undersigned's waiver of any
existing or past defaults and their consequences with respect to the Securities)
and releases and discharges any obligor or parent of any obligor of the
Securities from any and all claims the undersigned may have now, or may have in
the future, arising out of or related to the Securities, including, without
limitation, any claims that the undersigned is entitled to receive additional
principal or interest payments with respect to the Securities or to participate
in any redemption or defeasance of the Securities. The undersigned hereby
irrevocably constitutes and appoints the Exchange Agent (with full knowledge
that the Exchange Agent also acts as agent of the Company) as the true and
lawful agent and attorney-in-fact of the undersigned with respect to such
Securities, with full power of substitution (such power-of-attorney being deemed
to be an irrevocable power coupled with an interest) to (a) deliver such
Securities, or transfer ownership of such Securities on the account books
maintained by a Book-Entry Transfer Facility, together, in either case, with all
accompanying evidences of transfer and authenticity, to or upon the order of the
Company, (b) present such Securities for transfer on the books of the Company,
and (c) receive all benefits and otherwise exercise all rights of beneficial
ownership of such Securities, all in accordance with the terms of the Exchange
Offer.
The undersigned hereby represents and warrants that (i) the undersigned has
full power and authority to tender, sell, assign and transfer the Securities
tendered hereby, and that when such Securities are accepted for exchange by the
Company, the Company will acquire good, marketable and unencumbered title
thereto, free and clear of all liens,
5
<PAGE>
restrictions, charges and encumbrances and that none of such Securities will be
subject to any adverse claim or right; (ii) the undersigned owns the Securities
being tendered hereby and is entitled to tender such Securities as contemplated
by the Exchange Offer, all within the meaning of Rule 14e-4 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and (iii) the tender of
such Securities complies with Rule 14e-4. The undersigned, upon request, will
execute and deliver all additional documents deemed by the Exchange Agent or the
Company to be necessary or desirable to complete the sale, assignment and
transfer of the Securities tendered hereby.
The undersigned understands that tenders of Securities pursuant to any of
the procedures described in the Prospectus under the caption "The Exchange Offer
Procedure for Tendering Old Notes" and in the instructions hereto will
constitute the undersigned's acceptance of the terms and conditions of the
Exchange Offer. The Company's acceptance of such Securities for exchange
pursuant to the terms of the Exchange Offer will constitute a binding agreement
between the undersigned and the Company upon the terms and subject to the
conditions of the Exchange Offer. The undersigned has read and agrees to all
terms and conditions of the Exchange Offer. Delivery of the enclosed Securities
shall be effected, and risk of loss and title of such Securities shall pass,
only upon proper delivery thereof to the Exchange Agent.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death or incapacity of the undersigned and every
obligation of the undersigned under this Letter of Transmittal shall be binding
upon the undersigned's heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives. SECURITIES TENDERED PURSUANT TO THE EXCHANGE OFFER MAY BE
WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE. See the information set
forth under the heading "The Exchange Offer -- Withdrawal Rights" in the
Prospectus.
Unless otherwise indicated herein in the box entitled "Special Payment
Instructions," please issue the New Notes with respect to Securities accepted
for exchange, and return any certificates for Securities not tendered or not
accepted for exchange, in the name(s) of the registered holder(s) appearing in
the box entitled "Description of Securities Tendered" (and, in the case of
Securities tendered by book-entry transfer, by credit to the account at the
Book-Entry Transfer Facility designated above). Similarly, unless otherwise
indicated herein in the box entitled "Special Delivery Instructions," please
deliver the New Notes with respect to Securities accepted for exchange, together
with any certificates for Securities not tendered or not accepted for exchange
(and accompanying documents, as appropriate) to the addressees) of the
registered holder(s) appearing in the box entitled "Description of Securities
Tendered." If both the "Special Payment Instructions" box and the "Special
Delivery Instructions" box are completed, please issue the New Notes with
respect to any Securities accepted for exchange, and return any certificates for
Securities not tendered or not accepted for exchange, in the name(s) of, and
deliver such New Notes and any such certificates to, the person(s) at the
addressees) so indicated. Please credit any Securities tendered hereby and
6
<PAGE>
delivered by book-entry transfer ' but which are not accepted for exchange, by
crediting the account at the Book-Entry Transfer Facility designated above.
7
<PAGE>
SPECIAL PAYMENT INSTRUCTIONS (SEE
INSTRUCTIONS 1, 6, 7 AND 8)
To be completed ONLY if the payment of accrued and unpaid interest due on
the Old Notes accepted for exchange and/or certificates for Securities in a
principal amount not tendered or not accepted for exchange, and/or the
certificates representing the New Notes, are to be issued in the name of someone
other than the undersigned or if Securities delivered by book-entry transfer not
accepted for purchase are to be returned by credit to a participant number
maintained at the Book-Entry Transfer Facility other than the participant number
indicated above.
Issue: / / Securities
/ / New Notes to:
Name: __________________________________________________________________________
(Please Print)
Address: _______________________________________________________________________
Zip Code
Wire Transfer Instructions _____________________________________________________
_____________________________________________________
________________________________________________________________________________
Please complete the Substitute Form W-9 below.
SPECIAL DELIVERY INSTRUCTIONS (SEE
INSTRUCTIONS 1, 6, 7 AND 8)
To be completed ONLY if certificates for Securities in a principal amount
not tendered or not accepted for exchange, and/or the certificates representing
the New Notes, are to be sent to someone other than the undersigned, or to the
undersigned at an address other than that shown above.
Deliver: / / Securities
/ / New Notes to:
Name: __________________________________________________________________________
(Please Print)
Address: _______________________________________________________________________
Zip Code
________________________________________________________________________________
Please complete the Substitute Form W-9 below.
8
<PAGE>
SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS OF SECURITIES
REGARDLESS OF WHETHER SECURITIES ARE BEING PHYSICALLY
DELIVERED HEREWITH)
X ______________________________________________________________________________
X ______________________________________________________________________________
Signature(s) of Holder(s) and Authorized Signatory Date_______, 1997
Must be signed by the registered holder(s) of the Securities tendered hereby
exactly as their name(s) appear(s) on the certificate(s) for such Securities or,
if tendered by a participant in one of the Book-Entry Transfer Facilities,
exactly as such participant's name appears on a security position listing as the
owner of the Securities, or by person(s) authorized to become registered
holder(s) by endorsements and documents transmitted with this Letter of
Transmittal. If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation, agent or other person acting in a
fiduciary or representative capacity, please provide the following information
and see Instruction 6.
Name(s): _______________________________________________________________________
________________________________________________________________________________
(Please Print)
Capacity (full title): _________________________________________________________
Address: _______________________________________________________________________
________________________________________________________________________________
(Including Zip Code)
Area Code and Telephone No. ____________________________________________________
Tax Identification Number or Social Security Number ____________________________
Wire Transfer Instructions _____________________________________________________
_____________________________________________________
SIGNATURE GUARANTEE (See Instructions I and 6 below)
________________________________________________________________________________
(Name of Eligible Institution Guaranteeing Signatures)
________________________________________________________________________________
(Address (including zip code) and Telephone Number (including area code) of
Eligible Institution)
________________________________________________________________________________
(Authorized Signature)
________________________________________________________________________________
(Printed Name)
________________________________________________________________________________
(Title)
Date: __________, 1997
9
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Guarantee of Signatures. All signatures on this Letter of Transmittal
must be guaranteed by a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
by a commercial bank or trust company having an office or correspondent in the
United States or by any other "Eligible Guarantor Institution" as such term is
defined in Rule 17Ad- 1 5 under the Securities Exchange Act of 1934, as amended
(each of the foregoing being referred to herein as an "Eligible Institution")
unless (a) this Letter of Transmittal is signed by the registered holder of the
Securities tendered herewith (or by a participant in one of the Book-Entry
Transfer Facilities whose name appears on a security position listing as the
owner of such Securities) and neither the "Special Payment Instructions" box nor
the "Special Delivery Instructions" box of this Letter of Transmittal has been
completed or (b) such Securities are tendered for the account of an Eligible
Institution. See Instruction 6.
2. Delivery of Letter of Transmittal and Securities; Guaranteed Delivery
Procedures. This Letter of Transmittal is to be used only if Securities tendered
hereby are to be physically delivered to Exchange Agent or delivered by
book-entry transfer to the Exchange Agent's account at a Book-Entry Transfer
Facility pursuant to the procedures set forth in the Prospectus under the
heading "The Exchange Offer -- Procedures for Tendering -- BookEntry Transfer."
All physically tendered Securities or confirmations of, or an Agent's Message
with respect to, book-entry transfer into the Exchange Agent's account with a
Book-Entry Transfer Facility, together with a properly completed and validly
executed Letter of Transmittal (or facsimile or electronic copy thereof or an
electronic agreement to comply with the terms thereof) and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
at one of its addresses set forth on the cover page hereof prior to the
Expiration Date. If Securities are forwarded to the Exchange Agent in multiple
deliveries, a properly completed and validly executed Letter of Transmittal must
accompany each such delivery. The Company may elect to waive receipt of a
written Letter of Transmittal if delivery is properly effected through a
Book-Entry Transfer Facility.
If a holder desires to tender Securities pursuant to the Exchange Offer and
(a) certificates representing such Securities are not immediately available, (b)
time will not permit this Letter of Transmittal, certificates representing such
Securities and all other required documents to reach the Exchange Agent prior to
the Expiration Date, or (c) the procedures for book-entry transfer cannot be
completed prior to the Expiration Date, such holder may effect a tender of
Securities in accordance with the guaranteed delivery procedure set forth in the
Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery
Procedures."
Pursuant to such procedure:
(a) such tender must be made by or through an Eligible Institution;
10
<PAGE>
(b) prior to the Expiration Date, the Exchange Agent must have received
from such Eligible Institution, at one of the addresses of the Exchange Agent
set forth on the cover page hereof, a properly completed and validly executed
Notice of Guaranteed Delivery (by telegram, facsimile, mail or hand delivery)
substantially in the form provided by the Company, setting forth the name and
address of the registered holder and the principal amount or number of
Securities being tendered and stating that the tender is being made thereby and
guaranteeing that, within five New York Stock Exchange trading days after the
date of the Notice of Guaranteed Delivery, this Letter of Transmittal validly
executed (or a facsimile hereof), together with certificates evidencing the Old
Notes (or confirmation of, or an Agent's Message with respect to, book-entry
transfer of such Old Notes into the Exchange Agent's account with a Book-Entry
Transfer Facility), and any other documents required by this Letter of
Transmittal and these instructions, will be deposited by such Eligible
Institution with the Exchange Agent; and
(c) this Letter of Transmittal or a facsimile hereof, properly completed
and validly executed, with any required signature guarantees, certificates
representing the Securities in proper form for transfer (or confirmation of
book-entry transfer into the Exchange Agent's account with a Book-Entry Transfer
Facility) and all other documents required by this Letter of Transmittal must be
received by the Exchange Agent within five New York Stock Exchange trading days
after the date of such Notice of Guaranteed Delivery.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, SECURITIES AND ALL
OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER
FACILITY, TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE TENDERING
HOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. IF SUCH DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, THE MAILING SHOULD BE
MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE, TO PERMIT DELIVERY TO THE
EXCHANGE AGENT PRIOR TO SUCH DATE. NO ALTERNATIVE, CONDITIONAL OR CONTINGENT
TENDERS OF SECURITIES WILL BE ACCEPTED. BY EXECUTION OF THIS LETTER OF
TRANSMITTAL (OR A FACSIMILE HEREOF), ALL TENDERING HOLDERS WAIVE ANY RIGHT TO
RECEIVE ANY NOTICE OF THE ACCEPTANCE OF THEIR SECURITIES FOR PAYMENT.
3. Inadequate Space. If the space provided herein under "Description of
Securities Tendered" is inadequate, the certificate numbers of the Securities
and the principal amount of Securities tendered should be listed on a separate
schedule and attached hereto.
4. Withdrawal of Tenders. Tenders of Old Notes may be withdrawn at any time
until the Expiration Date. Thereafter, such tenders are irrevocable.
11
<PAGE>
Holders who wish to exercise their right of withdrawal with respect to a
Exchange Offer must give written notice of withdrawal, delivered by mail or hand
delivery or facsimile transmission, to the Exchange Agent prior to the
Expiration Date or at such other time as otherwise provided for herein. In order
to be effective, a notice of withdrawal must specify the name of the person who
deposited the Old Notes to be withdrawn (the "Depositor"), the name in which the
Old Notes are registered, if different from that of the Depositor, and the
principal amount of the Old Notes to be withdrawn prior to the physical release
of the certificates to be withdrawn. If tendered Old Notes to be withdrawn have
been delivered or identified through confirmation of book-entry transfer to the
Exchange Agent, the notice of withdrawal also must specify the name and number
of the account at the Book-Entry Transfer Facility to be credited with withdrawn
Old Notes. The notice of withdrawal must be signed by the registered holder of
such Old Notes in the same manner as the applicable Letter of Transmittal
(including any required signature guarantees), or be accompanied by evidence
satisfactory to the Company that the person withdrawing the tender has succeeded
to the beneficial ownership of such Old Notes. Withdrawals of tenders of Old
Notes may not be rescinded, and any Old Notes withdrawn will be deemed not
validly tendered thereafter for purposes of the Exchange Offer. However,
properly withdrawn Old Notes may be tendered again at any time prior to the
Expiration Date by following the procedures for tendering not previously
tendered Old Notes described elsewhere herein.
If the Company is delayed in its acceptance for conversion and payment for
any Old Notes or is unable to accept for conversion or convert any Old Notes
pursuant to the Exchange Offer for any reason, then, without prejudice to the
Company's rights hereunder, tendered Old Notes may be retained by the Exchange
Agent on behalf of the Company and may not be withdrawn (subject to Rule
13e-4(f)(5) under the Exchange Act, which requires that the issuer making the
tender offer pay the consideration offered, or return the tendered securities,
promptly after the termination or withdrawal of a tender offer), except as
otherwise permitted hereby.
5. Partial Tenders (Not Applicable to Holders who tender by book-entry
transfer). Tenders of Securities will be accepted only in integral multiples of
$1,000 principal amount. The aggregate principal amount of all Securities
delivered to the Exchange Agent will be deemed to have been tendered unless
otherwise indicated. If tenders of Securities are made with respect to less than
the entire principal amount of Securities delivered herewith, certificate(s) for
the principal amount of Securities not tendered will be issued and sent to the
registered holder, unless otherwise specified in the "Special Payment
Instructions" or "Special Delivery Instructions" boxes in this Letter of
Transmittal.
6. Signatures on Letter of Transmittal; Bond Powers and Endorsements. If
this Letter of Transmittal is signed by the registered holder(s) of the
Securities tendered hereby, the signature(s) must correspond with the name(s) as
written on the face of the certificates representing such Securities without
alteration, enlargement or any other change whatsoever. If this Litter of
Transmittal is signed by a participant in one of the Book-Entry Transfer
Facilities whose name is shown on a security position listing as the owner of
the
12
<PAGE>
Securities tendered hereby, the signature must correspond with the name shown on
the security position listing as the owner of the Securities.
If any Securities tendered hereby are owned of record by two or more
persons, all such persons must sign this Letter of Transmittal.
If any Securities tendered hereby are registered in the names of different
holders, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal, and any necessary accompanying documents, as there are
different registrations of such Securities.
If this Letter of Transmittal is signed by the registered holder of
Securities tendered hereby, no endorsements of such Securities or separate bond
powers are required, unless the New Notes are, or Securities not tendered or not
accepted for exchange, are to be issued in the name of a person other than the
registered holder(s), in which case the Securities tendered hereby must be
endorsed or accompanied by appropriate bond powers, in either case signed
exactly as the name(s) of the registered holder(s) appear(s) on such Securities
(and with respect to a participant in a Book-Entry Transfer Facility whose name
appears on a security Position listing as the owner of Securities, exactly as
the name(s) of the participant(s) appear(s) on such security position listing as
the owner of the Securities). Signatures on such Securities and bond powers must
be guaranteed by an Eligible Institution. See Instruction 1.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Securities tendered hereby, the Securities must be
endorsed or accompanied by appropriate bond powers, in either case signed
exactly as the name(s) of the registered holder(s) appear(s) on the certificates
representing such Securities. Signatures on such Securities and bond powers must
be guaranteed by an Eligible Institution. See Instruction 1.
If this Letter of Transmittal or any Securities or bond powers are signed
by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and proper evidence satisfactory to
the Company of such person's authority so to act must be submitted with this
Letter of Transmittal.
7. Transfer Taxes. Except as otherwise provided in this Instruction 7, the
Company will pay all transfer taxes with respect to the delivery and conversion
of Securities pursuant to the Exchange Offer. If, however, issuance of the New
Notes, or Securities not tendered or not accepted for exchange, are to be issued
in the name of a person other than the registered holder(s), the amount of any
transfer taxes (whether imposed on the registered holder(s), such other person
or otherwise) payable on account of the transfer to such other person must be
paid by unless evidence satisfactory to the Company of the payment of such
taxes, or exemption therefrom, is submitted. Except as provided in this
Instruction 7, it will not be necessary for transfer tax stamps to be affixed to
the Securities tendered hereby.
13
<PAGE>
8. Special Payment and Delivery Instructions. If the New Notes with respect
to any Securities tendered hereby, or Securities not tendered or not accepted
for exchange, are to be issued in the name of a person other than the person(s)
signing this Letter of Transmittal or to the person(s) signing this Letter of
Transmittal but at an address other than that shown in the box entitled
"Description of Securities Tendered," the appropriate boxes in this Letter of
Transmittal must be completed. All Securities tendered by book-entry transfer
and not accepted for exchange will be returned by crediting the account at the
Book-Entry Transfer Facility designated above as the account from which such
Securities were delivered.
9. Taxpayer Identification Number. Each tendering holder is required to
provide the Exchange Agent with the holder's correct taxpayer identification
number ("TIN"), generally, the holders' social security or federal employer
identification number, on Substitute Form W-9, which is provided under
"Important Tax Information" below, and to certify whether such person is subject
to backup withholding of federal income tax.
A holder must cross out item (2) in the Certification box of Substitute
Form W-9 if such holder is subject to backup withholding. Failure to provide the
information on the Substitute Form W-9 may subject the tendering holder to 31%
federal income tax backup withholding on the reportable payments made to the
holder or other payee with respect to Securities exchanged pursuant to the
Exchange Offer. The box in Part 3 of the form should be checked if the tendering
holder has not been issued a TIN and has applied for a TIN or intends to apply
for a TIN in the near future. If the box in Part 3 is checked and the Exchange
Agent is not provided with a TIN within 60 days, thereafter the Exchange Agent
will hold 31% of all reportable payments until a TIN is provided to the Exchange
Agent.
10. Conflicts. In the event of any conflict between the terms of the
Prospectus and the terms of this Letter of Transmittal, the terms of the
Prospectus will control.
11. Mutilated, Lost, Stolen or Destroyed Securities. Any holder of
Securities, whose Securities have been mutilated, lost, stolen or destroyed,
should contact the Exchange Agent at the addresses indicated above for further
instructions.
12. Requests for Assistance or Additional Copies. Requests for assistance
may be directed to the Exchange Agent at its address set forth below or from the
tendering registered holder's broker, dealer, commercial bank or trust company.
Additional copies of the Prospectus, this Letter of Transmittal, the Notice of
Guaranteed Delivery and the Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 may be obtained from the Exchange
Agent.
13. Determination of Validity. All questions as to the form of all
documents, the validity (including time of receipt) and acceptance of tenders of
the Old Notes will be determined by the Company, in its sole discretion, the
determination of which shall be final and binding. Alternative, conditional or
contingent tenders of Old Notes will not be considered valid. The Company
reserves the absolute right to reject any or all tenders of
14
<PAGE>
Old Notes that are not in proper form or the acceptance of which, in the
Company's opinion, would be unlawful. The Company also reserves the right to
waive any defects, irregularities or conditions of tender as to particular Old
Notes. If the Company waives its right to reject a defective tender of Old
Notes, the holder will be entitled to the New 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. Any defect
or irregularity in connection with tenders of Old Notes must be cured within
such time as the Company determines, unless waived by the Company. Tenders of
Old Notes shall not be deemed to have been made until all defects and
irregularities have been waived by the Company or cured. None of the Company,
the Exchange Agent or any other person will be under any duty to give notice of
any defects or irregularities in tenders of Old Notes, or will incur any
liability to holders for failure to give any such notice.
IMPORTANT TAX INFORMATION
Under the federal income tax law, a holder whose tendered Securities are
accepted for exchange is required by law to provide the Exchange Agent (as
payer) with such holder's correct TIN on Substitute Form W-9 below. If such
holder is an individual, the TIN is his or her social security number. If the
Exchange Agent is not provided with the correct TIN, a $50 penalty may be
imposed by the Internal Revenue Service, and certain payments may be subject to
backup withholding.
Certain holders (including, among others, corporations) are not subject to
these backup withholdings and reporting requirements. Exempt holders should
indicate their exempt status on Substitute Form W-9. In order for a foreign
individual to qualify as an exempt recipient, such individual must submit a
statement, signed under penalties of perjury, attesting to such individual's
exempt status. Forms of such statements can be obtained from the Exchange Agent.
See the enclosed "Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9" for additional instructions.
If backup withholding applies, the Exchange Agent is required to withhold 3
1 % of any reportable payments made to the holder or other payee. Backup
withholding is not an additional federal income tax. Rather, the federal income
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 reportable payments made with respect to
securities accepted for conversion pursuant to the Exchange Offer, the holder is
required to notify the Exchange Agent of such holder's correct TIN by completing
the form below, certifying that the TIN provided on the Substitute From W-9 is
correct (or that such holder is awaiting a TIN) and that (a) such holder is
exempt from backup withholding, (b) such holder has not been notified by the
Internal Revenue Service that he is subject to backup withholding as a
15
<PAGE>
result of a failure to report all interest or dividends or (c) the Internal
Revenue Service has notified such holder that such holder is no longer subject
to backup withholding.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the holder of the
Securities tendered hereby. If the Securities are held in more than one name or
are not held in the name of the actual owner, consult the enclosed "Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional guidance on which number to report.
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<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
PAYOR'S NAME: CONTINENTAL STOCK TRANSFER & TRUST COMPANY
- ---------------------------------------------------------------------------------------------------------
<S> <C>
NAME/ADDRESS:
SUBSTITUTE
Form W-9
----------------------------------------------------------------------
Department of Part 1(a) -- PLEASE PROVIDE YOUR TIN ____________
the Treasury TIN IN THE BOX AT RIGHT AND
Internal CERTIFY BY SIGNING AND DATING (Social Security Number or
Revenue Service BELOW (Employer Identification Number
----------------------------------------------------------------------
Payor's Request for Part 1(b) -- PLEASE CHECK THE BOX AT THE RIGHT IF YOU HAVE [ ]
Taxpayer Identification APPLIED FOR, AND ARE AWAITING RECEIPT OF, YOUR TIN
Number ("TIN")
and Certification ----------------------------------------------------------------------
Part 2 -- FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING PLEASE
WRITE "EXEMPT" HERE
(SEE INSTRUCTIONS) ___________________________________________________
Part 3 -- CERTIFICATION UNDER PENALTIES OF PERJURY, I CERTIFY THAT (X)
The number shown on this form is my correct TIN (or I am waiting for a
number to be issued to me), and (Y) I am not subject to backup
withholding because: (a) I am exempt from backup withholding, or (b) I
have not been notified by the Internal Revenue Service (the "IRS") that
I am subject to backup withholding as a result of a failure to report
all interest or dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding.
SIGNATURE ____________________________________ DATE __________________
- ---------------------------------------------------------------------------------------------------------
</TABLE>
You must cross out Item (Y) of Part 3 above if you have been notified by
the IRS that you are currently subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after being
notified by the IRS that you were subject to backup withholding you received
another notification from the IRS that you are no longer subject to backup
withholding, do not cross out Item (Y) of Part 3. (Also see Certification under
Specific Instructions in the enclosed Guidelines.)
[YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 1(b)
OF THE SUBSTITUTE FORM W-9 INDICATING YOU HAVE APPLIED FOR, AND ARE AWAITING
RECEIPT OF, YOUR TIN]
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and that I mailed or delivered an application to receive
a taxpayer identification number to the appropriate Internal Revenue Service
Center or Social Security Administration Office (or I intend to mail or deliver
an application in the near future). I understand that if I do not provide a
Taxpayer Identification Number to the Payor, 31 percent of all payments made to
me pursuant to this Offer shall be retained until I provide a Tax Identification
Number to the Payor and that, if I do not provide my Taxpayer Identification
Number within sixty (60) days, such retained amounts shall be remitted to the
IRS as backup withholding and 31 percent of all reportable payments made to me
thereafter will be withheld and remitted to the IRS until I provide a Taxpayer
Identification Number.
_______________________________________ ____________________________________
Signature Date
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31 PERCENT OF ANY CASH PAYMENTS. PLEASE REVIEW THE ENCLOSED GUIDELINES
FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM
W-9 FOR ADDITIONAL DETAILS.
17
<PAGE>
The Exchange Agent for the Exchange Offer is:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
TWO BROADWAY, 19TH FLOOR
NEW YORK, NEW YORK 10004
BANKERS AND BROKERS AND OTHERS CALL: (212) 509-4000 EXT. 227
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