<PAGE> 1
REGISTRATION NO. 333-19613
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3 TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
CENTRAL TRACTOR FARM & COUNTRY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 5200 42-1425562
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF CLASSIFICATION CODE) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
3915 DELAWARE AVENUE
DES MOINES, IOWA 50316-0330
(515) 266-3101
</TABLE>
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JAMES T. MCKITRICK
CENTRAL TRACTOR FARM & COUNTRY, INC.
3915 DELAWARE AVENUE
DES MOINES, IOWA 50316-0330
(515) 266-3101
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
ALEXANDER A. NOTOPOULOS, KIRK A. DAVENPORT, ESQ.
JR., ESQ. LATHAM & WATKINS
SULLIVAN & WORCESTER LLP 885 THIRD AVENUE
ONE POST OFFICE SQUARE NEW YORK, NEW YORK 10022
BOSTON, MASSACHUSETTS 02109 (212) 906-1200
(617) 338-2800
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT WILL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT WILL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT WILL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
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 STATE.
SUBJECT TO COMPLETION, DATED MARCH 18, 1997
PRELIMINARY PROSPECTUS
$100,000,000
CENTRAL TRACTOR FARM & COUNTRY, INC.
% SENIOR NOTES DUE 2007 [CT FARM & COUNTRY
LOGO]
------------------------
The % Senior Notes due 2007 (the "Senior Notes") are being offered (the
"Offering") by Central Tractor Farm & Country, Inc., a Delaware corporation
("CT" or the "Company"). The net proceeds of the Offering, together with the net
proceeds of the other financing described herein, will be used to finance the
acquisition (the "Acquisition") of the Company by JWC Acquisition I, Inc.
("JWCAC"), an indirect subsidiary of J.W. Childs Equity Partners, L.P. The
Acquisition will be consummated pursuant to a merger agreement providing for the
merger (the "Merger") of the Company and JWCAC, with the Company surviving such
Merger. The consummation of the Offering, the Acquisition and the financing
thereof are conditioned upon each other.
The Senior Notes mature on , 2007, unless previously redeemed.
Interest on the Senior Notes is payable semiannually on and ,
commencing , 1997. The Senior Notes will be redeemable at the option
of the Company, in whole or in part, on or after , 2002, at the redemption
prices set forth herein, plus accrued and unpaid interest thereon, to the
redemption date. Notwithstanding the foregoing, at any time on or before,
, 2000, the Company may redeem up to 35% of the original aggregate
principal amount of the Senior Notes with the net cash proceeds of a Public
Equity Offering (as defined herein) at a redemption price equal to % of the
principal amount thereof, plus accrued and unpaid interest thereon, to the
redemption date. Upon a Change of Control (as defined herein), the Company (i)
will be required to make an offer to repurchase all outstanding Senior Notes at
101% of the aggregate principal amount thereof plus accrued and unpaid interest
thereon to the date of repurchase and (ii) prior to , 2002, will have
the option to redeem the Senior Notes, in whole or in part, at a redemption
price equal to the outstanding principal amount thereof, plus accrued and unpaid
interest thereon to the redemption date plus the Applicable Premium (as defined
herein).
The Senior Notes will be general unsecured obligations of the Company and
will rank senior to all existing and future subordinated indebtedness of the
Company and pari passu in right of payment to all unsubordinated indebtedness of
the Company, including indebtedness under the New Credit Facility (as defined
herein). Upon consummation of the Acquisition, the Company will have no
subsidiaries. However, the obligations of the Company under the New Credit
Facility will be secured by substantially all of the assets of the Company and
any of its future subsidiaries, and accordingly, such indebtedness will
effectively rank senior to the Senior Notes to the extent of such assets. The
Senior Notes will be unconditionally guaranteed (the "Subsidiary Guarantees") on
a joint and several basis by each of the Company's future subsidiaries (the
"Guarantors"), subject to certain exceptions. The Subsidiary Guarantees will
rank senior to all existing and future subordinated indebtedness of the
Guarantors and pari passu with all other unsubordinated indebtedness of the
Guarantors, including the guarantees of indebtedness under the New Credit
Facility. As of February 1, 1997, on a pro forma basis after giving effect to
the Acquisition, including the Offering and the application of the proceeds
therefrom, the Company would have had $26.5 million of secured indebtedness
which would have effectively ranked senior to the Senior Notes, current
liabilities aggregating $40.1 million which would have effectively ranked pari
passu with the Senior Notes and no indebtedness or other obligations ranking
junior to the Senior Notes.
The Senior Notes will be represented by a Global Certificate registered in
the name of the nominee of The Depository Trust Company, which will act as the
Depositary (the "Depositary"). Beneficial interests in the Global Certificate
will be shown on, and transfers thereof will be effected only through, records
maintained by the Depositary and its participants. Except as described herein,
Senior Notes in definitive form will not be issued. See "Description of Senior
Notes -- Book-Entry, Delivery and Form."
There is no existing market for the Senior Notes, and the Company does not
intend to apply to list the Senior Notes on any securities exchange. See "Risk
Factors -- Absence of Public Market."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE SENIOR NOTES.
------------------------
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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNTS(2) COMPANY(3)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Senior Note...................................... % % %
Total................................................ $100,000,000 $ $
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from , 1997.
(2) The Company has agreed to indemnify the Underwriter (as defined herein)
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(3) Before deducting expenses payable by the Company, estimated at $ .
The Senior Notes are being offered, subject to prior sale, by the
Underwriter when, as and if issued to and accepted by the Underwriter, and
subject to various prior conditions. The Underwriter reserves the right to
withdraw, cancel or modify such offer and to reject orders in whole or in part.
It is expected that delivery of the Global Note will be made on or about
, 1997 in book-entry form through the facilities of the Depositary,
against payment therefor.
NATIONSBANC CAPITAL MARKETS, INC.
The date of this Prospectus is , 1997.
<PAGE> 3
[PHOTOGRAPHS OF SELECTED CT STORE SELLING AREAS]
<PAGE> 4
FOR CALIFORNIA RESIDENTS ONLY
WITH RESPECT TO SALES OF THE % SENIOR NOTES DUE 2007 OF CENTRAL TRACTOR
FARM & COUNTRY, INC. BEING OFFERED HEREBY TO CALIFORNIA RESIDENTS, SUCH
SECURITIES MAY BE SOLD ONLY TO: (1) "ACCREDITED INVESTORS" WITHIN THE MEANING OF
REGULATION D UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (2) BANKS, SAVINGS
AND LOAN ASSOCIATIONS, TRUST COMPANIES, INSURANCE COMPANIES, INVESTMENT
COMPANIES REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, PENSION AND
PROFIT SHARING TRUSTS, ANY CORPORATIONS OR OTHER ENTITIES, WHICH, TOGETHER WITH
SUCH CORPORATION'S OR OTHER ENTITY'S AFFILIATES WHICH ARE UNDER COMMON CONTROL,
HAVE A NET WORTH ON A CONSOLIDATED BASIS ACCORDING TO THEIR MOST RECENT
REGULARLY PREPARED FINANCIAL STATEMENTS (WHICH SHALL HAVE BEEN REVIEWED BUT NOT
NECESSARILY AUDITED, BY OUTSIDE ACCOUNTANTS) OF NOT LESS THAN $14,000,000 AND
SUBSIDIARIES OF THE FOREGOING, (3) ANY PERSON (OTHER THAN A PERSON FORMED FOR
THE SOLE PURPOSE OF PURCHASING THE SECURITIES OFFERED HEREBY) WHO PURCHASES AT
LEAST $1,000,000 AGGREGATE AMOUNT OF THE SECURITIES OFFERED HEREBY, OR (4) ANY
NATURAL PERSON WHO (A) HAS AN INCOME OF $65,000 AND A NET WORTH OF $250,000, OR
(B) HAS A NET WORTH OF $500,000 (IN EACH CASE EXCLUDING HOME, HOME FURNISHINGS
AND PERSONAL AUTOMOBILES). EACH CALIFORNIA RESIDENT PURCHASING THE SECURITIES
OFFERED HERBY WILL NOT SELL OR OTHERWISE TRANSFER SUCH SECURITY TO A CALIFORNIA
RESIDENT UNLESS THE TRANSFEREE COMES WITHIN ONE OF THE AFOREMENTIONED CATEGORIES
AND THAT IT WILL ADVISE THE TRANSFEREE OF THIS CONDITION WHICH TRANSFEREE, BY
BECOMING SUCH, WILL BE DEEMED TO BE BOUND BY THE SAME RESTRICTIONS ON RESALE.
---------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SENIOR NOTES.
SPECIFICALLY, THE UNDERWRITER MAY OVERALLOT IN CONNECTION WITH THE OFFERING, AND
MAY BID FOR, AND PURCHASE, SENIOR NOTES IN THE OPEN MARKET. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
i
<PAGE> 5
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 6
- -------------------------------------------------------------------------------
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by, and
should be read in conjunction with, the more detailed information and financial
data, including the Financial Statements and related notes thereto, appearing
elsewhere in this Prospectus. As used herein, references to "CT" or the
"Company" are to Central Tractor Farm & Country, Inc. and its subsidiaries. The
mailing address and telephone number of the Company's principal executive
offices are 3915 Delaware Avenue, Des Moines, Iowa 50316-0330 and (515)
266-3101, respectively. References to "Big Bear" are to Big Bear Farm Stores,
Inc. Unless otherwise stated herein, the pro forma information contained in this
Prospectus gives effect to (i) the acquisition of 31 retail stores and certain
net operating assets of Big Bear; (ii) the acquisition of the Company by JWC
Acquisition I, Inc. ("JWCAC"), an indirect subsidiary of J.W. Childs Equity
Partners, L.P. ("Childs"), and the subsequent merger of the Company and JWCAC,
with the Company as surviving corporation; and (iii) the Offering and the
application of the estimated net proceeds therefrom, as if these events had
occurred on October 29, 1995. References to "fiscal year" are to the Company's
fiscal year, which ends on the Saturday closest to October 31 in each year.
THE COMPANY
Central Tractor Farm & Country, Inc. is one of the largest agricultural
specialty retailers in the United States. As of December 31, 1996, the Company
operated 112 retail stores in 16 states in the Northeast and Midwest, primarily
under the "CT Farm & Country" name. CT specializes in meeting the farming,
gardening and related needs of rural consumers, especially part-time and
full-time farmers, hobby gardeners, skilled tradespersons and "do-it-yourself"
customers. Pro forma for the fiscal year ended November 2, 1996, the Company
generated sales of $307.8 million, EBITDA of $21.2 million and net income of
$1.2 million.
CT was founded in 1935 and has established itself as a leader in the
agricultural specialty market, having strong name recognition and a loyal
customer base. The Company obtained this position by (i) offering a full range
of agricultural and related products not typically found in general merchandise
retailers and home centers, (ii) merchandising high quality "CT" branded
products at competitive prices and (iii) providing superior in-store service to
its customers.
The Company's stores offer a wide selection of agricultural products such
as tractor parts and accessories, specialty hardware, lawn and garden items,
rural automotive products, workwear, pet supplies and general consumer products.
Management believes that products accounting for approximately 60% of CT's net
sales cannot be found at general merchandise retailers and home centers. In
addition, CT offers a high level of customer service, ranging from answering
technical questions about products to special ordering of hard to find items.
The Company believes that this merchandising and service strategy is a
significant competitive advantage, enabling CT to differentiate itself from
other retailers and generate attractive gross margins. The Company has also
established national visibility for its products and services through its
catalog operation, which has an annual circulation of approximately 550,000.
The Company's stores are located primarily in rural communities with
populations in each trading area ranging from 30,000 to 100,000 people (the
Company considers a trading area to be the 30-mile radius around a store). While
CT adjusts its store size and product mix to match the demographics of each
trading area, the stores generally contain from 10,000 to 25,000 square feet of
indoor selling space and carry approximately 18,000 to 24,000 stock keeping
units ("SKUs"). The average sales for the Company's stores open for the full
1996 fiscal year were $3.9 million. The Company's average customer transaction
in fiscal 1996 was approximately $27, reflecting the high frequency of customer
purchases and the replacement nature of CT's product line.
In 1992, the Company hired its current CEO, establishing a senior
management team with considerable retail experience. Management has since
initiated programs designed to increase sales and profitability, enhance
customer service and improve the efficiency of CT's operations. Further, the
Company initiated an aggressive expansion plan, opening 32 new stores (net of
three stores closed) and acquiring 33 stores since the beginning of fiscal 1993.
- -------------------------------------------------------------------------------
1
<PAGE> 7
- --------------------------------------------------------------------------------
In May 1996, the Company acquired 31 retail stores and certain net
operating assets from Big Bear, a privately owned agricultural specialty
retailer, for $5.7 million. Management believes that it will significantly
improve sales and EBITDA in the acquired stores by converting them to the CT
format. Further, these stores were added to CT's operations without a
substantial increase in corporate selling, general and administrative or
distribution expenses. As of December 31, 1996, 14 locations have been converted
to the CT format at an approximate cost of $3.3 million (including inventory);
the 17 remaining locations will be converted by the Spring of 1997 at an
estimated cost of $3.0 million. With locations in Iowa, Minnesota, Missouri and
Wisconsin, the Big Bear stores provide additional geographic diversity to CT's
Northeastern focus.
BUSINESS STRATEGY
CT seeks to continue to increase its revenues and cash flows by
capitalizing on the programs it has implemented and by growing its store count.
Key elements of the Company's strategy include: (i) focused merchandising and
service; (ii) improved inventory management; (iii) Big Bear integration; (iv)
new store openings; and (v) selective acquisitions.
- - Focused Merchandising and Service: Since 1992, the Company has aggressively
expanded its in-store product offerings, increasing the range of agricultural
specialty products offered and reducing the number of products typically
carried by general merchandise retailers. Management also plans to expand the
breadth of the Company's profitable "CT" branded product line. In addition, CT
offers a high level of specialized customer service. This merchandising and
service strategy differentiates the Company from general merchandise retailers
and home centers, enabling it to achieve attractive gross margins (29.3% in
fiscal 1996). This strategy also allows the Company to locate stores near
general merchandise retailers and home centers to capitalize on their retail
traffic.
- - Improved Inventory Management: In June 1996, the Company implemented a
program to reduce inventory levels in each store and more efficiently utilize
the Company's inventory replenishment system. As a result, comparable store
inventory was reduced by 7.7% during fiscal 1996. Despite lower in-store
inventory levels, comparable store sales grew by approximately 1.0% in fiscal
1996. Management believes CT can reduce in-store inventory levels by an
additional 10% without adversely affecting revenues and margins. Further,
management believes that there are additional opportunities to improve the
Company's in-stock inventory position by more accurately matching inventory
levels to expected rates of sales.
- - Big Bear Integration: The acquired Big Bear stores averaged $0.8 million in
sales for the twelve months prior to CT's acquisition. In contrast, CT's
comparable Midwestern stores open for the full 1996 fiscal year averaged $2.2
million in sales, with a greater emphasis on agricultural and related product
sales. Management believes that by converting the Big Bear stores into the CT
store format, and by employing better merchandising and inventory management
strategies, the Company will significantly increase the operating performance
and cash flow at the acquired stores. The impact on sales is already being
demonstrated in the recently converted stores. Within two weeks of their
acquisition, all 31 Big Bear stores were operating on CT's point-of-sale
("POS") and central management information systems. Management expects to
continue to leverage its existing distribution and corporate administration
capabilities by consolidating the Big Bear stores into CT's operations without
a substantial increase in expenses.
- - New Store Openings: CT increased its store count from 47 at the beginning of
fiscal 1993 to 112 as of December 31, 1996. Of the new stores, 32 were opened
(net of three closed) and 33 were acquired by the Company. CT plans to open 31
stores in the next three years (including one additional store in fiscal
1997). CT stores typically generate positive cash flow in their first full
year of operation. With two exceptions, all 66 stores which the Company
operated for the full 1996 fiscal year generate positive cash flow at the
store level. The Company believes that its existing infrastructure will
accommodate its planned expansion through fiscal 1999 without substantially
increasing its distribution and corporate-level expenses.
- - Selective Acquisitions: The agricultural specialty retail market is highly
fragmented, with no retailer holding a dominant national position. Management
estimates this market to be approximately $6.0 billion. Management believes
that there are opportunities to further diversify CT's operations, achieve
additional
- --------------------------------------------------------------------------------
2
<PAGE> 8
- -------------------------------------------------------------------------------
operating efficiencies and increase purchasing power by acquiring single store
locations, small chains and larger regional chains. From time to time the
Company has had discussions with several agricultural specialty retailers.
There are no current agreements with respect to any such acquisition and there
can be no assurance that any such acquisition will be consummated in the
future.
THE ACQUISITION
The Offering is being conducted in connection with the acquisition of the
Company by JWCAC, an indirect subsidiary of Childs. Childs is a $462.6 million
institutional private equity fund managed by J.W. Childs Associates, L.P.
("Associates"), a Boston-based private investment firm. Childs acquires equity
positions primarily in established small and middle-market growth companies
through friendly, management-led acquisitions and recapitalizations.
On November 27, 1996, JWCAC and Childs entered into agreements (the
"Securities Purchase Agreements") with certain affiliates of Butler Capital
Corporation (collectively, "BCC") and with certain members of CT's management
(the "Management Shareholders") pursuant to which JWCAC agreed to purchase at a
price of $14.00 per share 100% of BCC's shares and approximately 36.4% of the
Management Shareholders' shares, representing approximately 64.0% and 1.4% of
the Company's outstanding common stock, respectively (collectively, the
"Securities Purchases"). JWCAC, its parent corporation CT Holding, Inc.
("Holding") and Childs concurrently entered into an agreement and plan of merger
(the "Merger Agreement") with the Company, pursuant to which JWCAC will be
merged with and into the Company (the "Merger") for merger consideration of
$14.25 per share (the "Merger Consideration"). Certain additional members of
management have subsequently agreed to exchange their equity securities in the
Company (valued on the basis of $14.00 per common share) for equity securities
of Holding and, in some cases, cash in connection with the consummation of the
Merger. The Merger and this Offering will be consummated simultaneously and are
each conditioned upon the consummation of the other.
As of January 2, 1997, JWCAC had consummated the Securities Purchases and
paid related expenses utilizing (i) $65.4 million of cash equity contributed to
JWCAC by Holding and (ii) $35.1 million of borrowings under an interim margin
loan facility (the "Margin Loan Facility") with NationsBank, N.A.
("NationsBank"), as Administrative Agent, and Fleet National Bank ("Fleet"), as
Co-Agent. Holding funded its equity contribution by issuing $10.0 million of
preferred stock (the "Preferred Stock") and $55.4 million of common stock, of
which $60.3 million was purchased by Childs and its affiliates and $5.0 million
was purchased by affiliates of Fleet. In connection with the Securities
Purchases, the Company entered into a new term loan (the "New Term Loan") and a
new revolving credit facility (the "New Revolving Credit Facility") with Fleet,
as Administrative Agent, and NationsBank, as Co-Agent (collectively, the "New
Credit Facility") and used a portion of such facility to refinance existing debt
of the Company, including a $16.0 million convertible note held by BCC. See
"Description of New Credit Facility." In connection with the Merger, (i) the
Company will become the wholly owned subsidiary of Holding, (ii) the Management
Shareholders will exchange $4.0 million in cash, notes and equity securities of
the Company for equity securities of Holding and (iii) the shareholders of the
Company (other than JWCAC, persons who perfect dissenters' appraisal rights and
the Management Shareholders) will receive the Merger Consideration. The proceeds
of the Offering will be used to pay the Merger Consideration, repay the Margin
Loan Facility, pay down a portion of the New Revolving Credit Facility and pay
related fees and expenses. See "Use of Proceeds." Upon consummation of the
Merger, the Company will have been capitalized with $69.2 million of equity (the
"Equity Investment") and $107.7 million of long-term debt (excluding $1.8
million of current maturities). On a fully diluted basis, immediately after
giving effect to the Merger, Holding will be owned approximately 85% by Childs
and its affiliates, approximately 7% by affiliates of Fleet and approximately 8%
by current members of the Company's management. Childs and the Fleet affiliates
presently expect to sell their respective interests in the Preferred Stock to
other investors shortly after consummation of the Merger. The Securities
Purchases, the Merger and the related financing transactions are collectively
referred to herein as the "Acquisition."
- -------------------------------------------------------------------------------
3
<PAGE> 9
- -------------------------------------------------------------------------------
RECENT RESULTS
For the three months ending February 1, 1997, the Company's net sales were
$71.5 million, an increase of $1.5 million, or 2.2%, as compared to the three
months ending January 27, 1996. This increase was primarily attributable to the
addition of new stores and the acquisition of the Big Bear stores (each of which
occurred during the 1996 fiscal year), offset by a decline in comparable store
sales. Revenue for the six Big Bear stores that were converted to the CT format
at the beginning of fiscal 1997 increased significantly during the three months
ending February 1, 1997 as compared to the same period for the prior fiscal
year. Net income for the first quarter of fiscal 1997 was $1.1 million, a
decrease of 10.9% as compared to $1.3 million for the first quarter of fiscal
1996. For the three months ending February 1, 1997 versus the same period for
the prior fiscal year, the Company's EBITDA grew from $3.5 million to $3.7
million, an increase of 5.0%. Comparable store sales, which exclude the recently
acquired Big Bear stores, declined by 11.9% versus the same period for the prior
fiscal year. Based upon its analysis of sales by product line, management
believes that the decrease in comparable store sales was primarily attributable
to mild Northeastern winter weather conditions, where CT operated approximately
two-thirds of its comparable stores, compared to the previous fiscal year and
the elimination of two promotional events run during the first quarter of fiscal
1996. The majority of the Company's sales occur in the second and third quarters
of its fiscal year, and management does not believe that comparable store sales
for the three months ending February 1, 1997 are necessarily indicative of
results for the entire 1997 fiscal year. In the preparation of the unaudited
financial data for the three-month periods, all adjustments (consisting of
normal recurring accruals) have been made which are, in the opinion of
management, necessary for the fair and consistent presentation of such financial
data. For a further discussion of the Company's results of operations for the
three months ended February 1, 1997, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- First Quarter of Fiscal 1997
Compared to First Quarter of Fiscal 1996."
- -------------------------------------------------------------------------------
4
<PAGE> 10
- --------------------------------------------------------------------------------
THE OFFERING
Securities Offered......... $100,000,000 aggregate principal amount of %
Senior Notes due 2007 of the Company (the "Senior
Notes").
Maturity Date.............. , 2007.
Interest Payment Dates..... and , commencing
, 1997.
Ranking.................... The Senior Notes will be general unsecured
obligations of the Company, senior to all existing
and future subordinated indebtedness of the
Company and pari passu in right of payment with
all other existing and future unsubordinated
indebtedness of the Company, including
indebtedness under the New Credit Facility.
However, the obligations of the Company under the
New Credit Facility will be secured by
substantially all of the assets of the Company and
its future subsidiaries, and the Indenture for the
Senior Notes (the "Indenture") restricts, but does
not prohibit, the Company from incurring
additional secured indebtedness. Accordingly, such
secured indebtedness will effectively rank senior
to the Senior Notes to the extent of such assets.
As of February 1, 1997, on a pro forma basis after
giving effect to the Acquisition, including the
Offering and the application of the net proceeds
therefrom, the Company would have had $26.5
million of secured indebtedness which would have
effectively ranked senior to the Senior Notes.
Optional Redemption........ On or after , 2002, the Company may
redeem the Senior Notes, in whole or in part, at
the redemption prices set forth herein, plus
accrued and unpaid interest, if any, to the date
of redemption. Notwithstanding the foregoing, at
any time on or before , 2000, the
Company may redeem up to 35% of the original
aggregate principal amount of the Senior Notes
with the net cash proceeds of a Public Equity
Offering (as defined herein) at a redemption price
of % of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date
of redemption provided that at least 65% of the
original aggregate principal amount of Senior
Notes originally issued remain outstanding
immediately after redemption.
Guarantees................. Upon consummation of the Offering, the Company
will have no subsidiaries. However, the Senior
Notes will be unconditionally guaranteed on a
joint and several basis (the "Subsidiary
Guarantees") by any future subsidiaries of the
Company, subject to certain exceptions
(collectively, the "Guarantors"). The Subsidiary
Guarantees will rank senior to all existing and
future subordinated indebtedness of the Guarantors
and pari passu with all other unsubordinated
indebtedness of the Guarantors, including the
guarantees of indebtedness under the New Credit
Facility. Any Guarantor's obligations under the
New Credit Facility, however, will be secured by a
lien on substantially all of the assets of such
Guarantor, and the Indenture restricts, but does
not prohibit, the Guarantors from incurring
additional secured indebtedness. Accordingly, such
secured indebtedness will rank prior to the
Subsidiary Guarantees with respect to such assets.
Change of Control.......... Upon a Change of Control (as defined herein), the
Company (i) will be required to make an offer to
repurchase all outstanding Senior Notes at 101% of
the principal amount thereof plus accrued and
unpaid interest thereon, if any, to the date of
repurchase and (ii) prior to ,
- -------------------------------------------------------------------------------
5
<PAGE> 11
- -------------------------------------------------------------------------------
2002 will have the option to redeem the Senior
Notes, in whole or in part, at a redemption price
equal to the principal amount thereof, plus
accrued and unpaid interest, if any, to the
redemption date plus the Applicable Premium (as
defined herein). There can be no assurance that
sufficient funds will be available to the Company
at the time of any Change of Control to make any
required repurchases of Senior Notes. See "Risk
Factors -- Potential Inability to Fund Change of
Control Offer," "Description of Senior
Notes -- Repurchase at the Option of
Holders -- Change of Control" and "-- Optional
Redemption upon Change of Control."
Covenants.................. The Indenture will restrict, among other things,
the Company's and its future subsidiaries' ability
to incur additional indebtedness, pay dividends or
make certain other restricted payments, incur
liens, engage in any sale and leaseback
transaction, sell stock of subsidiaries, apply net
proceeds from certain asset sales, merge or
consolidate with any other person, sell, assign,
transfer, lease, convey or otherwise dispose of
substantially all of the assets of the Company or
enter into certain transactions with affiliates.
Use of Proceeds............ The proceeds of the Offering will be used to repay
borrowings under the Margin Loan Facility, pay the
Merger Consideration, temporarily repay a portion
of the New Revolving Credit Facility and pay fees
and expenses of the Offering and Acquisition. See
"Use of Proceeds."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating an investment in the Senior Notes.
- -------------------------------------------------------------------------------
6
<PAGE> 12
- -------------------------------------------------------------------------------
SUMMARY FINANCIAL DATA
Set forth below are selected historical and pro forma financial data and
other historical operating data of the Company. The historical Statement of
Operating Data of the Company for fiscal 1992 through fiscal 1996 have been
derived from the Company's audited financial statements for those periods. The
historical Statement of Operating Data of the Company for the thirteen weeks
ended January 27, 1996 and February 1, 1997 and the historical Balance Sheet
Data as of February 1, 1997 have been derived from unaudited financial
statements which in the opinion of management include all adjustments
(consisting of only normal recurring accruals) necessary for a fair presentation
of such data. The information presented below should be read in conjunction with
"Capitalization," "Pro Forma Condensed Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THIRTEEN
FISCAL YEAR WEEKS ENDED
--------------------------------------------------------------------- -----------
PRO FORMA JANUARY 27,
1996 1996
1992 1993 1994 1995 1996(1) (UNAUDITED)(2) (UNAUDITED)
-------- -------- -------- -------- -------- -------------- -----------
(IN THOUSANDS, EXCEPT RATIOS AND STORE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATING DATA:
Net sales............................... $198,055 $202,589 $231,064 $251,703 $293,020 $307,847 $69,967
Cost of sales........................... 142,310 143,144 161,523 177,340 207,228 218,177 51,105
-------- -------- -------- -------- -------- -------- -------
Gross profit............................ 55,745 59,445 69,541 74,363 85,792 89,670 18,862
Selling, general and administrative
expenses............................... 46,986 47,529 54,548 58,294 68,197 71,638 16,061
Amortization of intangibles............. 881 869 841 862 938 2,159 221
-------- -------- -------- -------- -------- -------- -------
Operating income........................ 7,878 11,047 14,152 15,207 16,657 15,873 2,580
Interest expense........................ 5,140 4,842 4,774 1,302(3) 1,663 12,739 360
-------- -------- -------- -------- -------- -------- -------
Income (loss) before income taxes....... 2,738 6,205 9,378 13,905 14,994 3,134 2,220
Income taxes (credit)................... 1,274 2,935 4,197 5,720 6,250 1,963 940
-------- -------- -------- -------- -------- -------- -------
Income (loss) from continuing
operations............................. $ 1,464 $ 3,270 $ 5,181 $ 8,185 $ 8,744 $ 1,171 $ 1,280
======== ======== ======== ======== ======== ======== =======
Ratio of earnings to fixed charges(4)... 1.4x 2.0x 2.5x 5.8x 5.3x 1.2x 3.8x
OTHER DATA:
Number of stores (at period end)........ 47 50 55 66 111 69
Comparable store sales increase
(decrease)(5).......................... 5.4% 4.2% 10.0% (1.6)% 1.0% 1.5%
Comparable store sales per square
foot(6)................................ $ 210 $ 218 $ 240 $ 224 $ 222
Capital expenditures.................... 2,074 2,140 5,207 6,339 8,789 $ 1,252
Depreciation and amortization........... 2,971 3,066 3,386 3,385 4,054 $ 5,304 915
Net cash provided by (used in):
Operating activities from continuing
operations......................... (1,233) 5,037 (3,571) (5,967) 4,961 (1,362) (4,695)
Investing activities................. (2,640) (2,550) (5,516) (6,813) (14,184) (14,184) (1,428)
Financing activities................. 4,249 1,303 6,312 11,964 (3,215) (3,215) (6,830)
EBITDA(7)............................... $ 10,849 $ 14,113 $ 17,538 $ 18,592 $ 20,711 $ 21,177 $ 3,495
EBITDA margin........................... 5.5% 7.0% 7.6% 7.4% 7.1% 6.9% 5.0%
Ratio of EBITDA to interest(8).......... 1.8x
Ratio of net long-term debt to
EBITDA(9).............................. 4.9x
<CAPTION>
THIRTEEN WEEKS ENDED
----------------------------
PRO FORMA
FEBRUARY 1, FEBRUARY 1,
1997 1997
(UNAUDITED) (UNAUDITED)(2)
----------- --------------
<S> <C> <C>
STATEMENT OF OPERATING DATA:
Net sales............................... $71,479 $71,479
Cost of sales........................... 51,070 51,070
------- -------
Gross profit............................ 20,409 20,409
Selling, general and administrative
expenses............................... 17,614 17,674
Amortization of intangibles............. 257 540
------- -------
Operating income........................ 2,538 2,195
Interest expense........................ 525 3,290
------- -------
Income (loss) before income taxes....... 2,013 (1,095)
Income taxes (credit)................... 872 (258)
------- -------
Income (loss) from continuing
operations............................. $ 1,141 $ (837)
======= =======
Ratio of earnings to fixed charges(4)... 2.9x 0.7x
OTHER DATA:
Number of stores (at period end)........ 112
Comparable store sales increase
(decrease)(5).......................... (11.9%)
Comparable store sales per square
foot(6)................................
Capital expenditures.................... 1,387
Depreciation and amortization........... 1,175 1,458
Net cash provided by (used in):
Operating activities from continuing
operations......................... (7,467) (9,162)
Investing activities................. (2,199) (2,199)
Financing activities................. 8,440 8,440
EBITDA(7)............................... $ 3,713 $ 3,653
EBITDA margin........................... 5.2% 5.1%
Ratio of EBITDA to interest(8)..........
Ratio of net long-term debt to
EBITDA(9)..............................
</TABLE>
<TABLE>
<CAPTION>
AS OF FEBRUARY 1, 1997
-------------------------
ACTUAL PRO FORMA(2)
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash...................................................................................... $ 2,583 $ 2,583
Working capital........................................................................... 54,595 60,581
Total assets.............................................................................. 160,122 237,126
Long-term debt, less current portion...................................................... 7,698 107,698
Stockholders' equity...................................................................... $ 91,456 $ 69,169(10)
</TABLE>
7
<PAGE> 13
- --------------------------------------------------------------------------------
- ---------------
(1) 53-week fiscal year. On May 31, 1996, the Company acquired 31 stores and
certain net operating assets of Big Bear. The Big Bear stores generated
$9.5 million of sales during the five months in fiscal 1996 and $5.5
million in sales during the thirteen weeks in fiscal 1997 in which they
were operated by CT.
(2) The Pro Forma Statement of Operating Data and Other Data give effect to (i)
the acquisition of 31 stores and certain net operating assets from Big
Bear, (ii) the Acquisition and (iii) the Offering as though these
transactions had occurred on October 29, 1995. The Pro Forma Balance Sheet
Data gives effect to (i) the Acquisition and (ii) the Offering as though
these transactions had occurred on February 1, 1997. See "Pro Forma
Condensed Consolidated Financial Data."
(3) In fiscal 1994, the Company consummated an initial public offering of
common stock and applied the net proceeds to reduce long-term debt.
(4) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense,
amortization of deferred financing cost and 20.0% of the rent expense from
operating leases which the Company believes is a reasonable approximation
of the interest factor included in the rent.
(5) Percentage change in store sales as compared to sales for the same stores
for the prior year for stores open and operated by CT for at least twelve
months in each year. The 1.0% increase in comparable store sales in 1996
has been adjusted to reflect a comparable 52-week fiscal year. Comparable
store sales grew 2.9% without such adjustment.
(6) Comparable store sales per square foot is calculated by dividing store
sales by total indoor selling square footage for stores open and operated
by CT at least twelve months in each period.
(7) Income from continuing operations before interest expense (including
amortization of deferred financing costs), income taxes, depreciation and
amortization of intangibles. EBITDA is presented because it is a widely
accepted financial indicator of a leveraged company's ability to service
and/or incur indebtedness and because management believes that EBITDA is a
relevant measure of the Company's ability to generate cash without regard
to the Company's capital structure or working capital needs. EBITDA as
presented may not be comparable to similarly titled measures used by other
companies, depending upon the non-cash charges included. When evaluating
EBITDA, investors should consider that EBITDA (i) should not be considered
in isolation but together with other factors which may influence operating
and investing activities, such as changes in operating assets and
liabilities and purchases of property and equipment, (ii) is not a measure
of performance calculated in accordance with GAAP, (iii) should not be
construed as an alternative or substitute for income from operations, net
income or cash flows from operating activities in analyzing the Company's
operating performance, financial position or cash flows (in each case, as
determined in accordance with GAAP) and (iv) should not be used as an
indicator of the Company's operating performance or as a measure of its
liquidity. EBITDA has been steadily increasing in the periods presented.
Management interprets this trend as showing stable cash flows for the
Company in the periods presented.
(8) Assumes pro forma cash interest expense of $12,099, consisting of $548 for
the New Revolving Credit Facility, $613 for the New Term Loan, $10,750 for
the Senior Notes and $188 for capitalized leases. Cash interest expense
differs from interest expense for GAAP accounting purposes by amortization
of deferred financing costs in the amount of $640. The ratio of EBITDA to
interest expense for GAAP accounting purposes is 1.7x. The ratio of EBITDA
to interest expense is presented because it is a widely accepted financial
indicator of a leveraged company's ability to service indebtedness. When
evaluating the ratio of EBITDA to interest expense, investors should
consider the matters relating to EBITDA described in note 7 above.
(9) For purposes of computing this ratio, net long-term debt excludes current
maturities of $1,770 and is net of cash. See "Capitalization."
(10) Pro forma stockholders' equity is computed as follows:
<TABLE>
<S> <C>
Cash contributed by Childs and affiliates $60,290
Cash contributed by new outside directors 135
Cash contributed by affiliates of Fleet 5,000
Cash contributed by senior management 589
Roll-over of CT common stock by senior management 1,185
Roll-over of CT common stock options by senior management 2,899
-------
Total fair value of contributed equity capital 70,098
Less: loans to senior management to fund capital contributions (275)
Less: exercise price of stock options rolled-over by senior
management (654)
-------
Adjusted contributed equity capital $69,169
=======
</TABLE>
- --------------------------------------------------------------------------------
8
<PAGE> 14
RISK FACTORS
Prospective investors should carefully consider the specific factors set
forth below, as well as the other information included in this Prospectus,
before deciding to purchase the Senior Notes offered hereby.
SIGNIFICANT LEVERAGE AND DEBT SERVICE
The Company has and will continue to have substantial indebtedness and
significant debt service obligations. On a pro forma basis, after giving effect
to the Acquisition, including this Offering and the application of the net
proceeds therefrom, the Company's total debt and stockholders' equity as of
February 1, 1997 would have been $126.5 million and $69.2 million, respectively.
Of such total debt, $26.5 million would have been secured indebtedness
effectively ranking senior to the Senior Notes, and other than current
liabilities aggregating $40.1 million, the Company would have had no
indebtedness or other obligations effectively ranking pari passu with the Senior
Notes. In addition, subject to the restrictions contained in the agreements
governing the Company's indebtedness, the Company may incur additional
indebtedness from time to time to finance acquisitions, for capital expenditures
and for other purposes. The restrictions imposed under the Indenture would have
permitted the Company to incur an additional $44.6 million in indebtedness
effectively ranking senior to the Senior Notes immediately after giving effect
to the Acquisition and the consummation of the Offering. See "Capitalization,"
"Pro Forma Condensed Consolidated Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
The Company's level of indebtedness will have several important effects on
its future operations, including (i) a substantial portion of the Company's cash
flow from operations must be dedicated to the payment of interest on its
indebtedness and will not be available for other purposes, (ii) covenants
contained in the New Credit Facility will require the Company to meet certain
financial tests, (iii) such covenants, the Indenture governing the Senior Notes
and certain other restrictions may limit the Company's ability to borrow
additional funds or to dispose of assets and may affect the Company's
flexibility in planning for, and reacting to, changes in its business, including
possible acquisition activities and (iv) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions, general corporate or other purposes may be impaired. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "Description of Senior Notes"
and "Description of New Credit Facility."
The Company's ability to meet its debt service obligations and to reduce
its total indebtedness will be dependent upon the Company's future performance,
which will be subject to general economic conditions and to financial, business
and other factors affecting the operations of the Company, many of which are
beyond its control. Based upon the current and anticipated level of operations,
the Company believes, however, that its cash flow from operations, together with
amounts available under the New Credit Facility, will be adequate to meet its
anticipated requirements in the foreseeable future for working capital, capital
expenditures, interest payments and scheduled principal payments. There can be
no assurance, however, that the Company's business will continue to generate
cash flow at or above current levels. If the Company is unable to generate
sufficient cash flow from operations in the future to service its debt, it may
be required to refinance all or a portion of its existing debt, including the
Senior Notes, or to obtain additional financing. There can be no assurance that
any such refinancing would be possible, that any additional financing could be
obtained or that any refinancing or additional financing would be on terms which
are favorable to the Company. The inability to obtain additional financing or
refinancing on favorable terms could have a material adverse effect on the
Company. For example, a default by the Company under the terms of the Indenture
would result in a default under the terms of the New Credit Facility.
EFFECTIVE SUBORDINATION
The Company has entered into the New Credit Facility pursuant to which,
upon consummation of the Acquisition, it will have term borrowings of $8.0
million. In addition, the Company will have the ability to borrow up to $30.0
million on a revolving credit basis under the New Credit Facility, subject to
borrowing base
9
<PAGE> 15
limitations (of which approximately $17.1 million is expected to be outstanding
following the Offering). The New Credit Facility will be secured by liens on
substantially all of the assets of the Company and the Subsidiary Guarantors.
Accordingly, the lenders under the New Credit Facility will have claims with
respect to the assets constituting collateral for any indebtedness thereunder
that will be satisfied prior to the unsecured claims of holders of the Senior
Notes. See "Description of New Credit Facility." In addition, the Indenture
restricts, but does not prohibit, the Company from incurring additional secured
indebtedness. See "Description of Senior Notes." The Senior Notes will be
effectively subordinated to the New Credit Facility and any other secured
indebtedness, to the extent of such security interests. In the event of a
default on the Senior Notes or a bankruptcy, liquidation or reorganization of
the Company, such assets will be available to satisfy obligations of the secured
debt before any payment could be made on the Senior Notes. Accordingly, there
may only be a limited amount of assets available to satisfy any claims of the
holders of Senior Notes upon an acceleration of the Senior Notes. To the extent
that the value of such collateral is insufficient to satisfy such secured
indebtedness, amounts remaining outstanding on such secured indebtedness would
be entitled to share pari passu with respect to any other assets of the Company.
At February 1, 1997, pro forma for the Acquisition and the related financings,
the Senior Notes would have been effectively subordinated to $26.5 million of
secured indebtedness.
NEW STORE GROWTH
The Company grew from 47 stores at the beginning of fiscal 1993 to 112
stores as of February 1, 1997. The Company plans to open one additional store in
fiscal 1997 and approximately 15 stores in each of fiscal 1998 and fiscal 1999.
A significant portion of the Company's expansion plan may occur through
acquisitions as an alternative to direct investments in new store openings. In
addition, the Company's strategy of pursuing selective acquisitions could result
in acquisitions of medium or large agricultural specialty retail chains which
could substantially accelerate and exceed the Company's currently planned
growth. See "Business -- Business Strategy." The proposed expansion could be
more rapid than the Company's historical growth, and the continued growth of the
Company will depend, in large part, upon the Company's ability to open or
acquire new stores in a timely manner and to operate them profitably. However,
successful expansion is subject to various contingencies, many of which are
beyond the Company's control. These contingencies include, among others, (i) the
Company's ability to identify, finance and complete suitable acquisitions on
acceptable terms, (ii) the Company's ability to identify and secure suitable
store sites on a timely basis and on satisfactory terms, (iii) the Company's
ability to hire, train and retain qualified managers and other personnel and
(iv) the successful integration of new stores, or newly acquired store chains,
into CT's existing operations. Restrictions on additional indebtedness or
investments imposed under the Indenture or the New Credit Facility and
limitations on the availability of undrawn amounts under the New Credit Facility
may limit the Company's ability to finance expansion. In addition, a portion of
CT's future growth is expected to result from the conversion of all 31 Big Bear
stores to the CT format. However, the conversion process will require that the
remaining 17 unconverted stores be closed for approximately three weeks and
there can be no assurance that after reopening such stores will achieve targeted
operating levels. No assurance can be given that the Company will be able to
complete its expansion plans successfully. The Company's failure to achieve
results for new stores similar to those achieved with prior locations, or
continue to manage its growth effectively, could materially adversely affect its
business, financial condition and results of operations.
SEASONALITY
The Company's sales and operating income are highest in the second and
third quarters of each fiscal year (and the Company's working capital needs peak
in the second fiscal quarter) due to the farming industry's planting season and
the sale of seasonal products. Over the last five years, the second and third
fiscal quarters have accounted for approximately 54% of the Company's sales and
approximately 68% of its EBITDA. Consequently, an economic downturn during these
periods could adversely affect the Company to a greater extent than if such
downturn occurred at other times during the year. If the Company is affected by
such an economic downturn, its business, results of operations and financial
condition could be adversely affected. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Seasonality."
10
<PAGE> 16
EMPHASIS ON AGRICULTURAL PRODUCTS; REGIONAL CONCENTRATION
The Company's product mix is heavily targeted to the agricultural consumer.
Consequently, the Company's sales volume and income from operations depend
significantly upon agricultural activity, which may, in turn, be affected by
severe weather conditions, such as excessive rain, drought or early or late
frosts. There can be no assurance that agricultural conditions and severe
weather conditions will not have a material adverse effect on the Company's
business, financial condition or results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The majority of the Company's stores are located in the Northeastern and
Midwestern United States, and the Company's expansion plan includes locating
additional stores in the Midwest and new stores in the Southeast United States.
In addition, most of the Company's stores are located in less populated areas
and rural environments that are substantially dependent upon the local economy.
As a result, the Company's sales and profitability are largely dependent on the
general strength of the economy in these regions, regional weather conditions,
regional demographic changes and other regional factors. A downturn in the
economies of these regions could have an adverse impact on the Company's
business, financial condition and results of operations and the ability of the
Company to implement its expansion plan.
COMPETITION
The Company faces competition primarily from other chain and single-store
agricultural specialty retailers, general merchandise retailers and home
centers. Some of these competitors have substantially greater financial and
other resources than the Company.
Currently, most of the Company's stores do not compete directly in the
trading areas of other agricultural specialty retail chains. However, the
Company's expansion plans will likely result in new stores being located in
trading areas currently served by one or more of these chains, and there can be
no assurance that these chains, certain of which have announced expansion plans,
will not expand into the Company's trading areas. Expansion by the Company into
trading areas currently served by its competitors or expansion by competitors
into the Company's trading areas could have a material adverse effect on the
Company's business, financial condition or results of operation.
In addition, the Company competes in over 90% of its trading areas with
general merchandise retailers and/or home centers and expects these retailers to
be in many of the trading areas targeted for expansion. The Company believes
that its merchandise mix and level of customer service successfully
differentiate it from general merchandise retailers and home centers, and as a
result the Company has to date been able to operate profitably despite
competition from general merchandise retailers and home centers. However, in the
past certain general merchandise retailers and home centers have modified their
product mix and marketing strategies in an apparent effort to compete more
effectively in the Company's product lines. There can be no assurances that
these efforts will not continue or that the Company will continue to be able to
compete successfully against current and future competition.
DEPENDENCE ON KEY PERSONNEL
The Company's operations are largely dependent on the efforts of its senior
management, including James T. McKitrick, the Company's CEO. Although the
Company has employment agreements with certain of its key executives, there can
be no assurance that these individuals will continue to work for the Company.
Additionally, in order to successfully manage its growth strategy, the Company
must continue to attract and retain qualified personnel. The Company does not
currently maintain "key man" life insurance policies on any of its employees. If
certain of the current key personnel should cease to be employed by the Company
for any reason, or if the Company should be unable to continue to attract and
retain qualified management personnel, the Company's business, financial
condition and results of operations could suffer a material adverse effect. See
"Management."
11
<PAGE> 17
POTENTIAL INABILITY TO FUND CHANGE OF CONTROL OFFER
Upon a Change of Control (as defined in the Indenture), each holder will
have the right to require the Company to repurchase all or any part of such
holder's Senior Notes at 101% of the principal amount thereof, plus accrued and
unpaid interest thereon to the date of repurchase. However, there can be no
assurance that sufficient funds will be available to the Company at the time of
any Change of Control to make any required repurchases of Senior Notes tendered.
Moreover, restrictions in the New Credit Facility prohibit the Company from
making such required repurchases; therefore, any such repurchases would
constitute an event of default under the New Credit Facility. See "Description
of New Credit Facility."
CONTROL BY INVESTORS
Upon completion of the Acquisition, 100% of the outstanding shares of the
Company's common stock will be owned by Holding. Holding has no business other
than holding the stock of the Company, which is the sole source of Holding's
financial resources. Following the Acquisition, Holding will be controlled by
Childs and its affiliates, which will beneficially own shares representing 85%
of the voting interest in Holding on a fully diluted basis and will have the
right to designate all of the directors of Holding other than Messrs. McKitrick
and Longnecker. Accordingly, Childs, through its control of Holding, will
control the Company and have the power to elect all of its directors, appoint
new management and approve any action requiring the approval of the holders of
the Company's common stock, including adopting amendments to the Company's
Certificate of Incorporation and approving mergers or sales of substantially all
of the Company's assets. John W. Childs is President of J.W. Childs Associates,
Inc., the general partner of J.W. Childs Associates, L.P., the general partner
of J.W. Childs Advisors, L.P., the general partner of Childs. The directors
elected by Holding will have the authority to make decisions affecting the
capital structure of the Company, including the issuance of additional
indebtedness. See "Management," "Certain Transactions" and "Security Ownership
of Certain Beneficial Owners and Management."
FRAUDULENT CONVEYANCE CONSIDERATIONS
Under applicable provisions of federal bankruptcy law or comparable
provisions of state fraudulent conveyance law, if, among other things, the
Company or any of the Guarantors, at the time it incurred the indebtedness
evidenced by the Senior Notes or its Subsidiary Guarantee, as the case may be,
(i)(a) was or is insolvent or rendered insolvent by reason of such occurrence or
(b) was or is engaged in a business or transaction for which the assets
remaining with the Company or such Guarantor constituted unreasonably small
capital or (c) intended or intends to incur, or believed or believes that it
would incur, debts beyond its ability to repay such debts as they mature, and
(ii) the Company or such Guarantor received or receives less than the reasonably
equivalent value of fair consideration for the incurrence of such indebtedness,
the Senior Notes and the Subsidiary Guarantees could be voided, or claims in
respect of the Senior Notes or such Subsidiary Guarantees could be subordinated
to all other debts of the Company or such Guarantors, as the case may be. The
voiding or subordination of any of such indebtedness could result in an Event of
Default (as defined in the Indenture) with respect to such indebtedness, which
could result in acceleration thereof. In addition, the payment of interest and
principal by the Company pursuant to the Senior Notes or the payment of amounts
by a Guarantor pursuant to a Subsidiary Guarantee could be voided and required
to be returned to the person making such payment, or to a fund for the benefit
of the creditors of the Company or such Guarantor, as the case may be.
The measures of insolvency for purposes of the foregoing considerations
will vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, the Company or a Guarantor would be considered
insolvent if (i) the sum of its debts, including contingent liabilities, were
greater than the fair saleable value of all of its assets at a fair valuation or
if the present fair saleable value of its assets were less than the amount that
would be required to pay its probable liability on its existing debts, including
contingent liabilities, as they become absolute and mature or (ii) it could not
pay its debts as they become due.
To the extent any Subsidiary Guarantees were voided as a fraudulent
conveyance or held unenforceable for any other reason, holders of Senior Notes
would cease to have any claim in respect of such Guarantor and
12
<PAGE> 18
would be creditors solely of the Company and any Guarantor whose Subsidiary
Guarantee was not avoided or held unenforceable. In such event, the claims of
holders of Senior Notes against the issuer of an invalid Subsidiary Guarantee
would be subject to the prior payment of all liabilities and preferred stock
claims of such Guarantor. There can be no assurance that, after providing for
all prior claims and preferred stock interests, if any, there would be
sufficient assets to satisfy the claims of holders of Senior Notes relating to
any voided portions of any Subsidiary Guarantees.
On the basis of its historical financial information, recent operating
history as discussed in "Pro Forma Condensed Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other factors, the Company believes that, after giving effect to
the indebtedness incurred in connection with the Offering, it (i) will not be
insolvent, will not have unreasonably small capital for the businesses in which
it is engaged and will not incur debts beyond its ability to pay such debts as
they mature and (ii) will have sufficient assets to satisfy any probable money
judgment against it in any pending action. There can be no assurance, however,
as to what standard a court would apply in making such determinations.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus, including without
limitation statements containing the words "believes," "anticipates," "intends,"
"expects," and words of similar import, constitute "forward-looking statements."
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or achievements
of the Company or industry to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Certain of these factors are discussed in more detail elsewhere in
this Prospectus, including, without limitation, under "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Business." Given these uncertainties, prospective investors
are cautioned not to place undue reliance on such forward-looking statements.
The Company disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
ABSENCE OF PUBLIC MARKET
There is no existing public market for the Senior Notes, and the Company
does not intend to list the Senior Notes on any national securities exchange.
Although the Underwriter has advised the Company that it currently intends to
make a market in the Senior Notes, the Underwriter is not obligated to do so and
may discontinue such market-making at any time. Accordingly, no assurance can be
given that an active public or other market will develop upon completion of this
Offering or, if developed, that such market will be sustained, or as to the
liquidity of or the trading market for the Senior Notes. The initial offering
price of the Senior Notes will be determined through negotiations between the
Company and the Underwriter, and may bear no relationship to the market price of
the Senior Notes after the Offering. Factors such as quarterly or cyclical
variations in the Company's financial condition and results of operations,
variations in interest rates, future announcements concerning the Company or its
competitors, government regulation, general economic and other conditions could
cause the market price of the Senior Notes to fluctuate substantially.
13
<PAGE> 19
USE OF PROCEEDS
The proceeds to the Company from the Offering will be $100.0 million before
deducting commissions and estimated expenses of the Offering. The proceeds from
the Offering will be used to repay borrowings under the Margin Loan Facility,
pay the Merger Consideration, temporarily repay revolving borrowings under the
New Credit Facility and pay fees and expenses of the Offering and the
Acquisition.
The following table sets forth the sources and uses of the gross proceeds
of the Offering, assuming the Merger and the Offering are consummated on March
27, 1997 (in thousands):
<TABLE>
<S> <C>
SOURCES OF FUNDS:
Senior Notes offered hereby............................................. $100,000
--------
Total sources................................................... $100,000
========
USES OF FUNDS:
Refinance Margin Loan Facility(1)....................................... $ 35,886
Pay Merger Consideration(2)............................................. 51,827
Repay New Credit Facility(3)............................................ 1,686
Fees and expenses(4).................................................... 10,601
--------
Total uses...................................................... $100,000
========
</TABLE>
- ---------------
(1) The Margin Loan Facility consists of $32,620 of principal amount of term
debt due April 30, 1997 and $3,029 of principal amount of the revolving debt
due April 30, 1997. Indebtedness thereunder bears interest at 7-day or
30-day LIBOR plus 350 basis points (8.94% as of February 1, 1997). The
$35,649 of outstanding indebtedness was used to partially fund the purchase
of shares of CT from BCC and the Management Shareholders and to pay the fees
and interest associated with the facility.
(2) Pursuant to the Merger, (i) 3,606,138 shares of common stock of the Company
will each be converted into the right to receive $14.25 in cash and (ii)
options to purchase 50,409 shares common stock of the Company will be
converted into the right to receive $14.25 per share in cash less the
aggregate exercise price of $431. In connection with the Merger, certain
members of management will exchange (i) 2,102 shares of common stock for
$14.00 per share in cash, and (ii) options to purchase 67,190 shares of
common stock of the Company for $14.00 per share in cash less the aggregate
exercise price of $818.
(3) The New Credit Facility provides for an $8,000 term loan and a $30,000
revolving credit loan facility. The term loan and $17,250 of revolving loans
($25,250 in total) were borrowed on December 23, 1996 to repay existing debt
of the Company, of which $16,000 was incurred in connection with the
acquisition of the Company by BCC in 1988 and $9,250 was incurred for
working capital needs. Upon consummation of this Offering, approximately
$1,686 of such revolving loans will be repaid with the proceeds of the
Offering. Amounts so repaid will continue to be available to be borrowed
under the New Revolving Credit Facility. Borrowings under the New Credit
Facility bear interest on the basis of rates selected by the Company from
time to time. See "Description of New Credit Facility." As of February 1,
1997, the weighted average interest rate on borrowings under the New Credit
Facility was 8.10%.
(4) Includes discounts and commissions and estimated expenses to be incurred in
connection with the Offering and the application of the net proceeds
therefrom, and fees and expenses payable in connection with the Acquisition
and the financing thereof, including $3,000 in underwriting discounts and
commissions payable to the Underwriter, approximately $2,200 payable to CT's
investment bankers in connection with the Merger and approximately $1,700 as
an advisory and financing fee payable to Associates in connection with the
Merger.
14
<PAGE> 20
CAPITALIZATION
The following table sets forth, as of February 1, 1997, (i) the
consolidated capitalization of the Company and (ii) the pro forma consolidated
capitalization of the Company after giving effect to the Acquisition and the
Offering and the application of the net proceeds therefrom as described in "Use
of Proceeds." This table should be read in conjunction with the Pro Forma
Condensed Consolidated Financial Data and the notes thereto and the Consolidated
Financial Statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FEBRUARY 1, 1997
------------------------
HISTORICAL PRO FORMA
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents...................................... $ 2,583 $ 2,583
======== ========
Short-term bank debt(1)........................................ $ 19,900 $ 17,080
======== ========
Long-term debt:
New Term Loan(2)............................................. $ 8,000 $ 8,000
Capital lease obligations(3)................................. 1,468 1,468
% Senior Notes due 2007.................................... -- 100,000
-------- --------
Total long-term debt................................. 9,468 109,468
Total stockholders' equity (4)................................. 91,456 69,169
-------- --------
Total capitalization................................. $100,924 $178,637
======== ========
</TABLE>
- ---------------
(1) Consists of borrowings under the $30,000 New Revolving Credit Facility. The
Company has historically classified borrowings under its revolving credit
facilities as short-term because it expects to temporarily repay all
outstanding borrowings at some time within the next twelve months.
(2) Includes current maturities of $1,600.
(3) Includes current maturities of $170.
(4) The adjustments to stockholders' equity are as follows:
<TABLE>
<S> <C>
Cash contributed by Childs and affiliates $ 60,290
Cash contributed by new outside directors 135
Cash contributed by affiliates of Fleet 5,000
Cash contributed by senior management 589
Roll-over of CT common stock by senior management 1,185
Roll-over of CT common stock options by senior management 2,899
--------
Total fair value of contributed equity capital 70,098
Less: loans to senior management to fund capital contributions (275)
Less: exercise price of stock options rolled over by senior management (654)
--------
Adjusted contributed equity capital 69,169
Less historical stockholders' equity in the Company (91,456)
--------
Decrease in stockholders' equity $(22,287)
========
</TABLE>
15
<PAGE> 21
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following Unaudited Pro Forma Condensed Consolidated Financial Data are
based on the historical audited consolidated financial statements of the Company
included elsewhere in this Prospectus, adjusted to give effect to the pro forma
adjustments described in the notes thereto. The Unaudited Pro Forma Condensed
Consolidated Statement of Income Data gives effect to: (i) the acquisition of 31
stores and certain net operating assets from Big Bear by the Company; (ii) the
Acquisition; and (iii) the Offering as though these transactions had occurred on
October 29, 1995. The Unaudited Pro Forma Condensed Consolidated Balance Sheet
Data gives effect to: (i) the Acquisition; and (ii) the Offering as though these
transactions had occurred on February 1, 1997
The pro forma adjustments are based upon available data and certain
assumptions that the Company believes are reasonable. The Unaudited Pro Forma
Condensed Consolidated Financial Data are not necessarily indicative of the
Company's financial position or results of operations that might have occurred
had the aforementioned transactions been completed as of the dates indicated
above and do not purport to represent what the Company's consolidated financial
position or results of operations might be for any future period or date. The
Unaudited Pro Forma Condensed Consolidated Financial Data should be read in
conjunction with the Consolidated Financial Statements of the Company and the
information contained in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus.
The Acquisition will be accounted for using the purchase method of
accounting. The total purchase price will be allocated to the tangible and
intangible assets and the liabilities of the Company based upon their respective
fair values. The allocation of the aggregate purchase price included in the
Unaudited Pro Forma Condensed Consolidated Financial Data is preliminary.
However, the Company does not expect that the final allocation of the purchase
price will materially alter the pro forma financial position and results of
operations appearing in the following pages.
16
<PAGE> 22
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF INCOME DATA
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA CT
HISTORICAL BIG BEAR FOR FOR YEAR ENDED
CT FOR YEAR PERIOD OF SEVEN NOVEMBER 2, THE PRO FORMA CT
ENDED MONTHS ENDED 1996 (GIVING ACQUISITION FOR YEAR ENDED
NOVEMBER 2, MAY 31, 1996 EFFECT TO BIG PRO FORMA NOVEMBER 2,
1996 (1) BEAR) ADJUSTMENTS 1996
----------- --------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Net sales.......................... $293,020 $14,827 $307,847 $ -- $307,847
Cost of sales...................... 207,228 10,949 218,177 -- 218,177
-------- ------- -------- -------- --------
Gross profit....................... 85,792 3,878 89,670 -- 89,670
Selling, general and administrative
expenses......................... 68,197 3,201 71,398 240(4) 71,638
Amortization of intangibles........ 938 78(2) 1,016 1,143(5) 2,159
-------- ------- -------- -------- --------
Operating income................... 16,657 599 17,256 (1,383) 15,873
Interest expense................... 1,663 -- 1,663 11,076(6) 12,739
-------- ------- -------- -------- --------
Income before income taxes......... 14,994 599 15,593 (12,459) 3,134
Income taxes....................... 6,250 239(3) 6,489 (4,526)(7) 1,963
-------- ------- -------- -------- --------
Net income......................... $ 8,744 $ 360 $ 9,104 $ (7,933) $ 1,171
======== ======= ======== ======== ========
Net income per share............... $ 0.80 $ 0.83 $ 0.11
Weighted average common and common
equivalent shares outstanding.... 10,986 10,986 10,986
Ratio of earnings to fixed
charges(8)....................... 5.3x 1.2x
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL
CT FOR THIRTEEN THE PRO FORMA
WEEKS ENDED ACQUISITION CT FOR
FEBRUARY 1, PRO FORMA THIRTEEN WEEKS ENDED
1997 ADJUSTMENTS FEBRUARY 1, 1997
--------------- ----------- --------------------
<S> <C> <C> <C>
Net sales........................... $ 71,479 $ -- $71,479
Cost of sales....................... 51,070 -- 51,070
-------- ------- -------
Gross profit........................ 20,409 -- 20,409
Selling, general and administrative
expenses.......................... 17,614 60(4) 17,674
Amortization of intangibles......... 257 283(5) 540
-------- ------- -------
Operating income.................... 2,538 (343) 2,195
Interest expense.................... 525 2,765(6) 3,290
-------- ------- -------
Income (loss) before income taxes... 2,013 (3,108) (1,095)
Income taxes (credit)............... 872 (1,130)(7) (258)
-------- -------
Net income (loss)................... $ 1,141 $(1,978) $ (837)
======== ======= =======
Net income (loss) per share......... $ 0.10 $ (0.08)
Weighted average common and common
equivalent shares outstanding..... 10,975 10,975
Ratio of earnings to fixed
charges(8)........................ 2.9x 0.7x
</TABLE>
17
<PAGE> 23
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF INCOME DATA
(1) The Company acquired 31 retail stores and certain net operating assets from
Big Bear as of May 31, 1996 for $5,700. Results of operations of these Big
Bear stores for the period of seven months ended May 31, 1996 represents (i)
historical store-level operating results for the acquired retail stores and
do not include any distribution, merchandising or general and administrative
costs and expenses of Big Bear which were accounted for at the Big Bear
corporate office level and not allocated to the stores; and (ii) the
following pro forma incremental costs which represent the estimated
additional costs to the Company to provide distribution, merchandising, and
general and administrative services to the 31 acquired Big Bear stores for
the seven-month period:
<TABLE>
<S> <C>
Cost of sales -- distribution costs $227
Selling, general and administrative expenses 200
----
$427
====
</TABLE>
Actual results of operations of the Big Bear stores since the date of
acquisition are included in the consolidated results of operations of the
Company for the year ended November 2, 1996 and thirteen weeks ended
February 1, 1997.
(2) Represents pro forma amount of goodwill amortization relating to the Big
Bear acquisition for the seven months ended May 31, 1996 and thirteen weeks
ended February 1, 1997.
(3) Represents pro forma income taxes relating to the pro forma adjustments to
income before income taxes of the acquired Big Bear stores for the
seven-month period ended May 31, 1996, computed using a marginal tax rate of
40.0%.
(4) Represents an annual management fee of $240,000 charged by Associates;
proportionate for the thirteen weeks ended February 1, 1997.
(5) Represents the incremental amount of goodwill amortization (over a period of
40 years) as a result of the increase in goodwill attributable to the
acquisition of the Company by JWCAC and the subsequent merger of JWCAC into
the Company.
(6) Represents the incremental amount of interest expense relating to the
Acquisition computed as follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS
YEAR ENDED ENDED
NOVEMBER 2, 1996 FEBRUARY 1, 1997
----------------- -----------------
<S> <C> <C>
Interest expense related to new debt:
New Revolving Credit Facility $ 548 $ 211
New Term Loan 613 155
Senior Notes offered hereby 10,750 2,717
Amortization of deferred financing charges 640 160
Interest on capital leases 188 47
------- ------
Subtotal 12,739 3,290
Less: interest expense relating to outstanding
debt (1,663) (525)
------- ------
Pro forma adjustment $11,076 $2,765
======= ======
</TABLE>
Interest expense related to the New Revolving Credit Facility is determined
based on an annual average of approximately $7,150 of borrowings
outstanding. Interest expense was calculated using the following average
rates: (a) New Revolving Credit Facility: 7.66% (b) New Term Loan: 7.66% and
(c) Senior Notes: 10.75%.
(7) Represents the reduction in income tax to record the income tax benefit
related to pro forma adjustments for the Associates management fee and
incremental interest expense, computed using an effective income tax rate of
40.0%. No tax benefit was provided relating to the pro forma adjustment for
the incremental amount of goodwill amortization relating to the acquisition
of the Company, since such amounts will not be deductible for income tax
purposes.
(8) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense,
amortization of deferred finance costs and 20.0% of the rent expense from
operating leases, which the Company believes is a reasonable approximation
of the interest factor included in the rent.
18
<PAGE> 24
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
AS OF FEBRUARY 1, 1997
-------------------------------------------------
PRO FORMA
HISTORICAL CT ADJUSTMENTS(1) PRO FORMA CT
------------- -------------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 2,583 $ -- $ 2,583
Inventory........................................ 106,262 5,277(2) 111,539
Other current assets............................. 5,387 -- 5,387
-------- -------- --------
Total current assets.......................... 114,232 5,277 119,509
Property, improvements and equipment, net........ 24,926 -- 24,926
Goodwill and other intangible assets............. 20,538 65,027(3) 85,565
Deferred financing costs......................... -- 6,700(4) 6,700
Other assets....................................... 426 -- 426
-------- -------- --------
Total assets............................. $160,122 $ 77,004 $237,126
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit.............................. $ 19,900 $ (2,820) (5) $ 17,080
Accounts payable................................. 33,225 -- 33,225
Other accrued expenses........................... 3,147 -- 3,147
Deferred income taxes............................ 1,595 2,111(6) 3,706
Current portion of long-term debt and capital
leases........................................ 1,770 -- 1,770
-------- -------- --------
Total current liabilities..................... 59,637 (709) 58,928
Noncurrent portion of long-term debt and capital
lease obligations............................. 7,698 100,000(7) 107,698
Deferred income taxes............................ 1,331 -- 1,331
-------- -------- --------
Total liabilities............................. 68,666 99,291 167,957
Stockholders' equity.......................... 91,456 (22,287)(8) 69,169
-------- -------- --------
Total liabilities and stockholders'
equity................................. $160,122 $ 77,004 $237,126
======== ======== ========
</TABLE>
19
<PAGE> 25
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
(1) Pro Forma Adjustments represent adjustments necessary to complete the
Acquisition. Sources and uses of cash for the Acquisition are as follows:
<TABLE>
<S> <C>
Cash Sources:
Capital contributions from shareholders (net of $3,430 non-cash contributions rolled over
from senior management) $ 65,739
Exercise of stock options by officer 252*
New Revolving Credit Facility 11,334*
New Term Loan 8,000
Senior Notes offered hereby 100,000
--------
Total cash sources $185,325
========
Cash Uses:
Payments in respect of outstanding common stock, stock warrant and stock options from
existing shareholders $151,919
Repayment of existing Company long-term debt 16,000*
Repayment of existing Company short-term debt 6,406*
Payment of debt issuance costs 6,700
Other estimated fees and expenses 4,300
--------
Total cash uses $185,325
========
---------------
* Reflected in the Company's historical consolidated balance sheet as of February 1, 1997.
</TABLE>
(2) Increase to record merchandise inventories at estimated selling prices less
the cost of disposal and a reasonable profit allowance.
(3) Excess of cost of acquisition over the allocated fair value of the
underlying tangible net assets as follows:
<TABLE>
<S> <C>
Estimated purchase price $159,649
Fair value of underlying tangible net assets acquired (74,084)
--------
Excess of cost of acquisition over the allocated fair value of the underlying tangible
net assets 85,565
Historical goodwill and other intangible assets of the Company 20,538
--------
Pro forma adjustment to goodwill $ 65,027
========
</TABLE>
(4) Deferred financing costs consist primarily of the underwriting discounts
relating to the Offering and fees relating to the New Credit Facility.
(5) Reduction of short-term bank line of credit with a portion of the proceeds
of the Senior Notes offered hereby.
(6) Increase in deferred income taxes relating to inventory adjustment under the
liability method of accounting using a marginal tax rate of 40.0%.
(7) The adjustment to the noncurrent portion of long-term debt represents the
Senior Notes offered hereby.
(8) The adjustments to stockholders' equity are as follows:
<TABLE>
<S> <C>
Cash contributed by Childs and affiliates $ 60,290
Cash contributed by new outside directors 135
Cash contributed by affiliates of Fleet 5,000
Cash contributed by senior management 589
Roll-over of CT common stock by senior management 1,185
Roll-over of CT common stock options by senior management 2,899
--------
Total fair value of contributed equity capital 70,098
Less: loans to senior management to fund capital contributions (275)
Less: exercise price of stock options rolled over by senior management (654)
--------
Adjusted contributed equity capital 69,169
Less: historical stockholders' equity of the Company (91,456)
--------
Decrease in stockholders' equity $(22,287)
========
</TABLE>
20
<PAGE> 26
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
Set forth below are selected historical and pro forma financial data and
other historical operating data of the Company. The historical Statement of
Operating Data of the Company for fiscal 1992 through fiscal 1996 have been
derived from the Company's audited financial statements for those periods. The
historical Statement of Operating Data of the Company for the thirteen weeks
ended January 27, 1996 and February 1, 1997 and the historical Balance Sheet
Data as of February 1, 1997 have been derived from unaudited financial
statements which in the opinion of management include all adjustments
(consisting of only normal recurring accruals) necessary for a fair presentation
of such data. The information presented below should be read in conjunction with
"Capitalization," "Pro Forma Condensed Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THIRTEEN
FISCAL YEAR WEEKS ENDED
-------------------------------------------------------------------- -----------
PRO FORMA JANUARY 27,
1996 1996
1992 1993 1994 1995 1996(1) (UNAUDITED)(2) (UNAUDITED)
-------- -------- -------- -------- -------- -------------- -----------
(IN THOUSANDS, EXCEPT RATIOS AND STORE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATING DATA:
Net sales.................................... $198,055 $202,589 $231,064 $251,703 $293,020 $307,847 $ 69,967
Cost of sales................................ 142,310 143,144 161,523 177,340 207,228 218,177 51,105
-------- -------- -------- -------- -------- -------- --------
Gross profit................................. 55,745 59,445 69,541 74,363 85,792 89,670 18,862
Selling, general and administrative
expenses.................................... 46,986 47,529 54,548 58,294 68,197 71,638 16,061
Amortization of intangibles.................. 881 869 841 862 938 2,159 221
-------- -------- -------- -------- -------- -------- --------
Operating income............................. 7,878 11,047 14,152 15,207 16,657 15,873 2,580
Interest expense............................. 5,140 4,842 4,774 1,302(3) 1,663 12,739 360
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes............ 2,738 6,205 9,378 13,905 14,994 3,134 2,220
Income taxes (credit)........................ 1,274 2,935 4,197 5,720 6,250 1,963 940
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing operations..... $ 1,464 $ 3,270 $ 5,181 $ 8,185 $ 8,744 $ 1,171 $ 1,280
======== ======== ======== ======== ======== ======== ========
Income (loss) per share from continuing
operations.................................. $ 0.19 $ 0.42 $ 0.66 $ 0.74 $ 0.80 $ 0.11 $ 0.12
======== ======== ======== ======== ======== ======== ========
Ratio of earnings to fixed charges(4)........ 1.4x 2.0x 2.5x 5.8x 5.3x 1.2x 3.8x
OTHER DATA:
Number of stores (at period end)............. 47 50 55 66 111 69
Comparable store sales increase
(decrease)(5)............................... 5.4% 4.2% 10.0% (1.6)% 1.0% 1.5%
Comparable store sales per square foot(6).... $ 210 $ 218 $ 240 $ 224 $ 222
Capital expenditures......................... 2,074 2,140 5,207 6,339 8,789 $ 1,252
Depreciation and amortization................ 2,971 3,066 3,386 3,385 4,054 $ 5,304 915
Net cash provided by (used in):
Operating activities from continuing
operations................................ (1,233) 5,037 (3,571) (5,967) 4,961 (1,362) (4,695)
Investing activities........................ (2,640) (2,550) (5,516) (6,813) (14,184) (14,184) (1,428)
Financing activities........................ 4,249 1,303 6,312 11,964 (3,215) (3,215) (6,830)
EBITDA(7).................................... $ 10,849 $ 14,113 $ 17,538 $ 18,592 $ 20,711 $ 21,177 $ 3,495
EBITDA margin................................ 5.5% 7.0% 7.6% 7.4% 7.1% 6.9% 5.0%
Ratio of EBITDA to interest expense(8)....... 1.8x
Ratio of net long-term debt to EBITDA(9)..... 4.9x
BALANCE SHEET DATA:
Cash......................................... $ 4,498 $ 9,115 $ 2,582 $ 3,094 $ 3,809 $ 3,294
Working capital.............................. 34,167 37,055 50,442 62,496 63,803 63,019
Total assets................................. 111,446 113,241 139,416 149,977 159,238 139,727
Long-term debt, less current portion......... 37,881 37,536 16,959 16,862 17,341 16,842
Stockholders' equity(10)..................... $ 22,840 $ 24,287 $ 75,735 $ 81,277 $ 90,063 $ 82,556
<CAPTION>
THIRTEEN WEEKS ENDED
---------------------------
PRO FORMA
FEBRUARY 1, FEBRUARY 1,
1997 1997
(UNAUDITED) (UNAUDITED)(2)
----------- --------------
<S> <C> <C>
STATEMENT OF OPERATING DATA:
Net sales.................................... $ 71,479 $ 71,479
Cost of sales................................ 51,070 51,070
-------- --------
Gross profit................................. 20,409 20,409
Selling, general and administrative
expenses.................................... 17,614 17,674
Amortization of intangibles.................. 257 540
-------- --------
Operating income............................. 2,538 2,195
Interest expense............................. 525 3,290
-------- --------
Income (loss) before income taxes............ 2,013 (1,095)
Income taxes (credit)........................ 872 (258)
-------- --------
Income (loss) from continuing operations..... $ 1,141 $ (837)
======== ========
Income (loss) per share from continuing
operations.................................. $ 0.10 $ (0.08)
======== ========
Ratio of earnings to fixed charges(4)........ 2.9x 0.7x
OTHER DATA:
Number of stores (at period end)............. 112
Comparable store sales increase
(decrease)(5)............................... (11.9%)
Comparable store sales per square foot(6)....
Capital expenditures......................... $ 1,387
Depreciation and amortization................ 1,175 $ 1,458
Net cash provided by (used in):
Operating activities from continuing
operations................................ (7,467) (9,162)
Investing activities........................ (2,199) (2,199)
Financing activities........................ 8,440 8,440
EBITDA(7).................................... $ 3,713 $ 3,653
EBITDA margin................................ 5.2% 5.1%
Ratio of EBITDA to interest expense(8).......
Ratio of net long-term debt to EBITDA(9).....
BALANCE SHEET DATA:
Cash......................................... $ 2,583 $ 2,583
Working capital.............................. 54,595 60,581
Total assets................................. 160,122 237,126
Long-term debt, less current portion......... 7,698 107,698
Stockholders' equity(10)..................... 91,456 $ 69,169(11)
</TABLE>
21
<PAGE> 27
- ---------------
(1) 53-week fiscal year. On May 31, 1996, the Company acquired 31 stores and
certain net operating assets of Big Bear. The Big Bear stores generated
$9.5 million of sales during the five months in fiscal 1996 and $5.5
million in sales during the thirteen weeks in fiscal 1997 in which they
were operated by CT.
(2) The Pro Forma Statement of Operating Data and Other Data give effect to (i)
the acquisition of 31 stores and certain net operating assets from Big
Bear, (ii) the Acquisition and (iii) the Offering as though these
transactions had occurred on October 29, 1995. The Pro Forma Balance Sheet
Data gives effect to (i) the Acquisition and (ii) the Offering as though
these transactions had occurred on February 1, 1997. See "Pro Forma
Condensed Consolidated Financial Data."
(3) In fiscal 1994, the Company consummated an initial public offering of
common stock and applied the net proceeds to reduce long-term debt.
(4) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense,
amortization of deferred financing costs and 20.0% of the rent expense from
operating leases which the Company believes is a reasonable approximation
of the interest factor included in the rent.
(5) Percentage change in store sales as compared to sales for the same stores
for the prior year for stores open and operated by CT for at least twelve
months in each year. The 1.0% increase in comparable store sales in 1996
has been adjusted to reflect a comparable 52-week fiscal year. Comparable
store sales grew 2.9% without such adjustment.
(6) Comparable store sales per square foot is calculated by dividing store
sales by total indoor selling square footage for stores open and operated
by CT at least twelve months in each period.
(7) Income from continuing operations before interest expense (including
amortization of deferred financing costs), income taxes, depreciation and
amortization of intangibles. EBITDA is presented because it is a widely
accepted financial indicator of a leveraged company's ability to service
and/or incur indebtedness and because management believes that EBITDA is a
relevant measure of the Company's ability to generate cash without regard
to the Company's capital structure or working capital needs. EBITDA as
presented may not be comparable to similarly titled measures used by other
companies, depending upon the non-cash charges included. When evaluating
EBITDA, investors should consider that EBITDA (i) should not be considered
in isolation but together with other factors which may influence operating
and investing activities, such as changes in operating assets and
liabilities and purchases of property and equipment, (ii) is not a measure
of performance calculated in accordance with GAAP, (iii) should not be
construed as an alternative or substitute for income from operations, net
income or cash flows from operating activities in analyzing the Company's
operating performance, financial position or cash flows (in each case, as
determined in accordance with GAAP) and (iv) should not be used as an
indicator of the Company's operating performance or as a measure of its
liquidity. EBITDA has been steadily increasing in the periods presented.
Management interprets this trend as showing stable cash flows for the
Company in the periods presented.
(8) Assumes pro forma cash interest expense of $12,099, consisting of $548 for
the New Revolving Credit Facility, $613 for the New Term Loan, $10,750 for
the Senior Notes and $188 for capitalized leases. Cash interest expense
differs from interest expense for GAAP accounting purposes by amortization
of deferred financing costs in the amount of $640. The ratio of EBITDA to
interest expense for GAAP accounting purposes is 1.7x. The ratio of EBITDA
to interest expense is presented because it is a widely accepted financial
indicator of a leveraged company's ability to service indebtedness. When
evaluating the ratio of EBITDA to interest expense, investors should
consider the matters relating to EBITDA described in note 7 above.
(9) For purposes of computing this ratio, net long-term debt excludes current
maturities of $1,770 and is net of cash. See "Capitalization."
(10) The Company has not paid or declared any cash dividends during the periods
presented and is restricted in paying cash dividends under the terms of its
borrowing agreements, including the Indenture.
(11) Pro forma stockholders' equity is computed as follows:
<TABLE>
<S> <C>
Cash contributed by Childs and affiliates $60,290
Cash contributed by new outside directors 135
Cash contributed by affiliates of Fleet 5,000
Cash contributed by senior management 589
Roll-over of CT common stock by senior management 1,185
Roll-over of CT common stock options by senior management 2,899
-------
Total fair value of contributed equity capital 70,098
Less: loans to senior management to fund capital contributions (275)
Less: exercise price of stock options rolled-over by senior management (654)
-------
Adjusted contributed equity capital $69,169
=======
</TABLE>
22
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the selected consolidated
financial data and the consolidated financial statements of the Company and
related notes thereto included elsewhere in this Prospectus.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items in
the Company's Statement of Income expressed as a percentage of net sales:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THIRTEEN WEEKS ENDED
--------------------------------------- -------------------------
OCTOBER 29, OCTOBER 28, NOVEMBER 2, JANUARY 27, FEBRUARY 1,
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales...................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit................................... 30.1 29.5 29.3 27.0 28.6
Selling, general and administrative expenses... 23.6 23.2 23.3 23.0 24.6
Amortization of intangibles.................... 0.4 0.3 0.3 0.3 0.4
----- ----- ----- ----- -----
Operating income............................... 6.1 6.0 5.7 3.7 3.6
Interest expense............................... 2.1 0.5 0.6 0.5 0.7
----- ----- ----- ----- -----
Income before income taxes..................... 4.0 5.5 5.1 3.2 2.8
Income taxes................................... 1.8 2.3 2.1 1.3 1.2
----- ----- ----- ----- -----
Income from continuing operations.............. 2.2% 3.2% 3.0% 1.8% 1.6%
===== ===== ===== ===== =====
</TABLE>
FIRST QUARTER OF FISCAL 1997 COMPARED TO FIRST QUARTER OF FISCAL 1996
Net Sales for the first quarter of fiscal 1997 were $71.5 million, an
increase of $1.5 million, or 2.2%, as compared to net sales for first quarter of
fiscal 1996 of $70.0 million. This increase was due to sales attributable to one
new store opened during the first quarter of fiscal 1997, eleven new stores
opened during the second, third and fourth quarter of fiscal 1996, and
thirty-one stores acquired during fiscal 1996 and partially offset by a
comparable store sales decrease of 11.9%. The decrease in comparable store sales
was primarily the result of mild winter weather conditions in the Northeast
where the majority of the comparable stores are located and the elimination of
two promotional events run during the first quarter of fiscal 1996.
Gross profit for the first quarter of fiscal 1997 was $20.4 million, an
increase of $1.5 million or 8.2%, as compared to $18.9 million for the first
quarter of fiscal 1996. Gross profit as a percentage of sales was 28.6% for the
first quarter of fiscal 1997, as compared to 27.0% for the first quarter of
fiscal 1996. The increase in gross profit percentage was primarily the result of
the elimination of two promotional events run during the first quarter of 1996
at a reduced gross margin.
Selling, general and administrative expenses for the first quarter of
fiscal 1997 were $17.6 million, an increase of $1.6 million, or 9.7%, from $16.1
million in the first quarter of fiscal 1996, due primarily to stores opened
during the last three quarters of fiscal 1996, and stores acquired during fiscal
1996, partially offset by a decrease in comparable store expenses. Selling,
general and administrative expenses as a percentage of sales increased to 24.6%
for the first quarter of fiscal 1997 as compared to 23.0% for the first quarter
of fiscal 1996, due primarily to proportionately higher levels of selling,
general and administrative expense in stores opened and acquired during fiscal
1996.
Operating income for the first quarter of fiscal 1997 was $2.5 million, a
decrease of $0.1 million, or 2.2%, as compared to $2.6 million for the first
quarter of fiscal 1996. Operating income as a percentage of sales decreased to
3.6% for the first quarter of fiscal 1997 from 3.7% for the first quarter of
fiscal 1996. The decrease was the result of the factors affecting sales, gross
profit and selling, general and administrative expenses as discussed above.
23
<PAGE> 29
Interest expense for the first quarter of fiscal 1997 was $0.5 million, an
increase of $0.1 million as compared to $0.4 million for the first quarter of
fiscal 1996 primarily due to higher working capital requirements.
Income taxes for the first quarter of fiscal 1997 were $0.9 million, a
decrease of $0.1 million as compared to the first quarter of fiscal 1996. Income
tax as a percentage of pretax earnings was 43.3% in 1997, compared to 42.3% in
1996. This increase is primarily due to the effect of a proportionately higher
amount of nondeductible goodwill amortization.
Net income for the first quarter of fiscal 1997 was $1.1 million, or $0.10
per share, as compared to $1.3 million or $0.12 per share for the first quarter
of fiscal 1996.
COMPARISON OF THE YEAR ENDED NOVEMBER 2, 1996 TO THE YEAR ENDED OCTOBER 28, 1995
Net Sales for the fiscal year ended November 2, 1996 were $293.0 million,
an increase of $41.3 million, or 16.4%, as compared to net sales for the fiscal
year ended October 28, 1995 of $251.7 million. This increase was due to a
comparable store sales increase of approximately 1.0% (net of sales attributable
to an extra (53rd) week in fiscal 1996), sales during such extra week, the
opening of 14 new stores in fiscal 1996, a full year of operations for the
eleven new stores opened in fiscal 1995 as compared to a partial year for those
stores during fiscal 1995 and the acquisition of the Big Bear stores in May
1996. The increase in comparable store sales was primarily due to a comparable
store sales increase of 13.8% during the fourth quarter of fiscal 1996 as
compared to the fourth quarter of fiscal 1995. This increase in comparable store
sales during the fourth quarter was the result of normal weather conditions
during fiscal 1996 as compared to unusual and severe drought conditions during
fiscal 1995.
Gross profit for fiscal 1996 was $85.8 million, an increase of $11.4
million, or 15.4%, as compared to $74.4 million for fiscal 1995. Gross profit as
a percentage of sales was 29.3% for fiscal 1996, as compared to 29.5% for fiscal
1995. This decrease is primarily attributable to the sale of lower margin
products in the Big Bear stores prior to their conversion to the CT store
format. Management expects that the completion of the conversion of the Big Bear
stores to the CT store format will improve gross margins as a percentage of
sales.
Selling, general, and administrative expenses for fiscal 1996 were $68.2
million, an increase of $9.9 million, or 17.0%, from $58.3 million for fiscal
1995. This increase was due primarily to costs related to new store openings and
costs related to stores acquired and operated in the Big Bear acquisition.
Selling, general, and administrative expenses as a percentage of sales increased
to 23.3% in fiscal 1996 as compared to 23.2% in fiscal 1995. This increase is
attributable to higher selling, general and administrative expenses as a
percentage of sales at the Big Bear stores, partially offset by a decrease in
selling, general and administrative expenses as a percentage of sales at CT's
existing stores. Management expects that the completion of the conversion of the
Big Bear stores to the CT store format will decrease selling, general and
administrative expenses as a percentage of sales.
Amortization of intangibles was $0.9 million for fiscal 1996 and $0.9
million for fiscal 1995.
Operating income for fiscal 1996 was $16.7 million, an increase of $1.5
million, or 9.5%, as compared to $15.2 million for fiscal 1995. Operating income
as a percentage of sales decreased to 5.7% in fiscal 1996 from 6.0% in fiscal
1995. The decrease resulted from the factors affecting sales, gross profit and
selling, general and administrative expenses discussed above.
Interest expense for fiscal 1996 was $1.7 million, an increase of $0.4
million, or 27.7%, as compared to $1.3 million for fiscal 1995. This increase
was primarily due to an increase in interest related to short-term borrowings
under the Company's credit agreement.
Income tax expense related to continuing operations for fiscal 1996 was
$6.2 million, an increase of $0.5 million, or 8.8%, as compared to $5.7 million
for fiscal 1995. Income taxes as a percentage of pretax earnings were 41.7% in
fiscal 1996 as compared to 41.1% in fiscal 1995. This increase was primarily due
to the effect of a reduction of a prior year over-accrual in fiscal 1995.
24
<PAGE> 30
COMPARISON OF THE YEAR ENDED OCTOBER 28, 1995 TO THE YEAR ENDED OCTOBER 29, 1994
Net Sales for the fiscal year ended October 28, 1995 were $251.7 million,
an increase of $20.6 million, or 8.9%, as compared to net sales for the fiscal
year ended October 29, 1994 of $231.1 million. This increase was due to the
opening of eleven new stores in fiscal 1995 and a full year of operations for
the eight new stores opened in fiscal 1994, partially offset by a comparable
store sales decrease of 1.6% and the closing of three stores during the latter
part of fiscal 1994. The 1.6% decrease in comparable store sales was primarily a
result of unusual and severe drought conditions throughout fiscal 1995 and
generally unfavorable economic conditions in the Northeast where most of the
Company's retail stores were located.
Gross profit for fiscal 1995 was $74.4 million, an increase of $4.9
million, or 6.9%, as compared to $69.5 million for fiscal 1994. Gross profit as
a percentage of sales was 29.5% for fiscal 1995, as compared to 30.1% for fiscal
1994. The decrease in gross profit percentage was primarily the result of
increased promotional sales in fiscal 1995 at lower gross margins, partially
offset by improvements in distribution costs.
Selling, general and administrative expenses for fiscal 1995 were $58.3
million, an increase of $3.8 million, or 6.9%, as compared to $54.5 for fiscal
1994. This increase was due primarily to increased costs related to new store
openings, partially offset by a reduction in costs due to the closing of three
stores in fiscal 1994 and a reduction in incentive compensation costs. Selling,
general and administrative expenses as a percentage of sales decreased to 23.2%
in fiscal 1995, as compared to 23.6% in fiscal 1994, reflecting the decrease in
incentive compensation expenses as a percentage of sales, partially offset by
higher selling, general and administrative expenses as a percentage of sales in
new stores.
Amortization of intangibles was $0.9 million for fiscal 1995 and $0.8
million for fiscal 1994.
Operating income for fiscal 1995 was $15.2 million, an increase of $1.0
million, or 7.5%, as compared to $14.2 for fiscal 1994. Operating income as a
percentage of sales decreased to 6.0% in fiscal 1995 from 6.1% in fiscal 1994.
The decrease resulted from the factors affecting sales, gross profit and
selling, general and administrative expenses discussed above.
Interest expense for fiscal 1995 was $1.3 million, a decrease of $3.5
million, or 72.7%, as compared to $4.8 million for fiscal 1994. This was
primarily due to the reduction in long-term debt resulting from the debt prepaid
with the proceeds from the initial public offering of the Company completed in
October 1994.
Income tax expense related to continuing operations for fiscal 1995 was
$5.7 million, an increase of $1.5 million, or 36.3%, as compared to $4.2 million
for fiscal 1994. Income taxes as a percentage of pretax earnings were 41.1% in
fiscal 1995, as compared to 44.8% in fiscal 1994. This decrease was primarily
due to the effect of a proportionately lower amount of non-deductible goodwill
amortization and a reduction of a prior year over-accrual.
Discontinued operations represent the results of operations of the
Company's former subsidiary, Herschel Corporation ("Herschel"), a manufacturer
and distributor of non-original equipment sickle bar cutting parts, tractor
parts, tillage and other agricultural componentry. Discontinued operations
generated net income of $0.8 million in fiscal 1995, as compared to a net loss
of $0.7 million in fiscal 1994. The sale of Herschel, which was completed on
December 6, 1995, resulted in an estimated net loss on the sale of $3.4 million,
net of an income tax benefit of $0.7 million, which was reflected in the
Company's financial statements for fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
In addition to cash to fund operations, CT's primary on-going cash
requirements are those necessary for the Company's expansion programs, including
inventory purchases and capital expenditures, and debt service, including
payment of interest on the Senior Notes. The Company's primary sources of
liquidity are funds provided from operations, borrowings pursuant to the
Company's revolving credit facilities and short-term trade credit.
On November 2, 1996, the Company had working capital of $63.8 million, an
increase of $1.3 million, as compared to working capital of $62.5 million on
October 28, 1995. This increase resulted primarily from an increase in inventory
and a decrease in borrowings under the Company's revolving credit facility,
partially
25
<PAGE> 31
offset by a decrease in the net assets of Herschel and an increase in accounts
payable. On November 2, 1996, the Company's inventories were $107.2 million, an
increase of $13.3 million, as compared to $93.9 million at October 28, 1995.
This increase reflected inventory for new stores and inventory for the stores
acquired in the Big Bear acquisition. The increase in inventory was funded with
cash from operations, short-term trade credit and proceeds of approximately
$13.5 million from the sale of the net assets of Herschel, including the
repayment of approximately $2.1 million in advances.
On February 1, 1997 the Company had working capital of $54.6 million, which
was a $9.2 million decrease over working capital of $63.8 million on November 2,
1996. This decrease resulted primarily from the prepayment of the $16.0 million
aggregate principal amount of 7% convertible notes in connection with the
Securities Purchase discussed below which was funded with borrowings under the
New Credit Facility.
Continuing operations of the Company (before payment of income taxes)
generated $10.3 million of net cash in fiscal 1996, used $1.1 million of net
cash in fiscal 1995 and generated $0.6 million of net cash in fiscal 1994. The
increase in net cash generated in fiscal 1996, as compared to fiscal 1995,
resulted primarily from a smaller increase in inventory and an increase in
income from continuing operations before income taxes, partially offset by a
reduction in accounts payable in fiscal 1996, as compared to an increase in
fiscal 1995. The decrease in net cash generated in fiscal 1995, as compared to
fiscal 1994, resulted primarily from an increase in inventory exceeding the
increase in accounts payable, partially offset by an increase in income from
continuing operations before income taxes.
Net cash used by continuing operations increased from $4.7 million for the
first three months of fiscal 1996 to $7.5 million for the first three months of
fiscal 1997. This increase resulted primarily from a larger decrease in accounts
payable in the first three months of 1997 as compared to 1996. The Company's
capital expenditures were $1.4 million and $1.3 million for the three months of
fiscal 1997 and 1996, respectively.
The Company's capital expenditures were $8.8 million and $6.3 million for
fiscal 1996 and 1995, respectively. The majority of capital expenditures were
for store fixtures, equipment and leasehold improvements for new and existing
stores. The Company expects its capital expenditures for fiscal 1997 to be
approximately $5.3 million in connection with renewal and replacement costs at
existing stores and distribution centers, conversion of the Big Bear stores and
the opening of two new stores.
The Company completed the acquisition of 31 store locations and certain net
operating assets of Big Bear on May 31, 1996. These stores average 11,000 square
feet and are being converted to the CT format with a projected completion of
Spring of 1997. The total investment in the 31 stores, including acquisition
cost, additional capital investments and working capital needs and conversion
costs is expected to be approximately $12.0 million. In addition, the conversion
process requires each store to be closed for approximately three weeks. The
acquisition and the additional investments made to date were funded with cash
from operations and borrowings under the Company's revolving credit facility.
The Company anticipates utilizing the New Credit Facility and cash from
operations to fund the additional investments.
On November 27, 1996, the Board of Directors of the Company approved, and
the Company entered into, a merger agreement (the "Merger Agreement") with J.W.
Childs Equity Partners, L.P. and two of its affiliates (collectively, "Childs")
that provides for the acquisition of the Company by Childs in a two-stage
transaction (the "Acquisition"). The Merger Agreement provides that following
the acquisition by Childs of all of the Company shares held by affiliates of
Butler Capital Corporation (collectively, "BCC"), an affiliate of Childs will
merge with and into the Company, and Childs will acquire the remaining shares of
the Company held by public stockholders (other than those who perfect
dissenters' appraisal rights) for $14.25 per share in cash (the "Merger").
Certain members of management have agreed to exchange their equity securities in
the Company (valued on the basis of $14.00 per common share) for equity
securities of one of the Childs affiliates and, in some cases, cash in
connection with the consummation of the Merger. The consummation of the Merger
is subject to the satisfaction of certain conditions including, among other
things the availability of sufficient funds to consummate the Merger.
Pursuant to an agreement executed contemporaneously with the Merger
Agreement between Childs and BCC, which owned 64.5% of the Company's outstanding
common stock, BCC sold 1,048,214 shares of the
26
<PAGE> 32
Company's common stock (representing 9.9% of the outstanding shares) to Childs
for a cash consideration of $14.00 per share, and agreed to sell their remaining
shares to Childs for $14.00 per share in cash. The agreement also provided that
BCC would agree, immediately following the conclusion of the stock sale, to the
prepayment by the Company (without payment of any prepayment premium) of the
Company's 7% convertible notes with a face amount of $16 million. In connection
with the purchase of the balance of BCC's shares, certain members of management
agreed to sell 146,299 shares to Childs for a cash consideration of $14.00 per
share (together with the purchases from BCC, the "Securities Purchase"). The
second purchase of BCC shares and prepayment were consummated on December 23,
1996 and the purchase of management shares was consummated on January 2, 1997.
The Company's former revolving credit facility contained a commitment,
expiring February 1, 1998, to provide revolving loans of $25.0 million from
November 1 through May 31 of each year and $12.0 million from June 1 through
October 31 of each year. At November 2, 1996 and October 28, 1995, the Company
had $3.7 million and $6.8 million, respectively, of borrowings outstanding under
such revolving credit facility. The maximum amount of borrowings outstanding
during fiscal 1996 and 1995 was $11.9 million and $15.6 million, respectively.
On December 23, 1996, such revolving credit facility was replaced by the New
Credit Facility, which consists of an $8.0 million, five-year term facility,
which was fully funded, and a $30.0 million revolving credit facility, under
which $19.9 million was outstanding as of February 1, 1997. The Company
anticipates that approximately $1.9 million of the proceeds of the Offering will
be used to repay revolving borrowings under the New Credit Facility.
The New Credit Facility will mature on December 31, 2001. Borrowings under
the New Credit Facility will bear interest at rates based upon prime or
Eurodollar rates plus an applicable margin. Loans under the New Credit Facility
will be guaranteed by any and all future subsidiaries of the Company and will be
secured by security interests in substantially all of the assets of the Company
and its subsidiaries, as well as the capital stock of the Company. As of
February 1, 1997, the interest rate on the New Term Loan was 7.89% and the
interest rate on the New Revolving Credit Facility was 8.20%. For a more
complete description of the New Credit Facility, see "Description of New Credit
Facility."
The Company anticipates, assuming that the Merger is consummated on
February 28, 1997, that funds of up to $179.0 million will be required in
connection with the Acquisition and related transactions for (i) the
consummation of the Securities Purchase, (ii) the consummation of the Merger,
(iii) the repayment of the existing long-term debt of the Company and (iv) the
payment of fees and expenses associated with the Acquisition. The Company
expects to obtain the necessary funds from (i) the Equity Investment, (ii) the
issuance and sale of the Senior Notes in the Offering and (iii) borrowings under
the New Credit Facility. See "Prospectus Summary -- The Acquisition," "Use of
Proceeds" and "Description of New Credit Facility."
After the Acquisition, the Company will be a wholly owned subsidiary of
Holding. Holding is a holding company with no significant assets or operations
other than its investment in the Company. After the closing, Holding's primary
source of funds will be dividends and other advances and transfers of funds from
the Company. The Company's ability to make dividends and other advances and
transfer of funds will be subject to the terms of the New Credit Facility, the
Indenture and other agreements to which the Company becomes a party from time to
time. The Indenture and the New Credit Facility permit the Company (subject to
certain conditions) to pay cash dividends to Holding in an amount sufficient to
permit Holding to fund certain expenses incurred in the ordinary course of
business. While Holding's obligations to pay cash in respect of dividends, or to
redeem, its Preferred Stock are generally limited by their own terms based upon
the amount of cash which the Company may permissibly make available to Holding,
on the fifth anniversary of the exchange of the Preferred Stock for Exchange
Notes, Holding shall redeem in cash, all of the Exchange Notes issued as
payment-in-kind interest payments on any of the Exchange Notes prior to such
fifth anniversary of such exchange, at a redemption price equal to the
outstanding principal amount of such Exchange Notes plus all accrued and unpaid
interest on such Exchange Notes. In the event of a default in Holding's
obligation to make such a redemption, the remedies available to holders of the
Exchange Notes are limited to legal action to compel a redemption in an amount
equal to the cash which the Company may permissibly make available to Holding.
See "Description of Holding Preferred Stock -- Exchange Notes -- Redemption."
27
<PAGE> 33
The Company anticipates that its principal uses of cash following the
Acquisition will be working capital requirements, debt service requirements and
capital expenditures, as well as expenditures relating to acquisitions. Based
upon current and anticipated levels of operations, the Company believes that its
cash flow from operations, together with amounts available under the New Credit
Facility, will be adequate to meet its anticipated requirements in the
foreseeable future for working capital, capital expenditures and interest
payments. The Company expects that if it were to pursue a significant
acquisition, it would arrange prior to the acquisition any additional debt or
equity financing required to fund the acquisition. No discussions with respect
to any significant acquisition are ongoing.
There can be no assurance, however, that CT will continue to generate
sufficient cash flow from operations in the future to service its debt, and the
Company may be required to refinance all or a portion of its debt, obtain
additional financing or reduce its capital spending. There can be no assurance
that any such refinancing would be possible or that any additional financing
could be obtained. The inability to obtain additional financing could have a
material adverse effect on the Company. See "Risk Factors -- Significant
Leverage and Debt Service."
SEASONALITY
Unlike many specialty retailers, the Company has historically generated
positive operating income in each of its four fiscal quarters. However, because
the Company is an agricultural specialty retailer, its sales necessarily
fluctuate with the seasonal needs of the agricultural community. The Company
responds to this seasonality by attempting to manage inventory levels (and the
associated working capital requirements) to meet expected demand, and by varying
its use of part-time employees. Historically, the Company's sales and operating
income have been highest in the third quarter of each fiscal year due to the
farming industry's planting season and the sale of seasonal products. Working
capital needs are highest during the second quarter. The Company expects these
trends to continue for the foreseeable future.
INFLATION
Management does not believe its operations have been materially affected by
inflation.
28
<PAGE> 34
BUSINESS
OVERVIEW
Central Tractor Farm & Country, Inc. is one of the largest agricultural
specialty retailers in the United States. As of December 31, 1996, the Company
operated 112 retail stores in 16 states in the Northeast and Midwest, primarily
under the "CT Farm & Country" name. CT specializes in meeting the farming,
gardening and related needs of rural consumers, especially part-time and
full-time farmers, hobby gardeners, skilled tradespersons and "do-it-yourself"
customers. Pro forma for the fiscal year ended November 2, 1996, the Company
generated sales of $307.8 million, EBITDA of $21.2 million and net income of
$1.2 million.
CT was founded in 1935 and has established itself as a leader in the
agricultural specialty market, having strong name recognition and a loyal
customer base. The Company obtained this position by (i) offering a full range
of agricultural and related products not typically found in general merchandise
retailers and home centers, (ii) merchandising high quality "CT" branded
products at competitive prices, and (iii) providing superior in-store service to
its customers.
The Company's stores offer a wide selection of agricultural products such
as tractor parts and accessories, specialty hardware, lawn and garden items,
rural automotive products, workwear, pet supplies and general consumer products.
Management believes that products accounting for approximately 60% of CT's net
sales cannot be found at general merchandise retailers and home centers. In
addition, CT offers a high level of customer service, ranging from answering
technical questions about products to special ordering of hard to find items.
The Company believes that this merchandising and service strategy is a
significant competitive advantage, enabling CT to differentiate itself from
other retailers and generate attractive gross margins. The Company has also
established national visibility for its products and services through its
catalog operation, which has an annual circulation of approximately 550,000.
The Company's stores are located primarily in rural communities with
populations in each trading area ranging from 30,000 to 100,000 people (the
Company considers a trading area to be the 30-mile radius around a store). While
CT adjusts its store size and product mix to match the demographics of each
trading area, the stores generally contain from 10,000 to 25,000 square feet of
indoor selling space and carry approximately 18,000 to 24,000 SKUs. The average
sales for the Company's stores open for the full 1996 fiscal year were $3.9
million. The Company's average customer transaction in fiscal 1996 was
approximately $27, reflecting the high frequency of customer purchases and the
replacement nature of CT's product line.
In 1992, the Company hired its current CEO, establishing a senior
management team with considerable retail experience. Management has since
initiated programs designed to increase sales and profitability, enhance
customer service and improve the efficiency of CT's operations. Further, the
Company initiated an aggressive expansion plan, opening 32 new stores (net of
three stores closed) and acquiring 33 stores since the beginning of fiscal 1993.
In May 1996, the Company acquired 31 retail stores and certain net
operating assets from Big Bear, a privately owned agricultural specialty
retailer, for $5.7 million. Management believes that it will significantly
improve sales and EBITDA in the acquired stores by converting them to the CT
format. Further, these stores were added to CT's operations without a
substantial increase in corporate selling, general and administrative or
distribution expenses. As of December 31, 1996, 14 locations have been converted
to the CT format at an approximate cost of $3.3 million (including inventory);
the 17 remaining locations will be converted by the Spring of 1997 at an
estimated cost of $3.0 million. With locations in Iowa, Minnesota, Missouri and
Wisconsin, the Big Bear stores provide additional geographic diversity to CT's
Northeastern focus.
BUSINESS STRATEGY
CT seeks to continue to increase its revenues and cash flows by
capitalizing on the programs it has implemented and by growing its store count.
Key elements of the Company's strategy include: (i) focused merchandising and
service; (ii) improved inventory management; (iii) Big Bear integration; (iv)
new store openings; and (v) selective acquisitions.
29
<PAGE> 35
- - Focused Merchandising and Service: Since 1992, the Company has aggressively
expanded its in-store product offerings, increasing the range of agricultural
specialty products offered and reducing the number of products typically
carried by general merchandise retailers. Management also plans to expand the
breadth of the Company's profitable "CT" branded product line. In addition, CT
offers a high level of specialized customer service. This merchandising and
service strategy differentiates the Company from general merchandise retailers
and home centers, enabling it to achieve attractive gross margins (29.3% in
fiscal 1996). This strategy also allows the Company to locate stores near
general merchandise retailers and home centers to capitalize on their retail
traffic.
- - Improved Inventory Management: In June, 1996 the Company implemented a
program to reduce inventory levels in each store and more efficiently utilize
the Company's inventory replenishment system. As a result, comparable store
inventory was reduced by 7.7% during fiscal 1996. Despite lower in-store
inventory levels, comparable store sales grew by approximately 1.0% in fiscal
1996. Management believes CT can reduce in-store inventory levels by an
additional 10% without adversely affecting revenues and margins. Further,
management believes that there are additional opportunities to improve the
Company's in-stock inventory position by more accurately matching inventory
levels to expected rates of sales.
- - Big Bear Integration: The acquired Big Bear stores averaged $0.8 million in
sales for the twelve months prior to CT's acquisition. In contrast, CT's
comparable Midwestern stores open for the full 1996 fiscal year averaged $2.2
million in sales, with a greater emphasis on agricultural and related product
sales. Management believes that by converting the Big Bear stores into the CT
store format, and by employing better merchandising and inventory management
strategies, the Company will significantly increase the operating performance
and cash flow at the acquired stores. The impact on sales is already being
demonstrated in the recently converted stores. Within two weeks of their
acquisition, all 31 Big Bear stores were operating on CT's point-of-sale
("POS") and central management information systems. Management expects to
continue to leverage its existing distribution and corporate administration
capabilities by consolidating the Big Bear stores into CT's operations without
a substantial increase in expenses.
- - New Store Openings: CT increased its store count from 47 at the beginning of
fiscal 1993 to 112 as of December 31, 1996. Of the new stores, 32 were opened
(net of three closed) and 33 were acquired by the Company. CT plans to open 31
stores in the next three years (including one additional store in fiscal
1997). CT stores typically generate positive cash flow in their first full
year of operation. With two exceptions, all 66 stores which the Company
operated for the full 1996 fiscal year generate positive cash flow at the
store level. The Company believes that its existing infrastructure will
accommodate its planned expansion through fiscal 1999 without substantially
increasing its distribution and corporate-level expenses.
- - Selective Acquisitions: The agricultural specialty retail market is highly
fragmented, with no retailer holding a dominant national position. Management
estimates this market to be approximately $6.0 billion. Management believes
that there are opportunities to further diversify CT's operations, achieve
additional operating efficiencies and increase purchasing power by acquiring
single store locations, small chains and larger regional chains. From time to
time the Company has had discussions with several agricultural specialty
retailers. There are no current agreements with respect to any such
acquisition and there can be no assurance that any such acquisition will be
consummated in the future.
30
<PAGE> 36
EXPANSION PLAN
Since the beginning of fiscal 1993, the Company has increased the number of
its retail stores from 47 to 112. From fiscal 1993 through fiscal 1994, the
Company opened ten new stores, acquired one store and closed three stores. In
fiscal 1995, the Company opened 10 new stores and acquired one store. In fiscal
1996, the Company opened 14 new stores and acquired 31 stores from Big Bear.
Subsequent to fiscal 1996, the Company has opened one new store.
The Company plans to open an additional 31 stores in the next three years
through further penetration of the Northeastern and Midwestern United States
markets and through expansion into the Southeastern United States. Management
intends to achieve this growth through new store openings and selective
acquisitions. The Company expects to open one additional store in fiscal 1997
and complete the conversion of the remaining 17 Big Bear stores to the CT format
by the Spring of 1997. On a preliminary basis, the Company has identified
potential new markets outside of its existing markets that management believes
are attractive candidates for one or more new CT stores. The number of actual
new CT store openings in the next three years may differ materially from the
Company's current projections if the Company makes a major acquisition or is
unable to find attractive store locations to rent at reasonable prices,
negotiate acceptable lease terms or acquire small regional farm store chains at
reasonable prices. See "Risk Factors -- New Store Growth."
The Company seeks to locate stores in high traffic shopping districts
whenever possible in order to attract customers who prefer to do much of their
shopping at one time and place. As with its existing stores, the Company intends
to lease its new stores. The estimated cash required to open a new, leased,
large prototype store is $850,000 and the estimated cash required to open a new,
leased, small prototype store averages $600,000 (in each case, including
inventory net of accounts payable and excluding an average of approximately
$125,000 in pre-opening expenses). Of these estimated cash expenditures,
approximately half is used for initial inventory (net of accounts payable), and
the balance is used for capital expenditures, principally leasehold
improvements, fixtures and equipment. CT stores typically generate positive cash
flow in their first full year of operation.
The Company also intends to continue to opportunistically relocate existing
CT stores. These relocations reflect, in most cases, the expiration of an
existing lease coupled with an opportunity to move to a more demographically
and/or physically attractive site. The Company relocated two stores during
fiscal 1996.
RETAIL STORES
CT stores focus on agricultural and agricultural related products. The
Company segments its merchandising mix into seven key product categories:
agricultural products (including tractor parts and accessories), specialty
hardware, lawn and garden products, rural automotive products, workwear, pet
supplies and general consumer products. The Company's "CT" branded products,
which are available in several product categories, represent approximately 8% of
total store sales. Sale of agricultural and related products represent
approximately 60% of CT's total net sales. The growth and percentage of total
store sales for each retail product category for fiscal 1994, fiscal 1995 and
fiscal 1996, and a description of each product category, are set forth below:
<TABLE>
<CAPTION>
ANNUAL STORE SALES PERCENTAGE OF
GROWTH TOTAL STORE SALES
-------------------- -----------------------
PRODUCT CATEGORIES 1994 1995 1996 1994 1995 1996
- ------------------ ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Agricultural (including tractor parts and
accessories).................................. 14.8% 18.5% 20.4% 21.6% 23.2% 24.0%
Specialty Hardware.............................. 15.3 12.0 11.4 21.2 21.6 20.6
Lawn and Garden................................. 22.2 4.7 18.4 20.2 19.3 19.6
Rural Automotive................................ 9.4 5.1 7.7 16.8 16.0 14.8
Workwear........................................ 17.5 4.9 33.2 7.7 7.3 8.4
Pet Supplies.................................... 23.1 22.5 36.5 4.9 5.4 6.3
General Consumer................................ 22.7 3.7 3.4 7.6 7.2 6.3
---- ---- ---- ----- ----- -----
Total................................. 16.5% 10.1% 16.6% 100.0% 100.0% 100.0%
==== ==== ==== ===== ===== =====
</TABLE>
31
<PAGE> 37
Agricultural Products. CT's agricultural product line consists of
approximately 6,000 SKUs supplying the needs of the part-time and full-time
farmer, including tractor parts, tillage and harvesting parts, fencing materials
and animal health supplies, including feed. This product line accounted for
$47.1 million, $55.9 million and $67.3 million of the Company's net store sales
in fiscal years 1994, 1995 and 1996, respectively. CT emphasizes consumable
products and other items requiring replacement on a regular basis and does not
sell heavy equipment such as tractors or combines.
Specialty Hardware. CT's specialty hardware line consists of approximately
9,000 SKUs, with an emphasis on products with agricultural applications. These
products accounted for $46.4 million, $51.9 million and $57.9 million of the
Company's net store sales in fiscal years 1994, 1995 and 1996, respectively. CT
stores carry a broad range of high-quality hardware with an emphasis on
recognized branded professional products, including air compressors and air
tools, welders and accessories, generators, well system plumbing supplies,
tractor and barn paint, hand tools, power tools and electrical products
including outdoor security lighting and motors.
Lawn and Garden Products. CT's lawn and garden products consist of
approximately 2,000 SKUs, including lawn and garden tools, nursery stock,
fertilizers, lawn fencing and weed killers. These products accounted for $44.2
million, $46.3 million and $54.8 million of the Company's net store sales in
fiscal years 1994, 1995 and 1996, respectively. To differentiate itself from
other retailers, CT also stocks a wide selection of lawn mowers, including large
horse-powered, full-featured riding mowers. CT assembles, tests and delivers the
lawn mowers and sells a full assortment of parts for follow-up service needs. CT
stores also offer seasonal bedding plants, trees and shrubs and lawn chemicals
and fertilizer in large product sizes.
Rural Automotive Products. CT's rural automotive products consist of
approximately 3,000 SKUs, including a selection of maintenance items, batteries
and accessories, primarily for tractors and pick-up trucks, as well as farm
equipment oil and lubricants. These products accounted for $36.6 million, $38.4
million, and $41.4 million of the Company's net store sales in fiscal years
1994, 1995 and 1996, respectively. Although CT generally stocks larger product
sizes, it also stocks an assortment of general automotive items as a convenience
to its customers, including oil and lubrication products and anti-freeze.
Workwear. CT's workwear consists of approximately 2,000 SKUs, including
premium quality insulated outerwear, footwear, overalls, flannel shirts and work
jeans. These products accounted for $16.8 million, $17.6 million and $23.5
million of the Company's net store sales in fiscal years 1994, 1995 and 1996,
respectively. Workwear products are targeted at the specialized needs of CT's
outdoor-oriented customers who require high quality functional apparel which is
generally not available from general merchandise retailers. The Company has been
expanding its workwear line to include quality non-insulated workwear, bib
overalls, twill pants and hunting clothing.
Pet Supplies. CT's pet supplies consist of approximately 1,000 SKUs,
including dog and cat foods, wild bird feed and rabbit supplies. These products
accounted for $10.6 million, $13.0 million and $17.7 million of the Company's
net store sales in fiscal years 1994, 1995 and 1996, respectively. Pet supplies
sold by CT include economically priced large sizes, such as 50-pound bags of dog
food. CT has been expanding its pet supplies product category.
General Consumer Products. CT's general consumer products line consists of
approximately 1,000 SKUs, including hunting accessories, camping items and
outdoor living needs. These products accounted for $16.6 million, $17.2 million
and $17.8 million of the Company's net store sales in fiscal years 1994, 1995
and 1996, respectively. CT stores also offer seasonal merchandise such as
charcoal grills and coolers in the summer. Management expects that this category
will represent a declining percentage of total store sales due to the Company's
continuing emphasis on agricultural and related product sales.
32
<PAGE> 38
CT's merchandising strategy differentiates the Company from general
merchandise retailers and home centers and has enabled CT to (i) maintain high
gross margins (approximately 29%) and (ii) defend itself against competition,
resulting in a track record of comparable store sales growth since 1989 (when CT
had 34 comparable stores), as set forth below:
<TABLE>
<CAPTION>
COMPARABLE COMPARABLE COMPARABLE
FISCAL STORE SALES FISCAL STORE SALES FISCAL STORE SALES
YEAR GROWTH(1) YEAR GROWTH(1) YEAR GROWTH(1)
- ------ ----------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C>
1989 5.8% 1992 5.4% 1995 (1.6)%(3)
1990 (2) 6.9 1993 4.2 1996(2) 1.0
1991 4.2 1994 10.0
</TABLE>
- ---------------
(1) This data is derived from the Company's historical operating results and
does not purport to represent what the Company's results of operations might
be for any future period. See "Risk Factors."
(2) Includes a 53rd week in the fiscal year. For purposes of the growth rates
shown in this table, comparable store sales for this period have been
reduced by 1/53 to facilitate comparison with 52-week years.
(3) Reflects unusual weather conditions which resulted in severe drought
conditions during fiscal 1995.
TARGET MARKET
CT's stores are designed primarily to meet the agricultural needs of
farmers operating small to medium-sized farms (i.e., farms typically under 250
acres) as well as hobby gardeners and do-it-yourself customers. While CT's
product line is also potentially applicable to large commercial farming
operations, the Company does not actively service certain aspects of this
market. For example, CT does not sell large, heavy duty farm equipment and
machinery nor commodities (e.g., feed) by the truckload or drop-shipped pallet.
Further, CT does not sell its products on a long-term credit basis, which is
typical in the large commercial farm market.
CT is also focused on capturing sales attributable to growth in rural
populations. From 1990 to 1994 (the most recent year for which government
statistics are currently available), population growth in this target market
exceeded population growth in metropolitan areas. Management believes this
population growth will continue to lead to increased interest in part-time
farming, expanding the customer base and traffic of its stores.
STORE OPERATIONS
The Company utilizes large and small store formats in order to enable
management to enhance CT's return on investment in light of varying population
density. The Company's small stores average 11,000 square feet of indoor selling
space and had average comparable store sales of $2.5 million in fiscal 1996. The
large stores average 22,000 square feet of indoor selling space and had average
comparable store sales of $4.4 million in fiscal 1996. Small stores generally
carry a smaller selection of workwear and seasonal and other general consumer
products than large stores. In addition, the Company looks for store sites that
have 15,000 to 20,000 square feet of outdoor selling space. This outdoor selling
space is primarily used for displaying lawn and garden products, fencing,
tractor accessories and livestock watering and feeding equipment.
Both store prototypes are designed to provide CT's customers with ease in
locating desired products and are clean and colorful in order to provide an
overall enjoyable shopping environment. The use of informative directional signs
adds to the ease of the customer's shopping experience. Plan-o-grams are
utilized to set merchandise assortments in the seven core product categories to
ensure uniformity of presentation, ease of shopping for the customer and to
facilitate inventory management and replenishment.
The agricultural products department is prominently featured in each store
and is identified by the parts desks. The parts desk is the focal point for CT's
new and used tractor parts program. In addition, the parts desk enables CT to
offer a high level of customer service, ranging from answering technical
questions regarding various products to the special ordering of hard to find
parts. Each parts desk is managed by the store's agricultural product specialist
who has access to the CT catalog and other inventory sources to quickly obtain
needed parts.
33
<PAGE> 39
Each store is managed by a store manager who is responsible for all aspects
of the store's operations, including the hiring and training of store
associates, work scheduling, inventory control, expense control, customer
service and associate morale. Typically, the store manager is supported by an
assistant manager and core department heads, along with an average of 18 sales
associates. Store operations are coordinated through nine district managers,
each of whom is currently responsible for eleven to fifteen retail stores. In
addition, the Company has developed and implemented consistent store standards,
processes and best practices for the chain.
The Company has established an internal store management training program
which focuses training on store operations, systems, financial matters, human
resources and sales. To support the Company's planned expansion and its
management training programs, the Company has implemented a long-range personnel
plan that provides for internal promotions, coupled with recruitment of college
graduates and hiring of individuals with previous retail and agricultural
experience. Store associates receive training which emphasizes customer service,
sales, product knowledge and store procedures. District managers, store managers
and assistant managers are compensated based on job performance, and participate
in an incentive program, which is based on the store/district exceeding a
targeted level of profitability. The Company also has established an incentive
program for all store associates that focuses on sales and profitability.
OTHER OPERATIONS
The CT catalog offers a broad assortment of new, used and rebuilt tractor
parts and agricultural components, including approximately 20,000 SKUs. In
fiscal 1996, catalog sales were $7.3 million. The catalog will be distributed
nationally to approximately 550,000 households in rural and agricultural
communities in fiscal 1997. The breadth of this distribution provides the
Company with name recognition among agricultural consumers in areas outside of
its core geographical markets. As a consequence, the Company anticipates some
customer familiarity with the Company when it expands into new areas.
The Company also sells tractor parts and other items, on a wholesale basis,
to other agricultural retailers and distributors. In recent years, the Company
has been reducing the number of products offered and the number of customers
served by this unit. In fiscal 1996, the Company's wholesale business generated
sales of $5.4 million.
PURCHASING AND DISTRIBUTION
The Company maintains a staff of six merchandise buyers, each of whom is
responsible for specific product categories, at its headquarters in Des Moines,
Iowa. The purchasing and inventory control process is controlled centrally by
the Company's POS and automatic replenishment systems. See "-- Corporate Offices
and Management Information Systems." The Company purchases merchandise from
approximately 1,500 vendors, none of which accounted for more than 10% of the
Company's purchases during fiscal 1996. The Company generally maintains multiple
sources of supply for its products in order to minimize the risk of supply
disruption and to improve its negotiating position. The Company has no long-term
contractual commitments with any of its vendors.
CT operates a 135,000 square-foot distribution center in Des Moines, Iowa
and a 155,000 square-foot distribution center in Youngstown, Ohio, from which it
currently supplies the majority of its retail stores' inventory needs. The Des
Moines facility is used to handle the small part items and to receive purchases
sourced from vendors located in the Midwest. The Youngstown facility serves
primarily as a flow-through distribution station. Approximately 35% of total
purchases, consisting mainly of high volume commodity items, are shipped by
vendors directly to individual store locations. Merchandise from the
distribution centers is shipped to each store through supply orders generated by
an automated replenishment system. The Company transports most of its
merchandise to each store once a week from both the distribution centers through
a major contract carrier. The contract carrier's truck fleet delivers all
warehouse shipments and most of the merchandise which is shipped directly from
vendors to store locations.
The Company expects that its current distribution facilities will be
sufficient to accommodate its planned expansion through fiscal 1999.
34
<PAGE> 40
CORPORATE OFFICES AND MANAGEMENT INFORMATION SYSTEMS
To facilitate the Company's expansion plan and to maintain consistent store
operations, CT has centralized specific functions of its operations, including
accounting, the development of policies and procedures, store layouts, visual
merchandise presentation, inventory management, merchandise procurement and
allocations, marketing and advertising, human resources and real estate. This
centralization effectively utilizes the experience and resources of the
Company's senior management and provides a high level of consistency throughout
the chain.
The Company has invested considerable resources in its management
information and control systems, which were developed beginning in 1981 and have
been expanded and improved yearly. These systems provide support for the
purchase and distribution of merchandise and help to improve the manner in which
CT stores, the corporate offices and distribution centers are operated. All CT
stores (including all of the acquired Big Bear stores) use the Company's POS
system to capture sales information at the SKU level, with approximately 70% of
the stores using bar code scanning. Management expects all stores to be using
bar code scanning by the end of fiscal 1997. Through the POS system, the Company
can monitor customer purchases and inventory levels with respect to every item
of merchandise in each store daily. The Company has implemented bar code
scanning capabilities in the receiving process of its distribution centers and
current plans are to expand this to the picking and shipping process. Electronic
data interchange ("EDI") is used to send purchase orders to certain of its
largest suppliers. CT intends to expand its use of EDI to communicate invoicing,
shipments and sales activity to and from most major suppliers.
The Company also has an automated inventory replenishment system which uses
POS information to facilitate the timely replenishment of both the stores and
the warehouses. The sales and inventory information used in this system is
updated on a daily basis. This system also provides for minimum stocking levels
for lower volume items enabling CT to carry a large number of SKUs at a minimum
of inventory carrying expense.
COMPETITION
The Company faces competition primarily from other chain and single-store
agricultural specialty retailers, general merchandise retailers and home
centers. The Company believes that it has successfully differentiated CT stores
from general merchandise retailers and home centers. For example, the Company
already competes in approximately 90% of its trading areas with a Wal-Mart(R)
store. However, the Company will continue to face competition from these
businesses, some of which have substantially greater financial and other
resources than the Company. In the past, certain general merchandise retailers
and home centers have modified their product mix and marketing strategies in an
apparent effort to compete more effectively in the Company's product lines, and
these efforts may reoccur. While there are a small number of large agricultural
retail companies in the United States that offer product lines similar to CT's,
most of their stores do not compete directly in CT's trading areas. In some
trading areas, however, the Company competes with Tractor Supply Company and
Quality Stores, Inc., or small local agricultural specialty retailers. The
Company's expansion plan will likely result in more direct competition with such
competitors. In addition, certain of these competitors have announced expansion
plans into certain of the Company's existing trading areas. See "Risk
Factors -- Competition."
ADVERTISING AND PROMOTIONS
The Company's primary advertising occurs through the bi-weekly distribution
of approximately 2.5 million color circulars distributed as newspaper inserts,
at CT stores and by direct mail. In order to focus its marketing on the many
farmers in CT's markets, the Company also advertises in geographically zoned
editions of leading farming industry magazines. In addition, the Company runs
periodic special events promoted through local flyers, circulars and radio
advertising.
35
<PAGE> 41
EMPLOYEES
As of November 2, 1996, CT had approximately 2,492 employees (approximately
1,171 in full-time and approximately 1,321 in part-time positions). The Company
believes that its relations with its employees are good.
PROPERTIES
As of December 31, 1996, the Company had retail stores located in 16 states
as follows:
<TABLE>
<CAPTION>
STATE NUMBER OF STORES
----- ----------------
<S> <C>
New York............................................. 22
Iowa................................................. 21
Pennsylvania......................................... 17
Minnesota............................................ 12
Virginia............................................. 7
Ohio................................................. 6
Kentucky............................................. 5
Maryland............................................. 4
Indiana.............................................. 4
Wisconsin............................................ 4
Tennessee............................................ 3
Missouri............................................. 2
New Jersey........................................... 2
Delaware............................................. 1
Massachusetts........................................ 1
Vermont.............................................. 1
---
Total...................................... 112
===
</TABLE>
All of the Company's stores, its corporate headquarters and its two
distribution centers are leased. The Company's corporate headquarters are
located adjacent to its distribution center in Des Moines, Iowa. The Company
generally negotiates retail store leases with an initial term between five and
seven years, with three renewal periods of five years each, exercisable at the
Company's option. In fiscal 1996, the Company paid an average of $5.03 per
square foot in retail store occupancy expenses, including rent, taxes, common
area charges, repairs and maintenance. Rent expenses typically do not vary based
on sales, and generally increase 10-15% at the beginning of each option period.
The Company leases its corporate offices and distribution facility in Des
Moines and 16 of its stores from the owner of the Company prior to 1988 and
certain of his family members and affiliates. The Company believes that, on
average, the rental rates and other terms of these leases are no less favorable
to the Company than could have been obtained from other third party lessors.
Each of these leases is due to expire by their terms on or before fiscal 2006,
subject to options to renew exercisable at the discretion of the Company.
LEGAL PROCEEDINGS
The Company has been notified by the U.S. Environmental Protection Agency
that it may have potential liability for costs associated with the cleanup of a
dumpsite near Owensburg, Kentucky. To date, the only articles of waste
identified as possibly once belonging to the Company are certain empty battery
acid containers. The Company also has been notified that it is a fourth-party
defendant of a Superfund action pending in the United States District Court. The
action alleges the Company contributed retail and office waste which may have
contained hazardous substances to a landfill in Adams County, Pennsylvania. The
Company believes that any liability it may have as a result of both of these
actions would be as a de minimis contributor and will not have a material
adverse effect on the Company's financial position, liquidity or results of
operations. Moreover, compliance with federal, state and local laws and
regulations pertaining to the
36
<PAGE> 42
discharge of materials into the environment, or otherwise relating to the
protection of the environment, has not had, and is not anticipated to have, a
material effect on the Company's financial position, liquidity or results of
operations.
The Company is not a party to any other legal proceedings, other than
routine claims and lawsuits arising in the ordinary course of business. The
Company does not believe that such claims and lawsuits, individually or in the
aggregate, will have a material adverse effect on the Company's business,
financial condition, liquidity or results of operations.
37
<PAGE> 43
MANAGEMENT
DIRECTORS AND OFFICERS
The following table sets forth the name, age and position of each of the
Company's directors, directors designate, executive officers and other
significant employees. All of the Company's officers are elected annually and
serve at the discretion of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ---- --- ---------
<S> <C> <C>
James T. McKitrick....... 51 President, Chief Executive Officer, Director
Dean Longnecker.......... 49 Executive Vice President, Finance, Secretary,
Director
John W. Childs........... 55 Director Designate
Jerry D. Horn............ 59 Director Designate and Chairman Designate
Steven G. Segal.......... 36 Director
Adam L. Suttin........... 29 Director
Jeffrey B. Swartz........ 36 Director Designate
William E. Watts......... 43 Director Designate
Habib Y. Gorgi........... 40 Director Designate
George D. Miller......... 54 Senior Vice President, Merchandising
Denny Starr.............. 43 Senior Vice President, Finance
Jeffrey A. Stanton....... 44 Vice President, Human Resources
David E. Enos............ 36 Vice President, Management Information
Systems/Logistics
Daniel Cunningham........ 60 Vice President, New, Used and Rebuilt Tractor Parts
Jack P. Feichtner........ 50 Vice President, Advertising and Marketing
</TABLE>
James T. McKitrick, President and Chief Executive Officer, joined the
Company in July 1992. He has over 30 years experience in retailing, including 20
years at Kmart Corporation. Prior to joining CT, Mr. McKitrick was President and
Chief Executive Officer of Builder's Emporium, a California-based home
improvement center chain. Previously, he was with Ames Department Stores from
1987 through 1990, where he held the positions of Executive Vice President,
Chairman of Zayre Discount Store Division and President and Chief Executive
Officer of G.C. Murphy Division, a $900 million variety store chain. Mr.
McKitrick also served as President and Chief Executive Officer of Warehouse
Club, Inc. from 1986 through 1987 and Executive Vice President of Merchandising
for T.G.&Y. Stores Company from 1984 through 1986. From 1963 through 1984, Mr.
McKitrick was with the Kmart Corporation, where his most recent position was
Director of Merchandising.
Dean Longnecker, Executive Vice President of Finance, has held his current
position since 1985. He joined CT in 1980 as Controller. Mr. Longnecker was
employed at Payless Cashways from 1973 until 1980, most recently as Treasurer.
He received a B.S. from Iowa State University in 1970 and C.P.A. in 1972.
John W. Childs has been President of J.W. Childs Associates since July
1995. Prior to that time, he was an executive at Thomas H. Lee Company from May
1987, most recently holding the position of Senior Managing Director. He is a
director of Big V Supermarkets, Inc., Cinnabon, Inc., The Edison Project, Inc.,
Personal Care Group, Inc. and Select Beverages, Inc.
Jerry D. Horn has been Chairman of the Board of General Nutrition
Companies, Inc., a 3,000-store vitamin and nutritional supplement retail chain
operating under the GNC name, since October 1991, and prior to that, was
President and Chief Executive Officer since 1985. Mr. Horn is also Chairman of
the Board of Cinnabon, Inc. and has been a Managing Director of J.W. Childs
Associates since July 1995.
Steven G. Segal has been a Managing Director of J.W. Childs Associates
since July 1995. Prior to that time, he was an executive at Thomas H. Lee
Company from August 1987, most recently holding the position of Managing
Director. He is a director of Big V Supermarkets, Inc., Cinnabon, Inc. and Fitz
and Floyd, Inc.
38
<PAGE> 44
Adam L. Suttin has been a Vice President of J.W. Childs Associates since
July 1995. Prior to that time, he was an executive at Thomas H. Lee Company from
August 1989, most recently holding the position of Associate. He is a director
of Personal Care Group, Inc.
Jeffrey B. Swartz has been Chief Operating Officer of Timberland Co., a
manufacturer and marketer of branded footwear and apparel, since May 1991, and
has worked for that company in various positions since June 1986.
William E. Watts has been President, Chief Executive Officer and a Director
of General Nutrition Companies, Inc. since October 1991, and prior to that, held
various positions with its predecessor since 1984.
Habib Y. Gorgi is President of the general partners of Fleet Equity
Partners VII, L.P. and the general partner of Silverado III, L.P., which is the
general partner of Chisholm Partners and has worked at Fleet Equity Partners
since 1986. He is a director of La Petite Academy, Dines Industrial Group,
Rosina Food Products, Savage Sports Corporation, Simonds Industries, FTD
Corporation and Wain-Roy, Inc.
George D. Miller, Senior Vice President, Merchandising, joined CT in June
1996. Previously, he was Vice President, Merchandising, with Home Base, a
California-based home improvement center chain, from 1993 through 1996. Mr.
Miller was employed by Sears, Roebuck & Company from 1968 through 1993, most
recently as Senior Merchandise Manager. He received B.S. and M.B.A. degrees from
Indiana University.
Denny Starr, Senior Vice President, Finance, joined the Company in October
1989 as Assistant Controller. He previously served as Assistant Controller of
the Witten Group, a holding company with operations in manufacturing, real
estate and finance, from 1986 through 1989. He was an Audit Manager with
McGladrey & Pullen from 1982 until 1986. Mr. Starr received his B.A. from the
University of Iowa in 1982 and C.P.A. in 1982.
Jeffery A. Stanton, Vice President Human Resources, joined CT in June 1992.
Previously, he was with R.R. Donnelly & Sons and Meredith/Burda Corporation from
1985 through 1992, as well as Reichardt's Inc., a specialty retailer, from 1972
through 1985. Mr. Stanton received a B.B.A. degree from the University of Iowa
in 1972.
David E. Enos, Vice President Management Information Systems/Logistics, has
held his current position since 1990. Mr. Enos joined CT in 1981. Previously, he
was employed at Meredith/Burda Corporation from 1979 through 1981. He received
an A.A.S. degree in Data Processing from DMACC in 1979.
Daniel Cunningham, Vice President, New, Used and Rebuilt Tractor Parts,
joined CT in 1958. Mr. Cunningham has held several positions within the Company,
including store operations, mail order and the Company's tractor parts area. Mr.
Cunningham was promoted to his current position in 1991.
Jack P. Feichtner, Vice President Advertising and Marketing, joined CT in
July 1995. He was previously with Kmart Corporation for 27 years, where his most
recent position was Director, Advertising.
39
<PAGE> 45
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth compensation earned for all services
rendered to the Company during fiscal 1994, fiscal 1995 and fiscal 1996, as
applicable, by the Company's chief executive officer, the two other executive
officers who were employed by the Company as such at the end of fiscal 1996, the
one former executive officer that served as such during fiscal 1996 but who
resigned subsequent to the end of fiscal 1996 (collectively, the "Named
Executives").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION NUMBER OF
------------------------------ SECURITIES ALL OTHER
NAME AND PRINCIPAL FISCAL SALARY(1) BONUS UNDERLYING COMPENSATION
POSITION AT NOVEMBER 2, 1996 YEAR ($) ($) OPTIONS ($)
- ------------------------------------- ------ ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
James T. McKitrick................... 1996 365,000 91,250 -- 9,863(2)
President, Chief 1995 350,000 70,000 -- 4,357(2)
Executive Officer 1994 325,000 162,500 158,939 9,953(2)
Dean Longnecker...................... 1996 234,000 58,500 -- 5,131(2)
Executive Vice 1995 225,000 45,000 15,000 4,152(2)
President, Finance 1994 196,686 147,890 4,565 7,524(2)
George D. Miller(3).................. 1996 108,462 15,190 60,000 5,128(4)
Senior Vice 1995 -- -- -- --
President, Merchandising 1994 -- -- -- --
Don Walter(5)........................ 1996 155,000 12,480 -- 5,213(2)
Senior Vice 1995 153,750 24,800 -- 29,570(6)
President, Operations 1994 115,433 46,500 26,850 17,460(4)
</TABLE>
- ---------------
(1) Includes compensation deferred at the Named Executive's election under the
Company's Profit Sharing Plan.
(2) Represents amounts contributed by the Company during each fiscal year, as
applicable, to the Named Executive's Profit Sharing Plan account.
(3) Mr. Miller joined the Company in May 1996.
(4) Represents payments or reimbursement of certain moving and relocating
expenses.
(5) Mr. Walter resigned his position with the Company effective December 1,
1996.
(6) Represents $2,170 contributed by the Company, to the Named Executive's
Profit Sharing Plan account and $27,400 in payments or reimbursement of
certain moving and relocating expenses.
Option Grants in Last Fiscal Year
The table below shows information regarding grants of stock options, if
any, made to the Named Executives during fiscal 1996. The amounts shown for each
of the Named Executives as potential realizable values are based on arbitrarily
assumed annualized rates of stock price appreciation of five percent and ten
percent over the full term of the options, pursuant to applicable Securities and
Exchange Commission ("SEC") regulations. Actual gains, if any, on option
exercises are dependent on the future performance of the Common Stock and
overall stock market conditions.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES
------------------------------------------------------------ OF STOCK PRICE
% OF TOTAL APPRECIATION
OPTIONS FOR OPTION TERM
NUMBER GRANTED TO EXERCISE OR ---------------------
OF OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION 5% 10%
NAME GRANTED FISCAL YEAR ($/SHARE) DATE ($) ($)
- ----------------------- ---------- -------------- ----------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
George D. Miller....... 60,000 73% 13.25 5-29-06 499,800 1,267,200
</TABLE>
- ---------------
(1) Such options become exercisable at the rate of 12,000 shares on each
anniversary of the original date of grant. The latest date on which this
option may be exercised is May 28, 2006.
40
<PAGE> 46
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table summarizes for each of the Named Executives the total
number and value of unexercised options, if any, held at November 2, 1996. For
this purpose, the value of unexercised, in-the-money options at fiscal year-end
is the difference between the exercise price and the closing sale price of the
underlying Common Stock on November 2, 1996. There can be no assurance that
these values will be realized. No options were exercised during fiscal 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
--------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (NUMBER) (NUMBER) ($) ($)
- ------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
James T. McKitrick............................... 206,517 180,663 1,708,189 583,444
Dean Longnecker.................................. 4,565 15,000 -- --
George D. Miller................................. -- 60,000 -- --
Don Walter....................................... 12,410 14,440 -- --
</TABLE>
- ---------------
(1) In-the-money options for which the fair market value of the underlying
securities exceeds the exercise or base price of the option.
EMPLOYMENT ARRANGEMENTS WITH EXECUTIVE OFFICERS
Mr. McKitrick is currently employed as President and Chief Executive
Officer pursuant to an employment agreement dated September 16, 1994. Under this
agreement, Mr. McKitrick currently receives a salary of $365,000, subject to
increases determined annually by the compensation committee (which increases
must at least equal increases in the consumer price index). In addition, Mr.
McKitrick is eligible for an annual bonus of up to 60% of his salary, based on
financial targets and non-quantitative performance objectives established by the
compensation committee at the beginning of each fiscal year. If his employment
is terminated by the Company other than for cause or because of death or
disability, or because the Company either removed him or failed to elect him as
President and Chief Executive Officer, the Company will pay to Mr. McKitrick his
base salary (reduced by compensation received from other businesses) from the
date of termination to the later of November 1, 1997 and the first anniversary
of such termination. Pursuant to the employment agreement, Mr. McKitrick was
granted an option to acquire, at an exercise price equal to the initial public
offering price, up to 112,512 shares of Common Stock on the seventh anniversary
of the original date of grant, with accelerated vesting in fiscal 1996 through
1998 if certain EBIT targets are met. Mr. McKitrick's employment agreement also
contains certain confidentiality and non-competition requirements.
Mr. Longnecker is employed as Executive Vice President, Finance pursuant to
an agreement dated September 16, 1994. Under this agreement, Mr. Longnecker
currently receives a salary of $234,000, subject to salary increases determined
annually by the compensation committee (which increases must at least equal
increases in the consumer price index). In addition, Mr. Longnecker is eligible
for an annual bonus of up to 48% of his salary, based on financial targets and
nonquantitative performance objectives established by the compensation committee
at the beginning of the fiscal year. If his employment is terminated by the
Company other than for cause or because of death or disability, or because the
Company either removed him or failed to retain him as Executive Vice President,
Finance, the Company will pay to Mr. Longnecker his base salary (reduced by
compensation received from other businesses) from the date of termination to the
first anniversary of such termination. Mr. Longnecker's employment agreement
also contains certain confidentiality and non-competition provisions.
Mr. Miller is employed as Senior Vice President, Merchandising pursuant to
an agreement dated May 6, 1996. Under this agreement, Mr. Miller currently
receives a salary of $175,000, subject to salary increases determined annually
by the compensation committee (which increases must at least equal increases in
the consumer price index). In addition, Mr. Miller is eligible for an annual
bonus of up to 48% of his salary, based on financial targets and
non-quantitative performance objectives established by the compensation
committee
41
<PAGE> 47
at the beginning of the fiscal year. If his employment is terminated by the
Company other than for cause or because of death or disability, or because the
Company either removed him or failed to retain him as Senior Vice President,
Merchandising, the Company will pay to Mr. Miller his base salary (reduced by
compensation received from other businesses) from the date of termination to the
later of May 28, 1998 and the first anniversary of such termination. Mr.
Miller's employment agreement also contains certain confidentiality and
non-competition provisions.
Additionally, as part of the Acquisition, on January 2, 1997, James T.
McKitrick and G. Dean Longnecker sold to JWCAC, for $14.00 per share, 81,810 and
64,489 shares, respectively, of the Company's outstanding common stock, in
accordance with the terms of the Securities Purchase Agreements entered into at
the same time as the Merger Agreement. Additionally, the Securities Purchase
Agreements provide that at the closing of the Merger, Mr. McKitrick will
exchange outstanding options to purchase 183,935 shares of Company common stock
having an aggregate exercise price of $0.6 million for options to acquire shares
of Holding common stock valued at $2.6 million and that Mr. Longnecker will
exchange 71,429 shares of Company common stock for shares of Holding common
stock valued at $1.0 million. The Securities Purchase Agreements also contain
provisions regarding the continued employment of Messrs. McKitrick and
Longnecker in their current capacities after the Merger (the "New Employment
Agreements").
Mr. McKitrick's New Employment Agreement provides for a base salary of
$385,000, and Mr. Longnecker's provides for a base salary of $250,000, subject
in each case to annual increases as determined by the Board of Directors (which
increases must at least equal increases in the consumer price index).
Additionally, Messrs. McKitrick and Longnecker are eligible for annual cash
bonuses if the Company achieves certain operating cash flow targets, which
bonuses are not subject to any ceilings contained in the New Employment
Agreements.
Mr. McKitrick's New Employment Agreement provides for severance payments
equal to his base salary for 18 months if his employment is terminated (other
than in the case of death, disability or for cause) or if he is not reelected as
President and Chief Executive Officer, reduced by any compensation he should
earn during such 18-month period from other businesses. Mr. Longnecker's New
Employment Agreement provides for severance payments equal to his base salary
for 12 months if his employment is terminated (other than in the case of death,
disability or for cause) or if he is not reelected as Executive Vice President,
Finance, not subject, however, to reduction for any compensation earned from
other businesses.
The New Employment Agreements also contemplate that Messrs. McKitrick and
Longnecker will participate along with other management personnel in two stock
option plans of Holding involving 4.5% and 3.2% of Holding's outstanding common
stock and common stock equivalents on a fully diluted basis, respectively.
Allocations of options among the management group are to be made in the first
instance by the Chief Executive Officer of the Company, subject to ratification
by Holding's Board of Directors. Such allocations have not been made as of the
date of this Prospectus. The management stock options will be subject to vesting
based on the Company's achievement of certain operating cash flow targets.
Additionally, the New Employment Agreements contemplate that Messrs.
McKitrick and Longnecker will receive additional stock options which vest if the
Company is sold within six years after the effective time of the Merger and the
realized value of the common equity of the original investment group in Holding
should equal or exceed ten times the value thereof at the time of the Merger.
Mr. McKitrick's and Mr. Longnecker's options under this program are to acquire
an aggregate number of shares of common stock of Holding equal to 1.25% and
0.75%, respectively, of the total outstanding common stock and common stock
equivalents of Holding on a fully diluted basis.
42
<PAGE> 48
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Common Stock as of January 2, 1997, and the pro forma
beneficial ownership of the voting stock of Holding, giving effect to the
Offering and the Acquisition, by each person known to the Company to be the
beneficial owner of more than five percent of the Common Stock, each director
and director designate of the Company, each Named Executive and all directors
and executive officers of the Company as a group. Upon consummation of the
Merger, the Company will become a wholly owned subsidiary of Holding. Except as
otherwise indicated, the beneficial owners of the Common Stock listed below,
based on information furnished by such owners, have sole investment and voting
power with respect to such shares. The business address for each executive
officer of the Company is in care of the Company.
<TABLE>
<CAPTION>
CT PRO FORMA HOLDING
---------------------- ----------------------
SHARES SHARES
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OWNED PERCENT OWNED PERCENT
- ---------------- ------------ ------- ------------ -------
<S> <C> <C> <C> <C>
JWC Acquisition I, Inc.
CT Holding, Inc.
JWC Equity Funding, Inc.
J.W. Childs Equity Partners, L.P.
J.W. Childs Advisors, L.P.
J.W. Childs Associates, L.P.
J.W. Childs Associates, Inc.(1)........................... 7,208,551 66.1% 804,984 85.1%
James T. McKitrick(2)..................................... 307,770 2.8 42,918 4.4
Dean Longnecker (3)....................................... 102,194 * 16,667 1.8
John W. Childs(1)......................................... 7,208,551 66.1 838,427 88.6
Jerry D. Horn(1).......................................... 7,208,551 66.1 813,318 85.9
c/o General Nutrition Companies, Inc.
921 Penn Avenue
Pittsburgh, PA 15222
Steven G. Segal(1)........................................ 7,208,551 66.1 813,516 86.0
Adam L. Suttin(1)......................................... 7,208,551 66.1 808,180 85.4
Jeffrey D. Swartz......................................... 0 * 1,417 *
c/o The Timberland Company
200 Domain Drive
Stratham, NH 03885
William E. Watts.......................................... 0 * 833 *
c/o General Nutrition Companies, Inc.
921 Penn Avenue
Pittsburgh, PA 15222
Habib Y. Gorgi(4)......................................... 0 * 72,231 7.6
George D. Miller(5)....................................... 60,000 * 8,333 *
All Directors and executive officers as a group (6
persons)(6)............................................. 7,705,365 67.9 884,630 89.4
</TABLE>
- ---------------
* Less than 1.0%
(1) Represents 6,978,028 CT shares owned by JWC Acquisition I, Inc., a Delaware
corporation ("JWCAC") and 785,229 Holding shares owned by J.W. Childs Equity
Partners, L.P. and an additional 230,523 CT shares and 19,756 non-voting
Holding shares (which are convertible to voting shares at any time) subject
to warrants owned by JWCAC and JWC Equity Funding, Inc., respectively,
exercisable within 60 days. CT Holding, Inc., JWC Equity Funding, Inc., J.W.
Childs Equity Partners, L.P., J.W. Childs Advisors L.P., J.W. Childs
Associates, L.P., J.W. Childs Associates, Inc. and Messrs. Childs, Horn,
Segal and Suttin may each be deemed to beneficially own shares owned or
deemed beneficially owned by J.W. Childs Equity Partners, L.P., JWCAC or JWC
Equity Funding. Each of the foregoing, except Mr. Horn, has a business
address c/o J.W. Childs Associates, L.P., One Federal Street, Boston, MA
2110.
43
<PAGE> 49
(2) Includes 305,370 CT shares and 42,918 Holding shares subject to stock
options exercisable within 60 days. Includes 2,400 CT shares beneficially
owned by Mr. McKitrick's wife, as to which Mr. McKitrick disclaims
beneficial ownership.
(3) Includes 19,565 CT shares subject to stock options exercisable within 60
days. Includes 11,000 CT shares beneficially owned by Mr. Longnecker's wife
and 200 CT shares beneficially owned by Mr. Longnecker's son, as to which
Mr. Longnecker disclaims beneficial ownership.
(4) Represents 43,958 Holding shares, 26,638 non-voting Holding shares (which
are convertible to voting shares at any time) and warrants to acquire an
additional 1,635 non-voting Holding shares, exercisable within 60 days and
then convertible into voting shares at any time, held by Chisholm Partners
III, L.P., Fleet Equity Partners VII, L.P., Fleet Growth Resources, Inc. and
Kennedy Plaza Partners, all affiliates of Fleet. Mr. Gorgi disclaims
beneficial ownership of these shares. Mr. Gorgi and each of the foregoing
has a business address at 50 Kennedy Plaza, Providence, RI 02903.
(5) Includes 60,000 CT shares subject to stock options exerciseable within 60
days.
(6) Includes 411,785 CT shares and 42,918 Holding shares subject to stock
options exercisable within 60 days and an additional 230,523 CT shares and
19,756 non-voting Holding Shares (which are convertible to voting Shares at
any time) subject to warrants exercisable within 60 days.
44
<PAGE> 50
CERTAIN TRANSACTIONS
Two of the Company's suppliers, Iron Age Corporation ("Iron Age") and Walls
Industries, Inc. ("Walls"), are controlled by certain BCC affiliates. Iron Age
is a manufacturer and distributor of workboots and protective footwear. Walls is
a manufacturer of insulated and non-insulated workwear, rugged outdoor and
hunting apparel and casual outerwear. The Company believes that the terms of its
purchases from Iron Age and Walls are at least as favorable to the Company as
could be obtained from other suppliers. In fiscal 1996, the Company's purchases
from Iron Age and Walls totaled $4.7 million and $1.6 million, respectively.
At the effective time of the Merger, it is contemplated that the Company
and Holding will enter into a management agreement with Associates providing for
payment by the Company to Associates of (i) a $1.7 million advisory and
financing fee in consideration of Associates' services regarding the planning,
structuring and negotiation of the Acquisition and related financing and (ii) an
annual management fee of $240,000 in consideration of Associates' ongoing
provision of certain consulting and management advisory services. Payments under
this management agreement may be made only to the extent permitted by the New
Credit Facility and the Indenture. The management agreement is expected to be
for a five-year term, automatically renewable for successive extension terms of
one year, unless Associates or Holding shall give notice of termination.
Additionally, Messrs. McKitrick and Longnecker are parties to a
Stockholders Agreement dated as of December 23, 1996 applicable to all shares of
Holding common stock or vested options to acquire such common stock held now or
hereafter acquired by them. The Stockholders Agreement, among other terms,
permits Holding to "call" their shares and vested options on their termination
of employment for any reason. Additionally, if either Mr. McKitrick or Mr.
Longnecker is terminated for any reason other than for cause or without good
reason (as those terms are defined in the Stockholders Agreement), he has the
right to "put" his shares or vested options to Holding. Depending on the
circumstances, the price for shares of Holding common stock purchased in
connection with a call or put under the Stockholders Agreement will range from
cost to seven times EBITDA. The put and call features of the Stockholders
Agreement terminate on completion of a public offering of Holding common stock
with aggregate net proceeds of $50.0 million or more.
Also, in connection with the consummation of the Acquisition, the Company
will loan $250,000 to George D. Miller and $25,000 to Jack P. Feichtner to
partially fund their investments in Holding common stock. The loans will be due
in ten years and require payments of interest only prior to maturity at the
applicable interest rate under the New Credit Facility.
45
<PAGE> 51
DESCRIPTION OF SENIOR NOTES
GENERAL
The Senior Notes will be issued pursuant to an Indenture (the "Indenture")
between the Company and Marine Midland Bank, as trustee (the "Trustee"). The
terms of the Senior Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (the
"Trust Indenture Act"). The Senior Notes are subject to all such terms, and
Holders of Senior Notes are referred to the Indenture and the Trust Indenture
Act for a statement thereof. The following summary of the material provisions of
the Indenture does not purport to be complete and is qualified in its entirety
by reference to the Indenture, including the definitions therein of certain
terms used below. Copies of the proposed form of Indenture have been filed as an
exhibit to the Registration Statement of which this Prospectus is a part and are
available as set forth below under "-- Available Information." The definitions
of certain terms used in the following summary are set forth below under
"-- Certain Definitions." As of the date of the Indenture, the Company will have
no Subsidiaries. All of the Company's future Subsidiaries will be Restricted
Subsidiaries; however, the Company will be able to designate Subsidiaries as
Unrestricted Subsidiaries pursuant to a resolution of the Board of Directors of
the Company to the extent that such Subsidiary qualifies as an "Unrestricted
Subsidiary" under the Indenture and such designation is made in compliance with
the restrictive covenants contained in the Indenture. See "-- Certain
Covenants -- Restricted Payments" and "-- Certain Definitions." Unrestricted
Subsidiaries will not be subject to many of the restrictive covenants set forth
in the Indenture and will not provide Subsidiary Guarantees. For purposes of
this summary, the term "Company" refers only to Central Tractor Farm & Country,
Inc., as survivor of the Merger, and not to any of its Subsidiaries.
The Senior Notes will be general unsecured obligations of the Company and
will rank pari passu in right of payment with all current and future unsecured
unsubordinated Indebtedness of the Company, including borrowings under the New
Credit Facility. However, all borrowings under the New Credit Facility will be
secured by a Lien on substantially all of the assets of the Company and its
Subsidiaries. The Indenture restricts, but does not prohibit, the Company and
its Subsidiaries from incurring certain other indebtedness which can be secured
with Liens on the assets of the Company and its Subsidiaries. Consequently, the
obligations of the Company under the Senior Notes will be effectively
subordinated to its obligations under the New Credit Facility and such other
indebtedness to the extent of such assets. As of February 1, 1997, on a pro
forma basis after giving effect to the Acquisition, the Company would have had
approximately $26.5 million principal amount of secured indebtedness and $12.9
million would have been available to be borrowed under the revolving portion of
the New Credit Facility. See "Risk Factors -- Effective Subordination."
PRINCIPAL, MATURITY AND INTEREST
The Senior Notes offered hereby will be limited in aggregate principal
amount to $100.0 million and will mature on , 2007. The Indenture
provides for the issuance of up to $50.0 million aggregate principal amount of
additional Senior Notes having identical terms and conditions to the Senior
Notes offered hereby (the "Additional Senior Notes"), subject to compliance with
the covenants contained in the Indenture. Any Additional Senior Notes will be
part of the same issue as the Senior Notes offered hereby and will vote on all
matters with the Senior Notes offered hereby. For purposes of this "Description
of Senior Notes," references to the Senior Notes do not include Additional
Senior Notes. Interest on the Senior Notes will accrue at the rate of % per
annum and will be payable semiannually in arrears on and
, commencing on , 1997, to Holders of record on the
immediately preceding and . Interest on the Senior Notes
will accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of original issuance. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal, premium, if any, and interest on the Senior Notes will be payable at
the office or agency of the Company maintained for such purpose within the City
and State of New York or, at the option of the Company, payment of interest may
be made by check mailed to the Holders of the Senior Notes at their respective
addresses set forth in the register of Holders of Senior Notes; provided that
all payments of principal, premium and interest with respect to
46
<PAGE> 52
Senior Notes the Holders of which have given wire transfer instructions to the
Company will be required to be made by wire transfer of immediately available
funds to the accounts specified by the Holders thereof. Until otherwise
designated by the Company, the Company's office or agency in New York will be
the office of the Trustee maintained for such purpose. The Senior Notes will be
issued in denominations of $1,000 and integral multiples thereof.
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Senior Notes will be jointly
and severally guaranteed (the "Subsidiary Guarantees") by the Guarantors. The
obligations of each Guarantor under its Subsidiary Guarantee will be limited so
as not to constitute a fraudulent conveyance under applicable law. See, however,
"Risk Factors -- Fraudulent Conveyance Considerations."
The Indenture will provide that no Guarantor may consolidate with or merge
with or into (whether or not such Guarantor is the surviving Person), another
corporation, Person or entity whether or not affiliated with such Guarantor
unless (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Guarantor) assumes all the obligations of such Guarantor pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee, under the Senior Notes, the Indenture and Subsidiary Guarantee and (ii)
immediately after giving effect to such transaction, no Default or Event of
Default exists.
The Indenture will provide that in the event of a sale or other disposition
of all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital stock of any
Guarantor, then such Guarantor (in the event of a sale or other disposition, by
way of such a merger, consolidation or otherwise, of all of the capital stock of
such Guarantor) or the corporation acquiring the property (in the event of a
sale or other disposition of all of the assets of such Guarantor) will be
released and relieved of any obligations under its Subsidiary Guarantee;
provided that the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture. See "Redemption or
Repurchase at Option of Holders -- Asset Sales." The Indenture will also provide
that in the event that a Guarantor is designated by the Company to be an
Unrestricted Subsidiary in accordance with the terms of the Indenture, such
Guarantor will be released and relieved of any obligations under its Subsidiary
Guaranty. See "Certain Covenants -- Restricted Payments."
OPTIONAL REDEMPTION
The Senior Notes will not be redeemable at the Company's option prior to
, 2002. Thereafter, the Senior Notes will be subject to redemption
at any time at the option of the Company, in whole or in part, upon not less
than 30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued and unpaid
interest thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002...................................................... %
2003...................................................... %
2004...................................................... %
2005 and thereafter....................................... 100.00%
</TABLE>
Notwithstanding the foregoing, at any time on or before , 2000,
the Company may (but shall not have the obligation to) redeem up to 35% of the
original aggregate principal amount of the Senior Notes (including any
Additional Senior Notes) at a redemption price of % of the principal amount
thereof, plus accrued and unpaid interest thereon to the redemption date, with
the net cash proceeds of a Public Equity Offering; provided that at least 65% of
the aggregate principal amount of Senior Notes (including any Additional Senior
Notes) originally issued remain outstanding immediately after the occurrence of
such redemption; and provided, further, that such redemption shall occur within
60 days of the date of the closing of such Public Equity Offering.
47
<PAGE> 53
If less than all of the Senior Notes are to be redeemed at any time,
selection of Senior Notes for redemption will be made by the Trustee on a pro
rata basis; provided that no Senior Notes of $1,000 or less shall be redeemed in
part. Notices of redemption shall be mailed by first class mail at least 30 but
not more than 60 days before the redemption date to each Holder of Senior Notes
to be redeemed at its registered address. If any Senior Note is to be redeemed
in part only, the notice of redemption that relates to such Senior Note shall
state the portion of the principal amount thereof to be redeemed. A new Senior
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 Senior Note.
On and after the redemption date, interest ceases to accrue on Senior Notes or
portions of them called for redemption.
OPTIONAL REDEMPTION UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control prior to , 2002,
the Senior Notes will be redeemable, in whole or in part, at the option of the
Company, upon not less than 30 nor more than 60 days prior notice to each holder
of Senior Notes to be redeemed, at a redemption price equal to the sum of (i)
the then outstanding principal amount thereof plus (ii) accrued and unpaid
interest thereon, to the redemption date plus (iii) the Applicable Premium. The
following definitions are used to determine the Applicable Premium:
"Applicable Premium" will be defined, with respect to a Senior Note,
as the greater of (i) % of the then outstanding principal amount of such
Senior Note and (ii) the excess of (A) the present value of the remaining
required interest and principal payments due on such Senior Note (exclusive
of accrued and unpaid interest), computed using a discount rate equal to
the Treasury Rate plus basis points, over (B) the then
outstanding principal amount of such Senior Note.
"Treasury Rate" will be defined as the yield to maturity at the time
of computation of United States Treasury securities with a constant
maturity (as compiled and published in the most recent Federal Reserve
Statistical Release H.15 (519) which has become publicly available at least
two Business Days prior to the date fixed for prepayment (or, if such
Statistical Release is no longer published, any publicly available source
of similar market data)) most nearly equal to the then remaining Average
Life to Stated Maturity of the Senior Notes; provided, however, that if the
Average Life to Stated Maturity of the Senior Notes is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the
weekly average yields of United States Treasury securities for which such
yields are given, except that if the Average Life to Stated Maturity of the
Senior Notes is less than one year, the weekly average yield on actually
traded United States Treasury securities adjusted to a constant maturity of
one year shall be used.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Senior Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of Senior Notes
will have the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such Holder's Senior Notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash equal to 101% of the aggregate principal amount thereof,
plus accrued and unpaid interest thereon, if any, to the date of repurchase (the
"Change of Control Payment"). Within fifteen days following any Change of
Control, the Company will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Senior Notes on the date specified in such notice, which date
shall be no earlier than 30 days and no later than 60 days from the date such
notice is mailed (the "Change of Control Payment Date"), pursuant to the
procedures required by the Indenture and described in
48
<PAGE> 54
such notice. The Company will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Senior Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Senior Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Senior
Notes or portions thereof so tendered and (3) deliver or cause to be delivered
to the Trustee the Senior Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of Senior Notes or portions
thereof being purchased by the Company. The Paying Agent will promptly mail to
each Holder of Senior Notes so tendered the Change of Control Payment for such
Senior Notes, and the Trustee will promptly authenticate and mail (or cause to
be transferred by book entry) to each Holder a new Senior Note equal in
principal amount to any unpurchased portion of the Senior Notes surrendered, if
any; provided that each such new Senior Note will be in a principal amount of
$1,000 or an integral multiple thereof. The Company will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the Holders of the Senior
Notes to require that the Company repurchase or redeem the Senior Notes in the
event of a takeover, recapitalization or similar transaction.
The Company's other senior indebtedness contains prohibitions of certain
events that would constitute a Change of Control. In addition, the Company's
ability to pay cash to the Holders of Senior Notes upon a repurchase may be
limited by the Company's then existing financial resources. See "Risk
Factors -- Change of Control."
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Senior Notes validly tendered and not withdrawn under such Change
of Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of Senior Notes to require the Company
to repurchase such Senior Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
Asset Sales
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary is
in the form of cash or Cash Equivalents; provided, however that, the Company and
the Restricted Subsidiaries will be permitted to consummate Asset Sales with
respect to assets with a fair market value of less than $5.0 million in the
aggregate since the Issue Date without complying with clause (ii) above to the
extent (a) at least 75% of the consideration received in connection with such
Asset Sale constitutes Replacement Assets (as defined below) or a combination of
Replacement Assets, cash and Cash Equivalents and (b) any Net Proceeds in the
form of cash or Cash Equivalents received by the Company or any of its
Restricted Subsidiaries in connection with any Asset Sale permitted to be
consummated pursuant to this provision shall be subject to the provisions of the
immediately following paragraph.
49
<PAGE> 55
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option (a) to permanently reduce
Indebtedness under the Credit Facilities (and correspondingly reduce commitments
thereunder) or (b) to the acquisition of a controlling interest in another
business, the making of a capital expenditure or the acquisition of other
long-term assets, in each case, in the same or a similar line of business as the
Company was engaged in on the date of the Indenture (collectively "Replacement
Assets"). Pending the final application of any such Net Proceeds, the Company
may temporarily reduce revolving credit Indebtedness or otherwise invest such
Net Proceeds in any manner that is not prohibited by the Indenture. Any Net
Proceeds from Asset Sales that are not applied or invested as provided in the
first sentence of this paragraph will be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company
will be required to make an offer to all Holders of Senior Notes and Additional
Senior Notes (an "Asset Sale Offer") to purchase the maximum principal amount of
Senior Notes and Additional Senior Notes that may be purchased out of the Excess
Proceeds, at an offer price in cash in an amount equal to 100% of the principal
amount thereof plus accrued and unpaid interest thereon, if any, to the date of
purchase, in accordance with the procedures set forth in the Indenture. To the
extent that the aggregate amount of Senior Notes and Additional Senior Notes
tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the
Company may use any remaining Excess Proceeds for general corporate purposes. If
the aggregate principal amount of Senior Notes and Additional Senior Notes
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Senior Notes and Additional Senior Notes to be
purchased on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset at zero.
CERTAIN COVENANTS
Restricted Payments
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or
pay any dividend or make any other payment or distribution on account of the
Company's or any of its Restricted Subsidiaries' Equity Interests (including,
without limitation, any payment in connection with any merger or consolidation
involving the Company) or to the direct or indirect holders of the Company's or
any of its Restricted Subsidiaries' Equity Interests in their capacity as such
(other than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company); (ii) purchase, redeem or otherwise acquire
or retire for value (including without limitation, in connection with any merger
or consolidation involving the Company) any Equity Interests of the Company, any
Restricted Subsidiary of the Company or any Affiliate of the Company (other than
any such Equity Interests owned by the Company or any Wholly Owned Restricted
Subsidiary of the Company); (iii) make any payment on or with respect to, or
purchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness that is subordinated to the Senior Notes (other than Senior Notes),
except a payment of interest or principal at Stated Maturity; or (iv) make any
Restricted Investment (all such payments and other actions set forth in clauses
(i) through (iv) above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under caption "-- Incurrence of Indebtedness
and Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of the Indenture (excluding Restricted Payments
permitted by clause (ii) of the next succeeding paragraph), is less than
the sum of (i) 50% of the Consolidated Net Income of the Company for the
period (taken as one accounting period) from the beginning of the first
fiscal quarter commencing after the date of the Indenture to the end of the
50
<PAGE> 56
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, less 100% of
such deficit), plus (ii) 100% of the aggregate net cash proceeds received
by the Company from the issue or sale since the date of the Indenture of
Equity Interests of the Company (other than Disqualified Stock) or of
Disqualified Stock or debt securities of the Company that have been
converted into such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a Subsidiary of
the Company and other than Disqualified Stock or convertible debt
securities that have been converted into Disqualified Stock), plus (iii) to
the extent that any Restricted Investment that was made after the date of
the Indenture is sold for cash or otherwise liquidated or repaid for cash,
the lesser of (A) the cash return of capital with respect to such
Restricted Investment (less the cost of disposition, if any) and (B) the
initial amount of such Restricted Investment plus (iv) the amount resulting
from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries
(in each case, such amount to be valued as provided in the second
succeeding paragraph) not to exceed the amount of Investments previously
made by the Company or any Restricted Subsidiary in such Unrestricted
Subsidiary and which was treated as a Restricted Payment under the
Indenture.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
in exchange for, or out of the net cash proceeds of the substantially concurrent
sale (other than to a Restricted Subsidiary of the Company) of, other Equity
Interests of the Company (other than any Disqualified Stock); provided that the
amount of any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement, defeasance or other acquisition shall be excluded from
clause (c)(ii) of the preceding paragraph; (iii) the defeasance, redemption,
repurchase or other acquisition of subordinated Indebtedness with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness; (iv) the
payment of any dividend by a Restricted Subsidiary of the Company to the holders
of its common Equity Interests on a pro rata basis; (v) the repurchase,
redemption or other retirement for value of any Equity Interests of the Company
or a Restricted Subsidiary, or dividends or other distributions by the Company
to Holding the proceeds of which are utilized by Holding to repurchase, redeem
or otherwise acquire or retire for value any Equity Interests of Holding, in
each case, held by any member of the management, employees or consultants of the
Company, Restricted Subsidiary or Holding pursuant to any management, employee
or consultant equity subscription agreement or stock option agreement; provided
that the aggregate price paid for all such repurchased, redeemed, acquired or
retired Equity Interests shall not exceed $500,000 in any twelve-month period
and no Default or Event of Default shall have occurred and be continuing
immediately after such transaction; (vi) payments or distributions to dissenting
stockholders of the Company in connection with the Merger; (vii) dividends or
other payments to Holding sufficient to enable Holding to pay accounting, legal,
corporate reporting and administrative expenses of Holding incurred in the
ordinary course of business or to pay required fees and expenses in connection
with the Acquisition and the registration under applicable laws and regulations
of its debt or equity securities and (viii) payments to Holding pursuant to the
Tax Sharing Agreement.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash) in
the Subsidiary so designated will be deemed to be Restricted Payments at the
time of such designation and will reduce the amount available for Restricted
Payments under the first paragraph of this covenant. All such outstanding
Investments will be deemed to constitute Investments in an amount equal to the
greater of (x) the net book value of such Investments at the time of such
designation and (y) the fair market value of such Investments at the time of
such designation. Such designation will only be permitted if such Restricted
Payment would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such
51
<PAGE> 57
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any non-cash Restricted Payment shall be determined by
the Board of Directors whose resolution with respect thereto shall be delivered
to the Trustee, such determination to be based upon an opinion or appraisal
issued by an accounting, appraisal or investment banking firm of national
standing if such fair market value exceeds $5.0 million. Not later than the date
of making any Restricted Payment, the Company shall deliver to the Trustee an
Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by the covenant
"Restricted Payments" were computed, together with a copy of any fairness
opinion or appraisal required by the Indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that the Company will not issue any
Disqualified Stock and will not permit any of its Subsidiaries to issue any
shares of preferred stock; provided, however, that the Company may incur
Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock if
the Fixed Charge Coverage Ratio for the Company's most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock is issued would have been at least 2 to 1, if such
incurrence or issuance is on or prior to , 1998, or 2.25 to
1, if such incurrence or issuance is after , 1998, in each
case, determined on a pro forma basis (including a pro forma application of the
net proceeds therefrom), as if the additional Indebtedness had been incurred, or
the Disqualified Stock had been issued, as the case may be, at the beginning of
such four-quarter period.
The Indenture will also provide that the Company will not incur any
Indebtedness that is contractually subordinated to any other Indebtedness of the
Company unless such Indebtedness is also contractually subordinated to the
Senior Notes on substantially identical terms; provided, however, that no
Indebtedness of the Company shall be deemed to be contractually subordinated to
any other Indebtedness of the Company solely by virtue of being unsecured.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company and its Subsidiaries of Indebtedness
(including letters of credit) pursuant to the Credit Facilities (with
letters of credit being deemed to have a principal amount equal to the
maximum potential liability of the Company and its Subsidiaries
thereunder); provided that, after giving pro forma effect to any such
incurrence and the application of the proceeds therefrom, the aggregate
principal amount of all Indebtedness (including letters of credit) of the
Company and its Subsidiaries outstanding under the Credit Facilities does
not exceed the greater of (x) $38.0 million less the aggregate amount of
all Net Proceeds of Asset Sales applied to permanently repay any such
Indebtedness pursuant to the covenant described above under the caption
"Repurchase at the Option of Holders -- Asset Sales" and (y) the amount of
the Borrowing Base as of any date of incurrence;
(ii) the incurrence by the Company and its Subsidiaries of
Indebtedness represented by the Senior Notes (other than any Additional
Senior Notes) and the Subsidiary Guarantees;
(iii) the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or purchase money obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in the business of the
Company or such Subsidiary, in an aggregate principal amount not to exceed
$10.0 million at any time outstanding;
(iv) the incurrence by any corporation that becomes a Subsidiary after
the Issue Date of Acquired Debt, which Indebtedness is existing at the time
such corporation becomes a Subsidiary; provided, however, that (A)
immediately after giving effect to such corporation becoming a Subsidiary
the
52
<PAGE> 58
Company could incur at least $1.00 of additional Indebtedness (other than
Permitted Debt) in accordance with the Indenture, (B) such Indebtedness is
without recourse to the Company or to any Subsidiary or to any of their
respective properties or assets other than Person becoming a Subsidiary or
its properties and assets and (C) such Indebtedness was not incurred as a
result of or in connection with or in contemplation of such entity becoming
a Subsidiary;
(v) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to refund, refinance or replace Indebtedness that was
permitted by the Indenture to be incurred;
(vi) the incurrence of intercompany Indebtedness between or among the
Company and any of its Wholly Owned Restricted Subsidiaries; provided,
however, that (i) if the Company is the obligor on such Indebtedness, such
Indebtedness is expressly subordinated to the prior payment in full in cash
of all Obligations with respect to the Senior Notes and (ii)(A) any
subsequent issuance or transfer of Equity Interests that results in any
such Indebtedness being held by a Person other than the Company or a Wholly
Owned Restricted Subsidiary and (B) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a Wholly Owned
Restricted Subsidiary shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or such Subsidiary, as the
case may be;
(vii) Indebtedness of an Unrestricted Subsidiary of the Company owed
to and held by the Company or a Restricted Subsidiary of the Company,
provided that the Company or such Restricted Subsidiary is permitted to
make an investment in such Unrestricted Subsidiary under the Indenture at
the time such Indebtedness is incurred in an amount equal to the principal
amount of such Indebtedness;
(viii) the incurrence by the Company of Hedging Obligations that are
incurred for the purpose of fixing or hedging currency risk or interest
rate risk with respect to any floating rate Indebtedness that is permitted
by the terms of this Indenture to be outstanding;
(ix) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company;
(x) Indebtedness incurred in respect of performance, surety and
similar bonds provided by the Company and its Restricted Subsidiaries in
the ordinary course of business, and refinancings thereof;
(xi) Indebtedness for letters of credit relating to workers'
compensation claims and self-insurance or similar requirements in the
ordinary course of business;
(xii) Indebtedness arising from guarantees of Indebtedness of the
Company or any Subsidiary or other agreements of the Company or a
Subsidiary providing for indemnification, adjustment of purchase price or
similar obligations, in each case, incurred or assumed in connection with
the disposition of any business, assets or Subsidiary, other than
guarantees of Indebtedness incurred by any person acquiring all or any
portion of such business, assets or Subsidiary for the purpose of financing
such acquisition, provided that the maximum aggregate liability in respect
of all such Indebtedness shall at no time exceed the gross proceeds
actually received by the Company and its Subsidiaries in connection with
such disposition;
(xiii) the guarantee by any of the Guarantors of Indebtedness of the
Company or another Guarantor that was permitted to be incurred under the
Indenture; and
(xiv) the incurrence by the Company or any of its Subsidiaries of
additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding, not to exceed $10.0 million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xiv)
53
<PAGE> 59
above or is entitled to be incurred pursuant to the first paragraph of this
covenant, the Company shall, in its sole discretion, classify such item of
Indebtedness in any manner that complies with this covenant and such item of
Indebtedness will be treated as having been incurred pursuant to only one of
such clauses or pursuant to the first paragraph hereof. Accrual of interest and
the accretion of accreted value will not be deemed to be an incurrence of
Indebtedness for purposes of this covenant.
Liens
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien on any asset now owned or hereafter acquired, or any
income or profits therefrom or assign or convey any right to receive income
therefrom, except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to (i)(a) pay dividends
or make any other distributions to the Company or any of its Restricted
Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest
or participation in, or measured by, its profits, or (b) pay any Indebtedness
owed to the Company or any of its Restricted Subsidiaries, (ii) make loans or
advances to the Company or any of its Restricted Subsidiaries or (iii) transfer
any of its properties or assets to the Company or any of its Restricted
Subsidiaries, except for such encumbrances or restrictions existing under or by
reason of (a) applicable law, (b) any instrument governing Indebtedness or
Capital Stock of a Person acquired by the Company or any of its Restricted
Subsidiaries as in effect at the time of such acquisition (except to the extent
such Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the Indenture to
be incurred, (c) by reason of customary non-assignment provisions in leases,
licenses, encumbrances, contracts or similar assets entered into or acquired in
the ordinary course of business and consistent with past practices, (d) purchase
money obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (iii) above on the
property so acquired, (e) existing by virtue of any transfer of, agreement to
transfer, option or right with respect to, or Lien on, any property or assets of
the Company or any Restricted Subsidiary not otherwise prohibited by the
Indenture, (f) with respect to a Restricted Subsidiary and imposed pursuant to
an agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock of, or property and assets of, such
Restricted Subsidiary or (g) Permitted Refinancing Indebtedness, provided that
the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive than those contained in the
agreements governing the Indebtedness being refinanced.
Merger, Consolidation or Sale of Assets
The Indenture will provide that the Company may not consolidate or merge
with or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of the
Company under the Senior Notes and the Indenture pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee; (iii) immediately
after such transaction no Default or Event of Default exists; (iv) except in the
case of a merger of the Company with or into a Wholly Owned Restricted
54
<PAGE> 60
Subsidiary of the Company, the Company or the entity or Person formed by or
surviving any such consolidation or merger (if other than the Company), or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made (A) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of the Company
immediately preceding the transaction and (B) will, at the time of such
transaction and after giving pro forma effect thereto as if such transaction had
occurred at the beginning of the applicable four-quarter period, be permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant described
above under the caption "-- Incurrence of Indebtedness and Issuance of Preferred
Stock;" and (v) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger, sale, assignment, transfer, lease, conveyance or other disposition and
such supplemental indenture complies with the Indenture and that all conditions
precedent provided for in the Indenture relating to such transaction have been
complied with."
Transactions with Affiliates
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, make any payment to, or sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or purchase
any property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee
(a) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $500,000, a
resolution of the Board of Directors approving such Affiliate Transaction and an
Officers' Certificate certifying that such Affiliate Transaction complies with
clause (i) above and that such Affiliate Transaction has been approved by a
majority of the disinterested members of the Board of Directors and (b) with
respect to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $5.0 million, an opinion as to
the fairness to the Holders of such Affiliate Transaction from a financial point
of view issued by an accounting, appraisal or investment banking firm of
national standing; provided that (v) any employment agreement entered into by
the Company or any of its Restricted Subsidiaries in the ordinary course of
business and consistent with the past practice of the Company or such Restricted
Subsidiary, (w) transactions between or among the Company and/or its Restricted
Subsidiaries, (x) Restricted Payments (other than Restricted Investments) that
are permitted by the provisions of the Indenture described above under the
caption "Restricted Payments," (y) investment banking and management fees in an
aggregate amount no greater than $240,000 in the aggregate in any calendar year
(plus reimbursement of expenses) to be paid by the Company to the Principals or
any Related Party and (z) an aggregate cash fee of $1.7 million payable by the
Company to the Principals or any Related Party on or about the Issue Date, in
each case, shall not be deemed Affiliate Transactions.
Sale and Leaseback Transactions
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, enter into any sale and leaseback
transaction (other than among the Company and Wholly Owned Restricted
Subsidiaries or among Wholly Owned Restricted Subsidiaries); provided that the
Company may enter into a sale and leaseback transaction if (i) the Company could
have (a) incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction pursuant to the covenant
described above under the caption "-- Incurrence of Additional Indebtedness and
Issuance of Preferred Stock" and (b) incurred a Lien to secure such Indebtedness
pursuant to the covenant described above under the caption "-- Liens," (ii) the
gross cash proceeds of such sale and leaseback transaction are at least equal to
the fair market value (as determined in good faith by the Board of Directors and
set forth in an Officers' Certificate delivered to the Trustee) of the property
that is the subject of such sale and leaseback transaction and (iii) the
transfer of assets in such sale and leaseback transaction is permitted by, and
the
55
<PAGE> 61
Company applies the proceeds of such transaction in compliance with, the
covenant described above under the caption "Repurchase at the Option of
Holders -- Asset Sales."
Limitation on Issuances and Sales of Capital Stock of Wholly Owned
Subsidiaries
The Indenture will provide that the Company (i) will not, and will not
permit any Wholly Owned Restricted Subsidiary of the Company to, transfer,
convey, sell, lease or otherwise dispose of any Capital Stock of any Wholly
Owned Restricted Subsidiary of the Company to any Person (other than the Company
or a Wholly Owned Restricted Subsidiary of the Company), unless (a) such
transfer, conveyance, sale, lease or other disposition is of all the Capital
Stock of such Wholly Owned Restricted Subsidiary and (b) the cash Net Proceeds
from such transfer, conveyance, sale, lease or other disposition are applied in
accordance with the covenant described above under the caption "-- Asset Sales,"
and (ii) will not permit any Wholly Owned Restricted Subsidiary of the Company
to issue any of its Equity Interests (other than, if necessary, shares of its
Capital Stock constituting directors' qualifying shares) to any Person other
than to the Company or a Wholly Owned Restricted Subsidiary of the Company.
Payments for Consent
The Indenture will provide that neither the Company nor any of its
Subsidiaries will, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any Holder of
any Senior Notes for or as an inducement to any consent, waiver or amendment of
any of the terms or provisions of the Indenture or the Senior Notes unless such
consideration is offered to be paid or is paid to all Holders of the Senior
Notes that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
Additional Subsidiary Guarantees
The Indenture will provide that if the Company or any of its Subsidiaries
shall acquire or create another Subsidiary after the date of the Indenture, then
such newly acquired or created Subsidiary shall execute a Subsidiary Guarantee
and deliver an opinion of counsel, in accordance with the terms of the
Indenture, except for all Subsidiaries that have properly been designated as
Unrestricted Subsidiaries in accordance with the Indenture for so long as they
continue to constitute Unrestricted Subsidiaries.
Reports
The Indenture will provide that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "Commission"), so
long as any Senior Notes are outstanding, the Company will furnish to the
Holders of Senior Notes (i) all quarterly and annual financial information that
would be required to be contained in a filing with the Commission 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" that describes the financial condition and results of operations of
the Company and its consolidated Subsidiaries (showing in reasonable detail,
either on the face of the financial statements or in the footnotes thereto and
in Management's Discussion and Analysis of Financial Condition and Results of
Operations, the financial condition and results of operations of the Company and
its Restricted Subsidiaries separate from the financial condition and results of
operations of the Unrestricted Subsidiaries of the Company), but excluding
exhibits, 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 Commission 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 Commission, the Company will file a copy of
all such information and reports with the Commission for public availability
(unless the Commission will not accept such a filing) and make such information
available to securities analysts and prospective investors upon request.
56
<PAGE> 62
EVENTS OF DEFAULT AND REMEDIES
The Indenture will provide that each of the following constitutes an Event
of Default: (i) default for 30 days in the payment when due of interest on the
Senior Notes; (ii) default in payment when due of the principal of or premium,
if any, on the Senior Notes; (iii) failure by the Company to comply with the
provisions described under the captions "Repurchase at the Option of the
Holders -- Change of Control" or "-- Asset Sales" or "Covenants -- Restricted
Payments" or "-- Incurrence of Indebtedness and Issuance of Preferred Stock";
(iv) failure by the Company for 60 days after notice from the Trustee or holders
of at least 25% in aggregate principal amount of the outstanding Senior Notes to
comply with any of its other agreements in the Indenture or the Senior Notes;
(v) default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for money
borrowed by the Company or any of its Restricted Subsidiaries (or the payment of
which is guaranteed by the Company or any of its Restricted Subsidiaries)
whether such Indebtedness or guarantee now exists, or is created after the date
of the Indenture, which default (a) is caused by a failure to pay principal of
or premium, if any, or interest on such Indebtedness prior to the expiration of
the grace period provided in such Indebtedness on the date of such default (a)
"Payment Default") or (b) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $5.0 million or more; (vi) failure by the Company or
any of its Restricted Subsidiaries to pay final judgments aggregating in excess
of $5.0 million, which judgments are not paid, discharged or stayed for a period
of 60 days; (vii) except as permitted by the Indenture or the Subidiary
Guarantee, any Subsidiary Guarantee shall be held in any judicial proceeding to
be unenforceable or invalid or shall cease for any reason to be in full force
and effect or any Guarantor, or any Person acting on behalf of any Guarantor,
shall deny or disaffirm its obligations under its Subsidiary Guarantee; and
(vii) certain events of bankruptcy or insolvency with respect to the Company or
any of its Significant Restricted Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Senior Notes
may declare all the Senior Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to the Company or any
Guarantor constituting a Significant Restricted Subsidiary, all outstanding
Senior Notes will become due and payable without further action or notice.
Holders of the Senior Notes may not enforce the Indenture or the Senior Notes
except as provided in the Indenture. Subject to certain limitations, Holders of
a majority in principal amount of the then outstanding Senior Notes may direct
the Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the Senior Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Senior Notes pursuant to
the optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Senior Notes. If an Event of Default occurs prior
to , 2002 by reason of any willful action (or inaction)
taken (or not taken) by or on behalf of the Company with the intention of
avoiding the prohibition on redemption of the Senior Notes prior to
, 2002, then the premium specified in the Indenture shall
also become immediately due and payable to the extent permitted by law upon the
acceleration of the Senior Notes.
The Holders of a majority in aggregate principal amount of the Senior Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the Senior Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of, the Senior Notes.
57
<PAGE> 63
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No past, present or future director, officer, employee, incorporator or
stockholder of the Company, as such, shall have any liability for any
obligations of the Company or any Subsidiary under the Senior Notes, the
Indenture or the Subsidiary Guarantees or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each Holder of Senior Notes
by accepting a Senior Note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the Senior 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.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Senior Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Senior Notes to
receive payments in respect of the principal of, premium, if any, and interest
on such Senior Notes when such payments are due from the trust referred to
below, (ii) the Company's obligations with respect to the Senior Notes
concerning issuing temporary Senior Notes, registration of Senior Notes,
mutilated, destroyed, lost or stolen Senior Notes and the maintenance of an
office or agency for payment and money for security payments held in trust,
(iii) the rights, powers, trusts, duties and immunities of the Trustee, and the
Company's obligations in connection therewith and (iv) the Legal Defeasance
provisions of the Indenture. In addition, the Company may, at its option and at
any time, elect to have the obligations of the Company released with respect to
certain covenants that are described in the Indenture ("Covenant Defeasance")
and thereafter any omission to comply with such obligations shall not constitute
a Default or Event of Default with respect to the Senior Notes. In the event
Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with respect
to the Senior Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Senior Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on the
outstanding Senior Notes on the stated maturity or on the applicable redemption
date, as the case may be, and the Company must specify whether the Senior Notes
are being defeased to maturity or to a particular redemption date; (ii) in the
case of Legal Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders of the outstanding Senior Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that the Holders of the
outstanding Senior Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be continuing on the
date of such deposit (other than a Default or Event of Default resulting from
the borrowing of funds to be applied to such deposit) or insofar as Events of
Default from bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day
58
<PAGE> 64
after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance will
not result in a breach or violation of, or constitute a default under any
material agreement or instrument (other than the Indenture) to which the Company
or any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company must have delivered to the Trustee an
opinion of counsel to the effect that after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of Senior Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and (viii) the Company must deliver to the
Trustee an Officers' Certificate and an opinion of counsel, each stating that
all conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Senior Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Senior Note selected for redemption. Also, the Company is not required to
transfer or exchange any Senior Note for a period of 15 days before a selection
of Senior Notes to be redeemed.
The registered Holder of a Senior Note will be treated as the owner of it
for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture,
the Subsidiary Guarantees or the Senior Notes may be amended or supplemented
with the consent of the Holders of at least a majority in principal amount of
the Senior Notes then outstanding (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or exchange offer
for, Senior Notes), and any existing default or compliance with any provision of
the Indenture, the Subsidiary Guarantees or the Senior Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Senior Notes (including consents obtained in connection with a
tender offer or exchange offer for Senior Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Senior Notes held by a non-consenting Holder): (i) reduce
the principal amount of Senior Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any Senior Note or alter the provisions with respect to the redemption of the
Senior Notes (other than provisions relating to the covenants described above
under the caption "Repurchase at the Option of Holders"), (iii) reduce the rate
of or change the time for payment of interest on any Senior Note, (iv) waive a
Default or Event of Default in the payment of principal of or premium, if any,
or interest on the Senior Notes (except a rescission of acceleration of the
Senior Notes by the Holders of at least a majority in aggregate principal amount
of the Senior Notes and a waiver of the payment default that resulted from such
acceleration), (v) make any Senior Note payable in money other than that stated
in the Senior Notes, (vi) make any change in the provisions of the Indenture
relating to waivers of past Defaults or the rights of Holders of Senior Notes to
receive payments of principal of or premium, if any, or interest on the Senior
Notes, (vii) waive a redemption payment with respect to any Senior Note (other
than a payment required by one of the covenants described above under the
caption "Repurchase at the Option of Holders"), (viii) release any Guarantor
from any of its obligations under its Subsidiary Guarantee or the Indenture,
except in accordance with the terms of the Indenture, or (ix) make any change in
the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Senior
Notes, the Company, the Guarantors and the Trustee may amend or supplement the
Indenture, the Subsidiary Guarantees or the Senior Notes to cure any ambiguity,
defect or inconsistency, to provide for uncertificated Senior Notes in addition
to or in place of certificated Senior Notes, to provide for the assumption of
the Company's or a Guarantor's
59
<PAGE> 65
obligations to Holders of Senior Notes in the case of a merger or consolidation,
to provide for the issuance of a Subsidiary Guarantee by a Subsidiary of the
Company, to provide for the issuance of Additional Notes in accordance with the
limitations set forth in the Indenture on the Issue Date, to make any change
that would provide any additional rights or benefits to the Holders of Senior
Notes or that does not adversely affect the legal rights under the Indenture of
any such Holder, or to comply with requirements of the Commission in order to
effect or maintain the qualification of the Indenture under the Trust Indenture
Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding
Senior 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 in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man 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 Senior Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
BOOK-ENTRY, DELIVERY AND FORM
The Senior Notes to be sold as set forth herein will initially be issued in
the form of one Global Note (the "Global Note"). The Global Note will be
deposited on the date of the closing of the sale of the Notes offered hereby
(the "Closing Date") with the Trustee as custodian for The Depository Trust
Company (the "Depositary") and registered in the name of Cede & Co., as nominee
of the Depositary (such nominee being referred to herein as the "Global Note
Holder"). The information in this section concerning the Depositary and its
book-entry system has been obtained from sources that the Company believes to be
reliable, but the Company takes no responsibility for the accuracy thereof.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the
Underwriters), banks and trust companies, clearing corporations and certain
other organizations. Access to the Depositary's system is also available to
other entities such as banks, brokers, dealers and trust companies
(collectively, the "Indirect Participants" or the Depositary's Indirect
Participants") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. Persons who are not Participants may
beneficially own securities held by or on behalf of the Depositary only through
the Depositary's Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Note, the Depositary will credit the
accounts of Participants designated by the Underwriters with portions of the
principal amount of the Global Note and (ii) beneficial ownership of the Senior
Notes evidenced by the Global Note will be shown on, and the transfer of such
ownership will be effected only through, records maintained by the Depositary
(with respect to the interests of the Depositary's Participants), the
Depositary's Participants and the Depositary's Indirect Participants.
Prospective purchasers are advised that the laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to transfer Senior Notes evidenced by the
Global Note will be limited to such extent.
So long as the Global Note Holder is the registered owner of the Global
Note, the Global Note Holder will be considered the sole owner or Holder under
the Indenture of any Senior Notes evidenced by the Global Note. Beneficial
owners of the Senior Notes evidenced by the Global Note will not be considered
the owners
60
<PAGE> 66
or Holders thereof under the Indenture for any purpose, including with respect
to the giving of any directions, instructions or approvals to the Trustee
thereunder. Except as provided below, owners of beneficial interests in the
Global Note will not be entitled to have Senior Notes registered in their names
and will not receive or be entitled to receive physical delivery of Senior Notes
in definitive form. Neither the Company nor the Trustee will have any
responsibility or liability for any aspect of the records of the Depositary or
for maintaining, supervising or reviewing any records of the Depositary relating
to the Senior Notes.
Payments in respect of the principal of, premium, if any, and interest on
any Senior Notes registered in the name of the Global Note Holder on the
applicable record date will be payable by the Company to or at the direction of
the Global Note Holder in its capacity as the registered Holder under the
Indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the persons in whose names the Senior Notes, including the Global Note,
are registered as the owners thereof for the purpose of receiving such payments.
Consequently, neither the Company nor the Trustee has or will have any
responsibility or liability for the payment of such amounts to beneficial owners
of Senior Notes. The Company believes, however, that it is currently the policy
of the Depositary to immediately credit the accounts of the relevant
Participants with such payments, in amounts proportionate to their respective
holdings of beneficial interests in the relevant security as shown on the
records of the Depositary. Payments by the Depositary's Participants and the
Depositary's Indirect Participants to the beneficial owners of Senior Notes will
be governed by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants or the Depositary's Indirect
Participants.
As long as the Senior Notes are represented by a Global Note, the
Depositary's nominee will be the holder of the Senior Notes and therefore will
be the only entity that can exercise a right to repayment or repurchase of the
Senior Notes. See "-- Repurchase at the Option of Holders -- Change of Control"
and "-- Asset Sales." Notice by the Depositary's Participants or the
Depositary's Indirect Participants or by owners of beneficial interests in a
Global Note held through such Participants or Indirect Participants of the
exercise of the option to elect repayment of beneficial interests in Senior
Notes represented by a Global Note must be transmitted to the Depositary in
accordance with its procedures on a form required by the Depositary and provided
to Participants. In order to ensure that the Depositary's nominee will timely
exercise a right to repayment with respect to a particular Senior Note, the
beneficial owner of such Senior Note must instruct the broker or other
Participant or Indirect Participant through which it holds an interest in such
Senior Note to notify the Depositary of its desire to exercise a right to
repayment. Different firms have cut-off times for accepting instructions from
their customers and, accordingly, each beneficial owner should consult the
broker or other Participant or Indirect Participant through which it holds an
interest in a Senior Note in order to ascertain the cut-off time by which such
an instruction must be given in order for timely notice to be delivered to the
Depositary. The Company will not be liable for any delay in delivery of notices
of the exercise of the option to elect repayment.
The Company will issue Senior Notes in definitive form in exchange for the
Global Note if, and only if, either (1) the Depositary is at any time unwilling
or unable to continue as depositary and a successor depositary is not appointed
by the Company within 90 days, or (2) the Company, at its option, notifies the
Trustee in writing that it elects to cause the issuance of Senior Notes in the
form of Certificated Notes under the Indenture. In either instance, an owner of
a beneficial interest in the Global Note will be entitled to have Senior Notes
equal in principal amount to such beneficial interest registered in its name and
will be entitled to physical delivery of such Senior Notes in definitive form.
Senior Notes so issued in definitive form will be issued in denominations of
$1,000 and integral multiples thereof and will be issued in registered form
only, without coupons.
CERTIFICATED NOTES
If the Company notifies the Trustee in writing that the Depositary is no
longer willing or able to act as a depositary and the Company is unable to
locate a qualified successor within 90 days then, upon surrender by the Global
Note Holder of its Global Note, Senior Notes in the form of registered
definitive Senior Notes will be issued to each person that the Global Note
Holder and the Depositary identify as being the beneficial owner of the related
Senior Notes.
61
<PAGE> 67
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Senior Notes and the Company and the Trustee may conclusively rely on, and will
be protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture will require that payments in respect of the Senior Notes
represented by the Global Note (including principal, premium, if any, and
interest) be made by wire transfer of immediately available funds to the
accounts specified by the Global Note Holder. With respect to Certificated
Notes, the Company will make all payments of principal, premium, if any,
interest by wire transfer of immediately available funds to the accounts
specified by the Holders thereof or, if no such account is specified, by mailing
a check to each such Holder's registered address. Secondary trading in long-term
notes and debentures of corporate issuers is generally settled in clearinghouse
or next-day funds. The Company expects that secondary trading in the
Certificated Notes will also be settled in immediately available funds.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory or other current assets in the ordinary
course of business consistent with past practices (provided that the sale,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company and its Restricted Subsidiaries taken as a whole will be governed
by the provisions of the Indenture described above under the caption "Repurchase
at the Option of Holders -- Change of Control" and/or the provisions described
above under the caption "Covenants -- Merger, Consolidation or Sale of Assets"
and not by the provisions of the Asset Sale covenant), and (ii) the issue or
sale by the Company or any of its Subsidiaries of Equity Interests of any of the
Company's Subsidiaries, in the case of either clause (i) or (ii), whether in a
single transaction or a series of related transactions that have a fair market
value (as determined in good faith by the Board of Directors) in excess of $1.0
million. Notwithstanding the foregoing: (i) a transfer of assets by the Company
to a Wholly-Owned Restricted Subsidiary or by a Subsidiary to the Company or to
Wholly Owned Restricted Subsidiary, (ii) an issuance of Equity Interests by a
Wholly Owned Restricted Subsidiary to the Company or to another Wholly Owned
Restricted Subsidiary, and (iii) a Restricted Payment that is permitted by the
covenant described above under the caption "Covenants -- Restricted Payments"
will not be deemed to be Asset Sales.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease
62
<PAGE> 68
included in such sale and leaseback transaction (including any period for which
such lease has been extended or may, at the option of the lessor, be extended).
"Borrowing Base" means, as of any date, an amount equal to the sum of (i)
80% of accounts receivable of the Company and its Restricted Subsidiaries as of
such date that are not more than 45 days past due (including accounts receivable
relating to any layaway or similar plan), plus (ii) 65% of the book value of all
inventory owned by the Company and its Restricted Subsidiaries as of such date,
in each case calculated on a consolidated basis and in accordance with GAAP. To
the extent that information is not available as to the amount of accounts
receivable or inventory as of a specific date, the Company may utilize the most
recent available information for purposes of calculating the Borrowing Base.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than one
year from the date of acquisition, (iii) certificates of deposit and eurodollar
time deposits with maturities of one year or less from the date of acquisition,
bankers' acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any lender party to the New Credit Facility or with
any domestic commercial bank having capital and surplus in excess of $500.0
million and a Keefe Bank Watch Rating of "B" or better, (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (ii) and (iii) above entered into with any
financial institution meeting the qualifications specified in clause (iii) above
and (v) commercial paper of a domestic issuer having a rating of at least A-1 by
Standard and Poor's Ratings Services ("S&P") or P-1 by Moody's Investors
Service, Inc. ("Moody's") maturing within twelve months after the date of
acquisition.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act) other than the Principals or their Related Parties, (ii) the
adoption of a plan relating to the liquidation or dissolution of the Company,
(iii) the consummation of any transaction (including, without limitation, any
merger or consolidation) (a) prior to the initial underwritten public offering
by the Company or Holding of its Common Stock pursuant to an effective
registration statement under the Securities Act (the "IPO") the result of which
is that the Principals and their Related Parties become the "beneficial owner"
(as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act,
except that a person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is
currently exercisable or is exercisable only upon the occurrence of a subsequent
condition) of less than 50% of the Voting Stock of the Company (measured by
voting power rather than number of shares) or (b) after the IPO, any person (as
defined above), other than the Principals and their Related Parties, becomes the
beneficial owner (as defined above), directly or indirectly, of 35% or more of
the Voting Stock of the Company and such person is or becomes, directly or
indirectly, the beneficial owner of a greater percentage of the voting power of
the Voting Stock of the Company, calculated on a fully diluted basis, than the
percentage beneficially owned by the Principals and their Related Parties, (iv)
the first day on which a majority of the members of the Board of Directors of
the Company are not Continuing Directors or (v) the Company consolidates with,
or merges with or into, any Person or sells, assigns, conveys, transfers, leases
or otherwise disposes of all or substantially all of its assets to any Person,
or any Person consolidates with, or merges with or into, the Company, in any
63
<PAGE> 69
such event pursuant to a transaction in which any of the outstanding Voting
Stock of the Company is converted into or exchanged for cash, securities or
other property, other than any such transaction where the Voting Stock of the
Company outstanding immediately prior to such transaction is converted into or
exchanged for Voting Stock (other than Disqualified Stock) of the surviving or
transferee Person constituting a majority of the outstanding shares of such
Voting Stock of such surviving or transferee Person (immediately after giving
effect to such issuance). For purposes of this definition, any transfer of an
equity interest of an entity that was formed for the purpose of acquiring Voting
Stock of the Company will be deemed to be a transfer of such portion of such
Voting Stock as corresponds to the portion of the equity of such entity that has
been so transferred.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus, without
duplication, (i) an amount equal to any extraordinary loss plus any net loss
realized in connection with an Asset Sale (to the extent such losses were
deducted in computing such Consolidated Net Income), plus (ii) provision for
taxes based on income or profits of such Person and its Subsidiaries for such
period, to the extent that such provision for taxes was included in computing
such Consolidated Net Income, plus (iii) consolidated interest expense of such
Person and its Subsidiaries for such period, whether paid or accrued and whether
or not capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations), to the extent that any
such expense was deducted in computing such Consolidated Net Income, plus (iv)
depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were paid
in a prior period) and other non-cash expenses (excluding any such non-cash
expense to the extent that it represents an accrual of or reserve for cash
expenses in any future period or amortization of a prepaid cash expense that was
paid in a prior period) of such Person and its Subsidiaries for such period to
the extent that such depreciation, amortization and other non-cash expenses were
deducted in computing such Consolidated Net Income, minus (v) non-cash items
increasing such Consolidated Net Income for such period, in each case, on a
consolidated basis and determined in accordance with GAAP. Notwithstanding the
foregoing, the provision for taxes based on the income or profits of, and the
depreciation and amortization and other non-cash charges of, a Subsidiary of a
Person shall be added to Consolidated Net Income to compute Consolidated Cash
Flow only to the extent (and in the same proportion) that the Net Income of such
Subsidiary was included in calculating the Consolidated Net Income of such
Person and only if a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Subsidiary without prior
approval (that has not been obtained), pursuant to the terms of its charter and
all agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Restricted Subsidiary
thereof, (ii) the Net Income of any Restricted Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or similar distributions
by that Restricted Subsidiary of that Net Income is not at the date of
determination permitted without any prior governmental approval (that has not
been obtained) or, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded, (iv) the cumulative effect of a change in accounting principles
shall be excluded and (v) the Net Income of any Unrestricted Subsidiary shall be
excluded, whether or not distributed to the Company or one of its Subsidiaries.
64
<PAGE> 70
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Disqualified Stock) that by its terms
is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of the Indenture in the book value of
any asset owned by such Person or a consolidated Subsidiary of such Person, (y)
all investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, Permitted Investments), and (z)
all unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Credit Facilities" means, with respect to the Company, one or more debt
facilities (including, without limitation, the New Credit Facility) or
commercial paper facilities with banks or other institutional lenders providing
for revolving credit loans, term loans, receivables financing (including through
the sale of receivables to such lenders or to special purpose entities formed to
borrow from such lenders against such receivables) or letters of credit, in each
case, as amended, restated, modified, renewed, refunded, replaced or refinanced
in whole or in part from time to time. Indebtedness under Credit Facilities
outstanding on the date on which Senior Notes are first issued and authenticated
under the Indenture shall be deemed to have been incurred on such date in
reliance on the exception provided by clause (i) of the definition of Permitted
Debt.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Senior Notes mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the New Credit Facility) in
existence on the date of the Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations but excluding amortization
of debt issuance costs) and (ii) the consolidated interest expense of such
Person and its Restricted Subsidiaries that was capitalized during such period,
and (iii) any interest expense on Indebtedness of another Person that is
guaranteed by such Person or one of its Restricted Subsidiaries or secured by a
Lien on assets of such Person or one of its Restricted Subsidiaries (whether or
not such guarantee or Lien is called upon) and (iv) the product of (a) all cash
dividend payments on any series of preferred stock of such Person or any of its
Restricted Subsidiaries, other than dividend payments on Equity Interests
payable solely in Equity Interests (other than Disqualified
65
<PAGE> 71
Stock) of the Company, times (b) a fraction, the numerator of which is one and
the denominator of which is one minus the then current combined federal, state
and local statutory tax rate of such Person and its Restricted Subsidiaries,
expressed as a decimal, in each case, on a consolidated basis and in accordance
with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the Company or
any of its Restricted Subsidiaries incurs, assumes, guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues or redeems
preferred stock subsequent to the commencement of the period for which the Fixed
Charge Coverage Ratio is being calculated but prior to the date on which the
event for which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, guarantee or redemption
of Indebtedness, or such issuance or redemption of preferred stock, as if the
same had occurred at the beginning of the applicable four-quarter reference
period. In addition, for purposes of making the computation referred to above,
(i) acquisitions that have been made by the Company or any of its Restricted
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be deemed to have occurred on the first day of the four-quarter reference
period and Consolidated Cash Flow for such reference period shall be calculated
without giving effect to clause (iii) of the proviso set forth in the definition
of Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, and
(iii) the Fixed Charges attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the obligations
giving rise to such Fixed Charges will not be obligations of the referent Person
or any of its Restricted Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guaranteeing Subsidiary" means each Subsidiary that executes a Subsidiary
Guarantee in accordance with the provisions of the Indenture, and its respective
successors and assigns.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or the value of foreign currencies purchased or received by the Company in
the ordinary course of business.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
guarantee by such Person of any indebtedness of any other Person. The amount of
any Indebtedness outstanding as of any
66
<PAGE> 72
date shall be (i) the accreted value thereof, in the case of any Indebtedness
that does not require current payments of interest, and (ii) the principal
amount thereof, together with any interest thereon that is more than 30 days
past due, in the case of any other Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Subsidiary of the Company sells or otherwise disposes of
any Equity Interests of any direct or indirect Restricted Subsidiary of the
Company such that, after giving effect to any such sale or disposition, such
Person is no longer a Restricted Subsidiary of the Company, the Company shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Equity Interests of such Restricted
Subsidiary not sold or disposed of in an amount determined as provided in the
final paragraph of the covenant described above under the caption "-- Restricted
Payments."
"Issue Date" means the first date of issuance of Senior Notes.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"New Credit Facility" means that certain credit facility, dated as of
December 23, 1996, by and among the Company and Fleet National Bank, N.A., as
administrative agent and NationsBank, N.A, as co-agent, providing for up to
$38.0 million of term and revolving credit borrowings, including any related
notes, guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, renewed, refunded,
replaced or refinanced from time to time.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
(other than Indebtedness under the Credit Facilities) secured by a Lien on the
asset or assets that were the subject of such Asset Sale and any reserve for
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of
67
<PAGE> 73
time or both) any holder of any other Indebtedness of the Company or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its stated maturity;
and (iii) as to which the lenders have been notified in writing that they will
not have any recourse to the stock or assets of the Company or any of its
Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Investments" means (a) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company; (b) any Investment in Cash
Equivalents; (c) any Investment by the Company or any Restricted Subsidiary of
the Company in a Person, if as a result of such Investment (i) such Person
becomes a Wholly Owned Restricted Subsidiary of the Company and a Guarantor or
(ii) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys all or substantially all of its assets to, or is liquidated
into, the Company or a Wholly Owned Restricted Subsidiary of the Company or a
Guarantor; (d) any Restricted Investment made as a result of the receipt of
non-cash consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "Repurchase at
the Option of Holders -- Asset Sales"; (e) any acquisition of assets solely in
exchange for the issuance of Equity Interests (other than Disqualified Stock) of
the Company; and (f) other Investments in any Person having an aggregate fair
market value (measured on the date each such Investment was made and without
giving effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (f) that are at the time
outstanding, not to exceed $5.0 million.
"Permitted Liens" means (i) Liens securing Indebtedness under the Credit
Facilities that was permitted by the terms of the Indenture to be incurred; (ii)
Liens in favor of the Company; (iii) Liens on property of a Person existing at
the time such Person is merged into or consolidated with the Company or any
Subsidiary of the Company; provided that such Liens were in existence prior to
the 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; (iv) Liens on property existing at the time of acquisition thereof by
the Company or any Subsidiary of the Company, provided that such Liens were in
existence prior to the contemplation of such acquisition; (v) Liens to secure
the performance of statutory or regulatory obligations, leases, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in the
ordinary course of business; (vi) Liens to secure Indebtedness (including
Capital Lease Obligations) permitted by clause (iii) of the third paragraph of
the covenant entitled "-- Incurrence of Indebtedness and Issuance of Preferred
Stock" covering only the assets acquired with such Indebtedness; (vii) Liens
existing on the date of the Indenture; (viii) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor; (ix)
statutory and common law Liens of landlords and carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen or other similar Liens arising in
the ordinary course of business and with respect to amounts not yet delinquent
or being contested in good faith by appropriate legal proceedings promptly
instituted and diligently conducted and for which a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made; (x) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types of
social security; (xi) easements, rights-of-way, municipal and zoning ordinances
and similar charges, encumbrances, title defects or other irregularities that do
not materially interfere with the ordinary course of business of the Company or
any of its Restricted Subsidiaries; (xii) Liens encumbering property or assets
under construction arising from progress or partial payments by a customer of
the Company or its Restricted Subsidiaries relating to such property or assets;
(xiii) any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease; (xiv) Liens arising from filing Uniform
Commercial Code financing statements regarding leases; (xv) Liens in favor of
the Company or any Restricted Subsidiary; (xvi) Liens arising from the rendering
of a final judgment or order against the Company or any Restricted Subsidiary of
the Company that does not give rise to an Event of Default; (xvii) Liens in
favor of customs and revenue authorities arising as a matter of law to secure
payment of customs duties in connection with the importation of goods; (xviii)
Liens encumbering customary initial deposits and margin deposits, and other
Liens that are
68
<PAGE> 74
either within the general parameters customary in the industry and incurred in
the ordinary course of business, in each case securing Indebtedness under
Interest Rate Agreements and Currency Agreements and forward contracts, options,
futures contracts, futures options or similar agreements or arrangements
designed solely to protect the Company or any of its Restricted Subsidiaries
from fluctuations in interest rates, currencies or the price of commodities;
(xix) Liens arising out of conditional sale, title retention, consignment or
similar arrangements for the sale of goods entered into by the Company or any of
its Restricted Subsidiaries in the ordinary course of business in accordance
with the past practices of the Company and its Restricted Subsidiaries prior to
the Closing Date; (xx) Liens incurred in the ordinary course of business of the
Company or any Subsidiary of the Company with respect to obligations that do not
exceed $2.5 million at any one time outstanding and that (a) are not incurred in
connection with the borrowing of money or the obtaining of advances or credit
(other than trade credit in the ordinary course of business) and (b) do not in
the aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of business by the Company or such
Subsidiary; and (xxi) Liens on assets of Unrestricted Subsidiaries that secure
Non-Recourse Debt of Unrestricted Subsidiaries.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund, Existing
Indebtedness or other Indebtedness of the Company or any of its Restricted
Subsidiaries incurred in accordance with the Indenture (other than Indebtedness
incurred in accordance with clauses (i), (vi), (viii), (ix), (x), (xi), (xii)
(xiii) and (xiv) of the third paragraph of the covenant entitled "Incurrence of
Indebtedness and Issuance of Preferred Stock;" provided that: (i) the principal
amount (or accreted value, if applicable) of such Permitted Refinancing
Indebtedness does not exceed the principal amount of (or accreted value, if
applicable), plus accrued interest on, the Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded (plus the amount of reasonable expenses
incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness
has a final maturity date at or later than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; (iii) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in right of
payment to the Senior Notes, such Permitted Refinancing Indebtedness has a final
maturity date at or later than the final maturity date of, and is subordinated
in right of payment to, the Senior Notes on terms at least as favorable to the
Holders of Senior Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and (iv) such Indebtedness is incurred either by the Company or by the
Restricted Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Principals" means (i) J.W. Childs Equity Partners, L.P., (ii) each
Affiliate of J.W. Childs Equity Partners, L.P. as of the Issue Date, and (iii)
each officer or employee (including their respective immediate family members)
of J.W. Childs Associates, L.P. as of the Issue Date.
"Public Equity Offering" means an underwritten public offering of common
stock (other than Disqualified Stock) of the Company or Holding, pursuant to an
effective registration statement filed with the Commission in accordance with
the Securities Act; provided, however, that, in the case of a Public Equity
Offering by Holding, Holding contributes to the capital of the Company net cash
proceeds thereof in an amount sufficient to redeem the Senior Notes called for
redemption in accordance with the terms of the Indenture.
"Related Party" with respect to any Principal means (A) any controlling
stockholder or 80% (or more) owned Subsidiary of such Principal or (B) or trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
69
<PAGE> 75
"Significant Restricted Subsidiary" means a subsidiary, including its
subsidiaries, which meets any of the following conditions:
(1) The Company's and its other subsidiaries' investments in and
advances to the subsidiary exceed 10% of the total assets of the Company
and its subsidiaries consolidated as of the end of the most recently
completed fiscal year (for a proposed business combination to be accounted
for as a pooling of interests, this condition is also met when the number
of common shares exchanged or to be exchanged by the Company exceeds 10% of
its total common shares outstanding at the date the combination is
initiated); or
(2) The Company's and its other subsidiaries' proportionate share of
the total assets (after intercompany eliminations) of the subsidiary
exceeds 10% of the total assets of the Company and its subsidiaries
consolidated as of the end of the most recently completed fiscal year; or
(3) The Company's and its other subsidiaries' equity in the income
from continuing operations before income taxes, extraordinary items and
cumulative effect of a change in accounting principle of the subsidiary
exceeds 10% of such income of the Company and its subsidiaries consolidated
for the most recently completed fiscal year.
For purposes of this definition under the Indenture, a "significant
subsidiary" will be determined in accordance with the computational note
contained in the definition of Significant Subsidiary in Article 1, Rule 1-02 of
Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect
on the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Tax Sharing Agreement" means the tax sharing agreement among Holding, the
Company and any one or more of Holding's subsidiaries, as amended from time to
time, so long as the method of calculating the amount of the Company's payments,
if any, to be made thereunder is not less favorable to the Company than as
provided in such agreement as in effect on the Issue Date (except to the extent
required to reflect changes in applicable federal or state tax laws), as
determined in good faith by the Board of Directors of the Company.
"Unrestricted Subsidiary" means (i) any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution; but only to the extent that such Subsidiary: (a) has no Indebtedness
other than Non-Recourse Debt; (b) is not party to any agreement, contract,
arrangement or understanding with the Company or any Restricted Subsidiary of
the Company unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted Subsidiary
than those that might be obtained at the time from Persons who are not
Affiliates of the Company (as determined in good faith by the Board of
Directors); (c) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation (x) to
subscribe for additional Equity Interests or (y) to maintain or preserve such
Person's financial condition or to cause such Person to achieve any specified
levels of operating results; and (d) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of the Company or any of
its Restricted Subsidiaries. Any such designation by the Board of Directors
shall be evidenced to the Trustee by filing with the Trustee a certified copy of
the Board Resolution giving effect to such designation and an Officers'
Certificate certifying
70
<PAGE> 76
that such designation complied with the foregoing conditions and was permitted
by the covenant described above under the caption "Certain
Covenants -- Restricted Payments." If, at any time, any Unrestricted Subsidiary
would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it
shall thereafter cease to be an Unrestricted Subsidiary for purposes of the
Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred
by a Restricted Subsidiary of the Company as of such date (and, if such
Indebtedness is not permitted to be incurred as of such date under the covenant
described under the caption "Incurrence of Indebtedness and Issuance of
Preferred Stock," the Company shall be in default of such covenant). The Board
of Directors of the Company may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that such designation shall
be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the
Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if (i) such Indebtedness is permitted under
the covenant described under the caption "Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock," calculated on a pro forma basis
as if such designation had occurred at the beginning of the four-quarter
reference period, and (ii) no Default or Event of Default would be in existence
following such designation.
"Voting Stock" means, with respect to any Person, the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries
of such Person.
71
<PAGE> 77
DESCRIPTION OF NEW CREDIT FACILITY
The Company entered into a Credit Agreement dated as of December 23, 1996,
by and among the Company and Fleet, as Administrative Agent and NationsBank, as
Co-Agent for the lenders referred to therein, providing for borrowings in an
aggregate principal amount of up to $38.0 million (the "New Credit Facility").
The New Credit Facility is comprised of a five-year term facility (the "New Term
Loan") in the principal amount of $8.0 million, a revolving credit facility (the
"New Revolving Credit Facility") in the principal amount of $30.0 million with a
sublimit for the issuance of standby and trade letters of credit in the amount
of $10.0 million and a swing line facility with a sublimit in the amount of $5.0
million. Indebtedness under the New Credit Facility will be guaranteed by
Holding and secured by substantially all of the assets of the Company and the
Company's future subsidiaries. Loans made pursuant to the New Term Loan must be
repaid in 10 installments of $0.8 million beginning June 30, 1997, and must be
repaid in full on December 31, 2001. In addition to the scheduled repayment of
the New Term Loan, the Company is obligated to make annual prepayments based on
the Company's excess cash flow. All payments and prepayments of the New Term
Loan permanently reduce the availability under the New Term Loan as defined in
the New Credit Facility. Advances made pursuant to the New Revolving Credit
Facility may be borrowed, repaid and reborrowed from time to time until the
fifth anniversary of the establishment of the facility. Advances under the New
Credit Facility are subject to the satisfaction of certain conditions on the
date of advance.
Amounts outstanding under the New Credit Facility will bear interest at a
rate based, at the Company's option, upon (i) the greater of Fleet's prime rate
and 0.50% over the federal funds rate, plus 1.0% through the first day of the
Company's 1998 fiscal year and thereafter plus a percentage between 0.25% and
1.0% depending on the Company's debt to EBITDA ratio ("Prime Rate Advances") or
(ii) the Eurodollar Rate, plus 2.25% through the first day of the Company's 1998
fiscal year and thereafter plus a percentage between 1.50% and 2.25% depending
on the Company's debt to EBITDA ratio, except that advances under the swing line
facility may only be Prime Rate Advances. As of February 1, 1997, the interest
rate on the New Term Loan was 7.89% and the interest rate on the outstanding
balance under the New Revolving Credit Facility was 8.20%.
The New Credit Facility contains a number of financial, affirmative and
negative covenants that regulate the Company's operations. Financial covenants
require the Company to maintain: (i) a minimum consolidated net worth of $58.0
million, plus 75% of consolidated net income for the period after November 2,
1996; and (ii) as more specifically set forth in the table below, (A) a minimum
consolidated EBITDA for the four most recently completed fiscal quarters (B) a
minimum ratio of consolidated EBITDA to cash interest payable on consolidated
debt for the four most recently completed fiscal quarters; and (C) a minimum
ratio of consolidated debt to consolidated EBITDA for the four most recently
completed fiscal quarters. Negative covenants restrict, among other things, the
incurrence of debt, the existence of liens, transactions with affiliates, loans,
advances and investments by the Company, payment of dividends and other
distributions to shareholders, dispositions of assets, mergers, consolidations
and dissolutions, contingent liabilities and changes in business.
<TABLE>
<CAPTION>
FOUR FISCAL QUARTERS MINIMUM EBITDA INTEREST COVERAGE
ENDED CLOSEST TO (MILLIONS) RATIO DEBT TO EBITDA RATIO
------------------- -------------- ---------------- --------------------
<S> <C> <C> <C>
January 31, 1997......................... $20.9 1.55x 5.60x
April 30, 1997........................... 20.9 1.60 5.55
July 31, 1997............................ 21.7 1.60 5.25
October 31, 1997......................... 21.7 1.60 5.25
January 31, 1998......................... 21.7 1.70 5.25
April 30, 1998........................... 23.4 1.75 5.25
July 31, 1998............................ 24.1 1.80 4.60
October 31, 1998......................... 24.8 1.85 4.60
January 31, 1999......................... 26.2 1.95 4.60
April 30, 1999........................... 26.9 2.00 4.60
July 31, 1999............................ 28.3 2.10 4.15
October 31, 1999......................... 29.0 2.15 4.15
January 31, 2000......................... 29.8 2.20 4.15
April 30, 2000........................... 30.8 2.25 4.15
July 31, 2000............................ 32.2 2.35 3.75
October 31, 2000......................... 33.0 2.40 3.75
January 31, 2001......................... 33.7 2.45 3.75
April 30, 2001........................... 34.7 2.50 3.75
July 31, 2001............................ 36.6 2.60 2.80
October 31, 2001......................... 37.5 2.70 2.80
</TABLE>
72
<PAGE> 78
DESCRIPTION OF HOLDING PREFERRED STOCK
The following statements are brief summaries of certain provisions relating
to the shares of Series B 13% Senior Redeemable Exchangeable Pay-In-Kind
Preferred Stock, par value $.01 per share (the "Preferred Stock"), of Holding.
The Preferred Stock will be issued concurrently with the closing of the offering
of the Senior Notes, in exchange for the shares of Series A 13% Senior
Redeemable Exchangeable Pay-In-Kind Preferred Stock, par value $.01 per share,
of Holding issued in December 1996. The following statements are qualified in
their entirety by the provisions of Holding's Certificate of Incorporation and
the Restated Certificate of Designation of Series B 13% Senior Redeemable
Exchangeable Pay-In-Kind of Holding (the "Certificate of Designation") to be
filed with the secretary of state of Delaware prior to the closing of the
offering of the Senior Notes, which includes the resolutions of the Board of
Directors of Holding creating the Preferred Stock.
DIVIDEND RIGHTS
Holders of Preferred Stock are entitled to receive, but only when and as
declared by the Board of Directors of Holding out of funds legally available
therefor, cumulative dividends at the annual rate of $130.00 per share, payable
semiannually on the last day of May and November in each year, commencing May
31, 1997 (a "Dividend Reference Date"). Dividends are cumulative, accrue on a
daily basis, are calculated from the date of issue of the Preferred Stock and
are payable to holders of record on such record dates as are fixed by the Board
of Directors of Holding. Dividends payable for any period less than a full
semiannual period will be computed on the basis of a 365-day year and the actual
number of days elapsed.
Dividends are payable in cash, except if any dividend payable on any
Dividend Reference Date occurring before May 31, 2009 is not declared and paid
in full in cash on such Dividend Reference Date, the amount payable as a
dividend on such Dividend Reference Date that is not paid in cash shall, subject
to the terms of any Parity Securities or Senior Securities (each defined below),
be declared and paid in additional shares of Preferred Stock, with such
additional shares of Preferred Stock being valued at $1,000 per share for such
purpose.
For purposes of the Certificate of Designation:
"Equity Interests" means capital stock and all warrants, options or other
rights to acquire capital stock (but excluding any debt security that is
convertible into, or exchangeable for, capital stock).
"Junior Security" means any shares of the voting common and the non-voting
common stock of Holding and any other class or series of stock of Holding which,
by the terms of Holding's Restated Certificate of Incorporation or of the
instrument by which the Board of Directors, acting pursuant to authority granted
in Holding's Restated Certificate of Incorporation, shall fix the relative
rights, preferences and limitations thereof, shall be junior to the Preferred
Stock in respect of the right to receive dividends or to participate in any
distribution of assets (including but not limited to any distribution of assets
in connection with the liquidation of Holding) other than by way of dividends.
"Parity Security" means any shares of any class or series of stock of
Holding which, by the terms of Holding's Restated Certificate of Incorporation
or of the instrument by which the Board of Directors, acting pursuant to
authority granted in Holding's Restated Certificate of Incorporation, shall fix
the relative rights, preferences and limitations thereof, shall be on a parity
with the Preferred Stock in respect of the right to receive dividends and to
participate in any distribution of assets (including but not limited to any
distribution of assets in connection with the liquidation of Holding) other than
by way of dividends.
"Senior Security" means shares of any class or series of stock of Holding
which, by the terms of Holding's Restated Certificate of Incorporation or of the
instrument by which the Board of Directors, acting pursuant to authority granted
in Holding's Restated Certificate of Incorporation, shall fix the relative
rights, preferences and limitations thereof, shall be senior to the Preferred
Stock in respect of the right to receive dividends or to participate in any
distribution of assets (including but not limited to any distribution of assets
in connection with the liquidation of Holding) other than by way of dividends.
73
<PAGE> 79
No dividend (payable other than in shares of Junior Securities) whatsoever
shall be paid upon, or moneys or other property of Holding set apart for payment
of any dividend upon, any Junior Security nor shall any Junior Security be
redeemed or purchased by Holding or any subsidiary thereof (except by conversion
into or exchange for Junior Securities) nor shall any moneys or other property
be paid to or made available for a sinking fund for any such redemption or
purchase of any Junior Security, unless, in each such instance, all of the
following conditions are met: (i) all dividends on all outstanding shares of
Preferred Stock accrued through the most recent Dividend Reference Date shall
have been paid or declared and sufficient moneys (or, to the extent permitted by
the Certificate of Designation, shares of Preferred Stock) set aside for payment
thereof; (ii) all dividends on all outstanding shares of Preferred Stock accrued
through the most recent Dividend Reference Date from the Dividend Reference Date
immediately preceding such most recent Dividend Reference Date shall have been
paid in cash or declared and sufficient moneys set aside for payment thereof;
(iii) all shares of Preferred Stock issued by Holding after May 31, 2002 as
payment-in-kind dividends shall have been redeemed; (iv), Holding shall have
redeemed all shares of Preferred Stock (A) for which it has received a notice of
redemption from the holders thereof pursuant to the right of holders to demand
redemption described below under the heading "Redemption on Demand by Holder"
and in respect of which Holding's obligation to redeem such shares shall not
have terminated or (B) which are required to be redeemed pursuant to the
mandatory redemption obligation of Holding described below under the heading
"Mandatory Redemption;" and (v) certain other limitations on the maximum amount
of such dividends on or redemptions or purchases of Junior Securities are met.
The foregoing provisions shall not prohibit (i) the payment of any dividend
within sixty (60) days after the date of declaration thereof, if at the date of
such declaration such payment would have complied with the provisions of the
Certificate of Designation, or (ii) the repurchase, redemption or other
retirement for value of any Equity Interests of Holding held by any member of
the management or employees of Holding or any subsidiary of Holding pursuant to
the Stockholders Agreement dated as of December 23, 1996, among Holding and its
stockholders named therein; provided that (A) the aggregate price paid for all
such repurchased, redeemed, acquired or retired Equity Interests shall be
subject to certain limitations on the maximum amount thereof, (B) no Voting
Rights Triggering Event (defined below) shall have occurred and be continuing
immediately after such transaction, and (C) Holding shall have redeemed all
shares of Preferred Stock (I) for which it has received a notice of redemption
from the holders thereof pursuant to the right of holders to demand redemption
described below under the heading "Redemption on Demand by Holder" and in
respect of which Holding's obligation to redeem such shares shall not have
terminated or (II) which are required to be redeemed pursuant to the mandatory
redemption obligation of Holding described below under the heading "Mandatory
Redemption;" provided, further, that the immediately foregoing proviso shall not
restrict the right or the obligation of Holding pursuant to said Stockholders
Agreement, to repurchase, redeem, acquire or retire Equity Interests by delivery
of a subordinated promissory note or notes in accordance with the provisions of
said Stockholders Agreement.
So long as any share of Preferred Stock remains outstanding, no full
dividend (payable other than in shares of Junior Securities) shall be paid upon,
or moneys or other property of Holding set apart for payment of any full
dividend upon, any Parity Securities, unless all dividends on all outstanding
shares of Preferred Stock accrued through the most recent Dividend Reference
Date shall have been paid or declared and sufficient moneys (or, to the extent
required by the Certificate of Designation, shares of Preferred Stock) set aside
for payment thereof. If all such dividends are not so paid, the Preferred Stock
shall share dividends pro rata with such Parity Securities.
Substantially all of Holding's operations are conducted through the
Company. The ability of Holding to pay cash dividends on the Preferred Stock
will be dependent upon the payment to it of dividends, interest or other charges
by the Company. The Company's right to make such payments is restricted by the
New Credit Agreement and the Indenture.
LIQUIDATION PREFERENCE
Upon any liquidation, dissolution or winding up of Holding, whether
voluntary or involuntary, the holders of Preferred Stock will be entitled to be
paid out of the assets of Holding available for distribution to
74
<PAGE> 80
stockholders, before any distribution or payment is made upon any Junior
Securities, an amount in cash equal to the sum of $1,000 per share of Preferred
Stock plus all accrued and unpaid dividends thereon (the "Liquidation Value").
After such payment, the holders of Preferred Stock will not be entitled to any
further payment or claim to any of the remaining assets of Holding. If, upon any
liquidation, dissolution or winding up of Holding, the assets of Holding to be
distributed among holders of Preferred Stock are insufficient to permit payment
to holders of the aggregate Liquidation Value to which they are entitled, then
the assets of Holding to be distributed to such holders will be distributed
ratably among such holders. Neither the consolidation or merger of Holding into
or with any other person or entity, nor the sale or transfer by Holding of all
or any part of its assets, nor the reduction of the capital stock of Holding,
will be deemed to be a liquidation, dissolution or winding up of Holding.
REDEMPTION
Holding has the following redemption rights and obligations with respect to
the Preferred Stock:
Optional Redemptions by Holding. At any time within six (6) months after a
Change of Control or a Qualified Public Offering (each as defined below),
Holding may, at its election, redeem all or any part of the outstanding shares
of Preferred Stock, out of funds legally available therefor, at the Liquidation
Value. For purposes of the Certificate of Designation:
"Change of Control" shall mean the occurrence of any of the following:
(i) The sale, lease, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of
related transactions, of all or substantially all of the assets of Holding
or the Company to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act), except to the extent such transaction would not
constitute a Change of Control under clause (vi) of this definition;
(ii) The adoption of a plan relating to the liquidation or
dissolution of Holding or the Company;
(iii) The consummation of any transaction (including but not limited
to any merger or consolidation, (A) prior to the initial underwritten
public offering of the common stock of Holding pursuant to an effective
registration statement under the Securities Act (the "IPO") the result of
which is that the JWC Holders and their Related Parties become the
"beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5
under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all securities that such person has the right to
acquire, whether such right is currently exercisable or is exercisable only
upon the occurrence of a subsequent condition) of less than 50% of the
Voting Stock of Holding (measured by voting power rather than number of
shares) or (B) after the IPO, any person (as defined above), other than the
JWC Holders and their Related Parties, becomes the beneficial owner (as
defined above), directly or indirectly, of 35% or more of the Voting Stock
of Holding and such person is or becomes, directly or indirectly, the
beneficial owner of a greater percentage of the voting power of the Voting
Stock of Holding, calculated on a fully diluted basis, than the percentage
beneficially owned by the JWC Holders and their Related Parties;
(iv) The first day on which a majority of the members of the Board of
Directors of Holding are not Continuing Directors;
(v) The first day on which Holding shall own, directly or
indirectly, less than all of the issued and outstanding capital stock of
the Company or of the surviving or transferee Person of the Company in a
transaction not constituting a Change of Control under clause (vi) of this
definition; or
(vi) Holding or the Company consolidates with, or merges with or
into, any Person or sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of its assets to any Person, or any
Person consolidates with, or merges with or into, Holding or the Company,
as the case may be, in any such event pursuant to a transaction in which
(A) any of the outstanding Voting Stock of Holding is converted into or
exchanged for cash, securities or other property, other than any such
transaction where the Voting Stock of Holding outstanding immediately prior
to such transaction is converted into or exchanged for Voting Stock of the
surviving or transferee Person constituting a majority of the outstanding
shares of such Voting Stock of such surviving or transferee Person
(immediately after
75
<PAGE> 81
giving effect to such issuance) or (B) any of the outstanding Voting Stock
of the Company is converted into or exchanged for cash, securities or other
property (other than payments of or the right to receive cash in respect of
fractional shares of such Voting Stock), other than any such transaction
where the Voting Stock of the Company outstanding immediately prior to such
transaction is converted into or exchanged for Voting Stock of the
surviving or transferee Person all of which is owned, directly or
indirectly, by Holding (immediately after giving effect to such issuance).
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of Holding who (i) was a member of such Board of
Directors on the date of adoption of the Certificate of Designation by the Board
of Directors of Holding or (ii) was nominated for election or elected to such
Board of Directors with the approval of a majority of the Continuing Directors
who were members of such Board at the time of such nomination or election.
"JWC Holders" means the JWC Holders as defined in the Stockholders
Agreement, dated as of December 23, 1996, among Holding and the stockholders of
Holding named therein. The Principals are included among the JWC Holders.
"Person" means any individual, partnership, corporation, limited liability
corporation, trust, estate, joint venture, association, unincorporated
organization, government or any department or agency thereof, or other entity.
"Qualified Public Offering" means one or more public sales of any capital
stock of Holding pursuant to one or more registration statements (other than on
Form S-4 or S-8 or any other similar limited purpose form), that have become
effective under the Securities Act, yielding at least $10.0 million in aggregate
gross proceeds.
"Related Party" with respect to any JWC Holder means (i) any controlling
stockholder or 80% (or more) owned subsidiary of such JWC Holder or (ii) trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partner, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of JWC Holders and/or such other Persons referred to
in the immediately preceding clause (i).
"Voting Stock" means, with respect to any Person, the capital stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
At any time and from time to time Holding may, at its election, redeem all
or any part of the outstanding shares of Preferred Stock issued by the Holding
as payment-in-kind dividends out of funds legally available therefor, at the
Liquidation Value.
Redemption on Demand by Holder. Within ten business days after a Change of
Control, Holding shall, unless Holding shall have theretofore given notice of
the optional redemption by Holding of all of the outstanding shares of Preferred
Stock, give written notice to the holders of the Preferred Stock of the demand
redemption rights described in this paragraph. In addition, within ten business
days after each Dividend Reference Date occurring at least six months after such
Change of Control, Holding shall give written notice to the holders of Preferred
Stock of such demand redemption rights. Upon receipt of any such notice, each
holder of shares of Preferred Stock may require Holding to redeem, at the
Liquidation Value plus an amount equal to one percent (1%) of such Liquidation
Value at the time of redemption, up to the lesser of (i) all of the shares of
Preferred Stock held by such holder and (ii) such number of shares of Preferred
Stock held of record by such holder as shall equal the product of (x) all of the
shares of Preferred Stock in respect of which such holder shall have exercised
his demand redemption right multiplied by (y) a ratio, the numerator of which
shall be equal to the Cash Available for Redemption and the denominator of which
shall be equal to the aggregate of the Liquidation Value plus an amount equal to
one percent (1%) of the Liquidation Value at the time of redemption for all of
the shares of Preferred Stock in respect of which holders of Preferred Stock
shall have exercised their demand redemption rights. Holding will not be
required to pay the redemption price due in connection with the redemption of
any Preferred Stock as described in this paragraph until ten business days after
the redemption of all of the Senior Notes required to be redeemed by the Company
in connection with such Change of Control. The right of a holder of shares of
Preferred Stock to require Holding to redeem,
76
<PAGE> 82
out of Cash Available for Redemption, any or all of such shares (and any shares
of Preferred Stock thereafter issued as payment-in-kind dividends thereon)
following a Change of Control or any Dividend Reference Date occurring at least
six months after such Change of Control will terminate to the extent that such
holder fails to exercise his demand redemption right in respect of such shares
within the applicable exercise period following any date on which Holding gives
notice of such demand redemption rights.
For purposes of the Certificate of Designation, "Cash Available for
Redemption" means, as of any date, the sum of
(i) the sum of (A) the aggregate amount of cash and cash equivalents
held by Holding as of such date, plus (B) the maximum undrawn amount
available to Holding (without duplication of any amount available to any
subsidiary of Holding under any credit or loan agreements, as amended and
in effect from time to time, including but not limited to any such credit
or loan agreement in connection with which Holding acts as a guarantor or
co-obligor of the obligations of any such subsidiary) as of such date under
any credit or loan agreements, as amended and in effect from time to time,
to which the Holding is party, as borrower, plus
(ii) the lesser of
(A) the sum of (I) the aggregate amount of cash and cash
equivalents held by the Company as of such date plus (II) the maximum
undrawn amount available as of such date under (x) the New Credit
Facility, as amended and in effect from time to time, or (III) any
credit or loan agreements, as amended and in effect from time to time,
hereafter executed in connection with any refinancing or replacement of
the New Credit Facility, and
(B) the maximum amount that the Company could, if it declared and
paid a cash dividend on its common stock on such date, declare and pay
without being in violation of or default under (with or without the
lapse of time or the giving of notice, or both) any applicable law or
any note, debenture, indenture or other agreement or instrument
governing indebtedness for borrowed money of the Company, minus
(iii) a reasonable reserve determined by the Board of Directors of
Holding in the good faith exercise of its business judgment.
Mandatory Redemption. On May 31, 2009, Holding shall redeem, at the
Liquidation Value, all of the outstanding shares of Preferred Stock.
If the funds of Holding legally available for redemption of Preferred Stock
on any redemption date are insufficient to redeem the total number of shares of
Preferred Stock to be redeemed on such date, those funds which are legally
available shall be used to redeem the maximum possible number of shares of
Preferred Stock ratably among the holders of the Preferred Stock to be redeemed.
At any time thereafter, when additional funds of the Holding are legally
available for the redemption of Preferred Stock, such funds shall immediately be
used to redeem, without interest, the balance of the Preferred Stock which
Holding has become obligated to redeem on any redemption date but which it has
not redeemed.
Substantially all of Holding's operations are conducted through the
Company. The ability of Holding to pay the redemption price due on the
redemption of any of the Preferred Stock will be dependent upon the payment to
it of dividends, interest or other charges by the Company. The Company's right
to make such payments is restricted by the New Credit Facility and the
Indenture.
VOTING RIGHTS
The outstanding shares of Preferred Stock have no voting rights except as
required by law and as follows:
(a) The affirmative vote of the holders of record of at least two
thirds (2/3) of the outstanding shares of Preferred Stock, voting together
as a separate class, is required (i) to change (A) the rate or time of
payment of any dividends on, or (B) the time or amount of any redemption
of, or (C) the amount of any payments upon liquidation of Holding with
respect to, or (D) the priorities afforded by the provisions of the
Certificate of Designation for the benefit of shares of Preferred Stock or
(ii) to amend
77
<PAGE> 83
the redemption rights of the holders of the Preferred Stock described above
under the heading "Mandatory Redemption" or (iii) to amend the voting
rights of the holders of the Preferred Stock.
(b) The affirmative vote of the holders of at least a majority of the
outstanding shares of Preferred Stock, voting together as a separate class,
is required to: (i) increase the number of authorized shares of Preferred
Stock or (ii) authorize or issue any additional shares of Preferred Stock
(other than as dividends on outstanding shares of Preferred Stock to the
extent permitted under the Certificate of Designation) or (iii) issue any
shares of capital stock of Holding of any class, or any security or
obligations convertible into any capital stock of Holding of any class, in
each case ranking on a parity with or prior to the Preferred Stock as to
distribution of assets in liquidation or in right of payment of dividends
(other than shares of Preferred Stock issued as dividends on outstanding
shares of Preferred Stock to the extent permitted under the Certificate of
Designation or in connection with the exchange, for shares of Preferred
Stock, of any Exchange Notes (as defined below) issued by Holding).
(c) In the event that (I) (A) dividends (either in cash or through the
issuance of additional shares of Preferred Stock to the extent permitted
under the Certificate of Designation) on the Preferred Stock are in arrears
and unpaid with respect to any Dividend Reference Date or (B) after May 31,
2002, Holding fails on three (3) or more Dividend Reference Dates (whether
or not consecutive) to declare and pay in full in cash dividends, in the
amount of all accrued and unpaid dividends on the shares of Preferred Stock
outstanding as of each such Dividend Reference Date, on the then
outstanding shares of Preferred Stock (each, a "Dividend Voting Rights
Triggering Event") or (II) Holding fails to redeem all of the then
outstanding shares of Preferred Stock on May 31, 2009 or otherwise fails to
discharge any redemption obligation with respect to the Preferred Stock,
then the maximum authorized number of directors of Holding will be
increased by one (1) and holders of Preferred Stock shall be entitled to
vote their shares of Preferred Stock, together with the holders of any
Parity Securities upon which like voting rights have been conferred and are
exercisable, to elect, as a class, an additional one (1) director. Each
such event described in clauses (I) and (II) is herein referred to as a
"Voting Rights Triggering Event." So long as shares of Preferred Stock
shall be outstanding, the holders of Preferred Stock shall retain the right
to vote and elect, with the holders of any such Parity Securities, voting
together as a single class, such director until such time as (A) in the
event such right arises due to a Dividend Voting Rights Trigger Event, all
accumulated dividends that are in arrears on the Preferred Stock are paid
in full in cash or, with respect to any Dividend Reference Date occurring
on or before May 31, 2002, through the issuance of additional shares of
Preferred Stock; and (B) in all other cases, the failure, breach or default
giving rise to such Voting Rights Triggering Event is remedied or waived by
the holders of at least a majority of the shares of Preferred Stock then
outstanding and entitled to vote thereon. Such period is herein referred to
as a "Default Period." Immediately upon the expiration of a Default Period,
the right of the holders of Preferred Stock to elect one director shall
cease, the term of office of the director elected by the holders of
Preferred Stock and such Parity Securities as a class shall terminate, and
the number of directors shall be such number as may be provided for in the
Certificate of Incorporation, as amended, or By-Laws of Holding.
EXCHANGE NOTES
Exchange Provisions. Holding may, at its election, exchange all but not
less than all of the outstanding shares of Preferred Stock for 13% Subordinated
Notes due May 31, 2009 of Holding (the "Exchange Notes") having the general
terms described below. Upon the exchange of the Preferred Stock for the Exchange
Notes, each holder of Preferred Stock will be entitled to receive, per share of
Preferred Stock so exchanged, a principal amount of Exchange Notes equal to the
Liquidation Value of such share as of the date of such exchange. Upon such
exchange, dividends on the shares of Preferred Stock so exchanged shall cease to
accrue, such shares shall no longer be deemed to be outstanding, and all rights
of the holders thereof as stockholders of Holding with respect to shares so
exchanged (except the right to receive from Holding the Exchange Notes in the
aggregate original principal amount to which such holder is entitled upon such
exchange) shall cease.
General. The Exchange Notes will be issued only if and when Holding elects
to require the exchange of the Preferred Stock for the Exchange Notes. The
Exchange Notes will be subordinated unsecured obligations
78
<PAGE> 84
of Holding. The Exchange Notes will not be obligations of the Company and,
accordingly, the rights of the holders of the Exchange Notes will be effectively
subordinated to rights of the holders of the Senior Notes, except to the extent
that Holding may itself be a creditor with claims against the Company. The
maximum aggregate original principal amount of the Exchange Notes will be
limited to the aggregate original principal amount of the Exchange Notes
originally issued in exchange for shares of the Preferred Stock.
Interest. (a) The Exchange Notes will bear interest from their date of
issuance at the rate of 13% per annum, which will be due and payable on the last
day of each May and November after the Exchange Notes are issued. Interest on
the Exchange Notes will accrue from the most recent date on which interest has
been paid, or if no interest has been paid, from the original issuance of the
Exchange Notes. Interest is payable in cash, except that Holding may elect to
defer the payment of any interest payable on any interest payment date occurring
on or before May 31, 2002 and prior to the Catch-up Date (as hereinafter
defined). To the extent that any interest accrued on the Exchange Notes is not
paid in cash on any interest payment date, such deferred interest bears interest
at 13% per annum, compounded on each interest payment date thereafter until
paid.
(b) On the last business day occurring on or before the first interest
payment date following the fifth anniversary of the date on which the Exchange
Notes were originally issued in exchange for shares of Preferred Stock (the
"Catch-up-Date"), Holding is required to pay in cash, in respect of interest
accrued and unpaid under the Exchange Notes, in addition to any interest payment
otherwise due on such date, such additional amount as is necessary so that the
aggregate amount includible for federal income tax purposes in gross income with
respect to the Exchange Notes by the holders thereof for all periods ending on
or before such first interest payment date does not exceed the aggregate
cumulative amount of interest paid in cash under the Exchange Notes through such
first interest payment date by more than the product of the original principal
amount of the Exchange Notes multiplied by their yield to maturity.
(c) Each payment of interest due on an interest payment date occurring
after the Catch-up Date is required to be in an amount sufficient so that the
total amount of accrued and unpaid interest at the close of such interest
payment date shall in no event exceed the maximum amount which may be deferred
without causing a loss or deferral of Holding's deduction of original issue
discount on the Exchange Notes under applicable provisions of the Internal
Revenue Code of 1986, as amended.
Holding's operations are conducted through the Company. The rights of
Holding and its creditors, including the holders of Exchange Notes, to
participate in the assets of the Company upon any liquidation or reorganization
of the Company or otherwise will be subject to the prior claims of creditors of
the Company (including, among others, holders of the Senior Notes), except to
the extent that Holding may itself be a creditor with claims against the
Company. The ability of Holding to pay principal and cash interest payments on
the Exchange Notes will be dependent upon the payment to it of dividends,
interest or other charges by the Company. The Company's right to make such
payments is restricted by the New Credit Facility and the Indenture.
Redemption. Holding has the following redemption rights and obligations
with respect to the Exchange Notes:
(a) At any time within six months after a Change of Control or a
Qualified Public Offering, Holding may redeem all or any part of the
outstanding principal amount of the Exchange Notes, without premium, but
together with accrued and unpaid interest thereon.
(b) Within ten business days after a Change of Control, Holding shall,
unless Holding shall have theretofore given notice of the optional
redemption by Holding of all of the Exchange Notes, give written notice to
the holders of the Exchange Notes of the demand redemption rights described
in this paragraph. In addition, within ten business days after each
interest payment date occurring at least six months after such Change of
Control, Holding shall give written notice to the holders of the Exchange
Notes of such redemption rights. Upon receipt of any such notice, each
holder of Exchange Notes may require Holding to redeem, at a redemption
price equal to the outstanding principal amount of and accrued and unpaid
interest on such Exchange Notes, together with a premium thereon in an
amount equal to one percent (1%) of such principal amount and accrued and
unpaid interest to be redeemed, and all accrued and unpaid interest on such
principal amount, up to the lesser of (i) all of the Exchange Notes held by
79
<PAGE> 85
such holder and (ii) such aggregate amount of the Exchange Notes held of
record by such holder as shall equal the product of (A) the Cash Available
for Redemption multiplied by (B) a ratio, the numerator of which shall be
equal to the redemption price of all of the Exchange Notes in respect of
which such holder shall have exercised his demand redemption right and the
denominator of which shall be equal to the aggregate redemption price for
all of the Exchange Notes in respect of which the holders thereof shall
have exercised their demand redemption right. Holding will not be obligated
to pay the redemption price due in connection with the redemption of any
Exchange Notes as described in this paragraph (b) until ten business days
after the redemption of all of the Senior Notes required to be redeemed by
the Company in connection with such Change of Control. The right of a
holder of Exchange Notes to require Holding to redeem, out of Cash
Available for Redemption, any or all of such Exchange Notes following a
Change of Control or any interest payment date occurring at least six
months after such Change of Control will terminate to the extent that such
holder fails to exercise his demand redemption right in respect of such
Exchange Notes within the applicable exercise period following any date on
which Holding gives notice of such demand redemption rights.
Subordination and Standstill Provisions. The payment of the principal,
premium, if any, and interest on the Exchange Notes is subordinated in right of
payment to the prior payment in full of all Senior Debt (as defined below) of
Holding, whether outstanding on the date of issuance of the Exchange Notes or
thereafter created, incurred, assumed or guaranteed. Upon any distribution to
creditors of Holding in a liquidation, dissolution or winding up of Holding or
in a bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to Holding or its property, the holders of Senior Debt will be entitled
to receive payment in full before the Exchange Noteholders are entitled to
receive any payment. If any such distribution is made to the Exchange
Noteholders before all Senior Debt has been paid in full or provision has been
made for such payment, such distribution must be paid over to the holders of the
Senior Debt. No such subordination will prevent the occurrence of an Event of
Default (as defined below).
During the continuance of (i) any default in the payment of the principal,
premium, if any, or interest on Senior Debt in an aggregate principal amount of
at least $5.0 million, including principal or interest which has become due by
reason of acceleration, or (ii) any other default, in respect of which Holding
shall have been notified in writing by the holder of such Senior Debt or any
trustee therefor, with respect to Senior Debt in an aggregate principal amount
of at least $5.0 million permitting the holders thereof to accelerate the
maturity thereof, no payment may be made on the Exchange Notes, and payments may
thereafter be resumed only if both such default or any subsequent default shall
have been cured or waived or shall cease to exist; provided that, in the event
that a Senior Debt default (other than any such Senior Debt default of a nature
described in clause (i) of this paragraph) shall have occurred and be
continuing, the restrictions set forth in this paragraph shall, unless all of
the Senior Debt in respect of which such Senior Debt default shall have occurred
and be continuing shall have been declared due and payable under any
acceleration provision applicable thereto and such declaration shall not have
been waived, rescinded or annulled, cease to apply upon the earliest of (A) two
hundred seventy (270) days after the occurrence of such Senior Debt default or
(B) the date on which all Senior Debt defaults under such Senior Debt shall have
been cured or waived; provided, further, that the restrictions set forth in this
paragraph on payments with respect to the Exchange Notes in the event that a
Senior Debt default (other than any such Senior Debt default of a nature
described in clause (i) of this paragraph) may be invoked no more than one (1)
time in any three hundred sixty-five (365) day period, unless all of the Senior
Debt in respect of which such Senior Debt default shall have occurred and be
continuing shall have been declared due and payable under any acceleration
provision applicable thereto and such declaration shall not have been waived,
rescinded or annulled. If any such payment is made to the Exchange Noteholders
before all Senior Debt has been paid in full or provision has been made for such
payment, such payment must be paid over to the holders of the Senior Debt.
Holders of the Exchange Notes may not take any action to accelerate the
maturity of the indebtedness evidenced by the Exchange Notes unless all Senior
Debt shall have been paid in full or all Senior Debt shall theretofore have
become due and payable.
Holders of the Exchange Notes may not commence any action or proceeding
against Holding to recover all or any part of any indebtedness evidenced by the
Exchange Notes or bring or join with any creditor in
80
<PAGE> 86
bringing, unless the holders of the Senior Debt then outstanding shall join
therein, any proceeding against Holding under any bankruptcy, reorganization,
insolvency or similar law or statute unless and until all Senior Debt shall be
paid in full.
For purposes of the Exchange Notes, "Senior Debt" means
(a) All obligations and liabilities of Holding (other than
indebtedness represented by the Exchange Notes), direct or indirect, as to
principal, interest, premium or otherwise, initially incurred or issued to
institutional investors, whether outstanding on the date hereof or
hereafter created or incurred, and whether at any time assigned or
otherwise transferred to any other institutional investor or any other
person, including but not limited to (i) all obligations and liabilities in
respect of money borrowed or purchase money indebtedness by or of Holding,
(ii) all guarantees and endorsements (other than for collection or deposit
in the ordinary course of business) of any such obligations and liabilities
of others, such as but not limited to guarantees of any such obligation or
liability of a subsidiary of Holding, (iii) all obligations and liabilities
secured by any mortgage, lien, pledge, security interest or other
encumbrance in respect of property, whether incurred in connection with
money borrowed or the acquisition of property, (iv) all obligations and
liabilities in respect of any lease of property, and (v) reimbursement
obligations with respect to letters of credit and interest rate protection
agreements;
(b) All obligations and liabilities of Holding (other than
indebtedness represented by the Exchange Notes), direct or indirect, as to
principal, interest, premium or otherwise with respect to any obligation,
note, or debenture offered by Holding for sale to the public in an offer
structured so as to comply with applicable rules and regulations for a
public offering in the jurisdiction or jurisdictions in which such
obligation, note or debenture is offered, whether outstanding on the date
hereof or hereafter created or incurred, which are not expressly made pari
passu or subordinate to the Exchange Notes;
(c) All obligations and liabilities of Holding (other than
indebtedness represented by the Exchange Notes) to which the Exchange Notes
shall be expressly subordinated in writing by the holders of not less than
a majority in aggregate principal amount of the Exchange Notes then
outstanding;
(d) All other obligations and liabilities of Holding (other than
indebtedness represented by the Exchange Notes); and
(e) All renewals, extensions, modifications and refundings of any such
obligation or liability;
unless in the case of either (a), (b), (c), (d) or (e), the terms of the
agreement or instrument creating the obligation or liability provide that it is
not senior to the Exchange Notes; provided, however, that "Senior Debt" shall
not include any obligations or liabilities of Holding in respect of any
subordinated promissory note or notes delivered by Holding in accordance with
applicable provisions of the Stockholders Agreement dated as of December 23,
1996 among Holding and its stockholders named therein.
Events of Default and Remedies. Subject to the subordination and
standstill provisions described above under the heading "Subordination and
Standstill Provisions": (i) upon the occurrence and continuation of any Event of
Default (as defined below), then (a) in the case of any Event of Default
specified in clause (a) or (d)(i) of the definition of "Event of Default," each
holder of Exchange Note, and (b) in the case of any other Event of Default
specified in clause (b) or (c) of the definition of "Event of Default," the
holder or holders of record of at least twenty-five percent (25%) in aggregate
principal amount of the Exchange Notes then outstanding, may proceed to protect
and enforce his or their rights, as the case may be, by suit in equity, action
at law and/or other appropriate proceeding either for specific performance of
any covenant or condition, or in aid of the exercise of any power granted in the
Exchange Notes, and may by notice in writing to Holding declare all or any part
of the unpaid balance of the Exchange Notes held by him to be forthwith due and
payable, and the holder may proceed to enforce payment of such balance or part
thereof in such manner as he may elect; and (ii) Holding shall pay to the
holder, upon demand, the reasonable costs and expenses (including reasonable
attorneys fees and expenses) incurred by the holder in connection with the
enforcement of his rights and remedies arising upon the occurrence and
continuance of an Event of Default.
81
<PAGE> 87
Anything in the Exchange Notes to the contrary notwithstanding, if any one
or more Events of Default specified in clause (d) (ii) or (iii) of the
definition of "Event of Default" shall occur and be continuing, then the holder
or holders of record of at least twenty-five percent (25%) in aggregate
principal amount of the Exchange Notes then outstanding may proceed to protect
and enforce his or their rights by suit in equity for specific performance
and/or action at law for damages; provided that the remedy, judgment, damages or
other relief in equity or at law of any such holder or holders shall be limited
to the right to seek specific performance of the obligation of Holding to make
payments in respect of interest accrued on the Exchange Notes or damages, as the
case may be, to, and only to, the extent that Holding shall have had cash
available for interest payments at the relevant date, determined in accordance
with the Exchange Notes. Such remedy (i) shall be the sole and exclusive remedy
at law or in equity of any such holder or holders of Notes in respect of any one
or more Events of Default specified in clause (d) (ii) or (iii) of the
definition of "Event of Default" and (ii) shall be subject to the subordination
and standstill provisions described above under the heading "Subordination and
Standstill Provisions."
For purposes of the Exchange Notes, "Event of Default" means the occurrence
and continuance of any of the following events:
(a) Except as otherwise provided in clause (d) below, Holding shall
have failed, for a period of thirty days after written notice thereof, to
make any principal, interest, fee or other payment on any of the
indebtedness evidenced by the Exchange Notes (notwithstanding that such
payment shall have been suspended pursuant to the subordination provisions
hereof); or
(b) Except as otherwise provided in clause (d) below, Holding shall
have failed duly to observe or perform in any material respect any other
covenant, agreement or provision contained in the Exchange Notes other than
those referred to in subdivision (a) above, and such failure shall have
continued for a period of thirty days after written notice thereof; or
(c) Any customary bankruptcy-type event with respect to Holding shall
have occurred and be continuing.
(d) notwithstanding the foregoing clauses (a), (b) and (c),
(i) the failure of Holding to pay interest payable on any interest
payment date occurring after the earlier of (A) May 31, 2002 or (B) the
Catch-up Date shall constitute an Event of Default to, and only to, the
extent that Holding shall fail to pay such interest in an amount at
least equal to the amount of cash available for interest payments,
determined in accordance with the Exchange Notes, as determined by
Holding as of a date within ten business days prior to each such
interest payment date;
(ii) the failure of Holding to make the interest payment described
in paragraph (b) under the heading "-- Interest" shall not constitute an
Event of Default under the Exchange Notes to, and only to, the extent
that Holding shall fail to make such payment in an amount at least equal
to the amount of cash available for interest payments, determined in
accordance with the Exchange Notes, as determined by Holdings as of a
date within ten business days prior to the Catch-up Date; and
(iii) the failure of Holding to make any interest payment described
in paragraph (c) under the heading "-- Interest" shall constitute an
Event of Default under the Exchange Notes to, and only to, the extent
that Holding shall fail to make such payment in an amount at least equal
to the amount of cash available for interest payments, determined in
accordance with the Exchange Notes, as determined by Holding as of a
date within ten business days prior to the relevant interest payment
date.
82
<PAGE> 88
UNDERWRITING
Upon the terms and subject to the conditions of the Underwriting Agreement
(the "Underwriting Agreement") to be entered into between the Company and
NationsBanc Capital Markets, Inc. ("NCMI" or the "Underwriter"), the Underwriter
has agreed to purchase from the Company, and the Company has agreed to sell to
the Underwriter all of the Senior Notes offered hereby.
In the Underwriting Agreement, the Underwriter will agree, subject to
certain conditions, to purchase all of the Senior Notes, if any are purchased by
the Underwriter.
The Company has been advised by the Underwriter that it proposes to offer
the Senior Notes to the public initially at the price set forth on the cover
page of this Prospectus, to certain securities dealers (who may include the
Underwriter) at such price less a concession not in excess of % of the amount
per Senior Note and that the Underwriter and such dealers may reallow a discount
not in excess of % of the amount per Note to other dealers, including the
Underwriter. After the closing of the public offering, the public offering
price, the concession and the discount to other dealers may be changed by the
Underwriter.
In order to facilitate the offering of the Senior Notes, the Underwriter
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Senior Notes. Specifically the Underwriter may overallot in
connection with the offering, creating a short position in the Senior Notes for
its own account. In addition, to cover overallotments or to stabilize the price
of the Senior Notes, the Underwriter may bid for, and purchase, Senior Notes in
the open market. Any of these activities may stabilize or maintain the market
price of the Senor Notes above independent market levels. The Underwriter is not
required to engage in these activities, and may end any of these activities at
any time.
There is no currently existing trading market for the Senior Notes, and
although the Underwriter has advised the Company that it currently intends to
make a market in the Senior Notes, it is not obligated to do so and any such
market making may be discontinued at any time, without notice, in the sole
discretion of the Underwriter. Accordingly, there can be no assurance as to the
development or liquidity of any market that may develop for the Senior Notes.
The Underwriter has informed the Company that it does not expect to confirm
sales of Notes offered hereby to any accounts over which they exercise
discretionary authority.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"), or to contribute to payments the Underwriter may be
required to make in respect thereof.
In accordance with Rule 2720 of the Conduct Rules (the "Conduct Rules") of
the National Association of Securities Dealers, Inc. ("NASD"), no member of the
NASD participating in the Offering will execute a transaction in the Senior
Notes in an account over which it exercises discretion without the prior
specific written approval of the customer.
NationsBridge, L.L.C., an affiliate of NCMI, has provided a commitment to
provide the Company interim financing to finance the Acquisition and will
receive customary fees (and reimbursement of expenses) in connection therewith.
NationsBank is the agent and lender under the Margin Loan Facility and is a
lender under the New Credit Facility and will receive customary fees (and
reimbursement of expenses) in connection therewith.
The Offering is being made pursuant to the provisions of Rule 2710(c)(8) of
the Conduct Rules because a substantial portion of the proceeds from the
Offering will be applied to redeem the Margin Loan Facility, which is held by
NationsBank, an affiliate of the Underwriter. Under Rule 2710(c)(8) of the
Conduct Rules, if more than 10% of the net proceeds from the sale of securities,
not including underwriting compensation, is paid to any underwriter of such
securities or its affiliates, the minimum yield at which such securities are to
be distributed to the public must be established by a "qualified independent
underwriter," as defined in Rule 2720(b)(15) of the Conduct Rules, who must
participate in the preparation of the registration statement and the prospectus
and who must exercise the usual standards of due diligence with respect thereto.
In accordance with such requirements, Piper Jaffray Inc. has agreed to act as
the qualified independent underwriter in connection with the Offering, has
participated in the preparation of this Prospectus and the
83
<PAGE> 89
Registration Statement of which this Prospectus forms a part and has exercised
the usual standard of due diligence with respect thereto. For acting as
qualified independent underwriter, Piper Jaffray Inc. will receive aggregate
fees of $100,000 and will be reimbursed for certain other expenses, all of which
will be paid by the Company. The Company and a special committee of the Board of
Directors of the Company also retained Piper Jaffray Inc. to issue an opinion
with respect to the fairness from a financial point of view of the Merger
Consideration paid in the Merger to holders of common stock pursuant to the
Merger Agreement, for which Piper Jaffray Inc. will receive customary fees. In
addition, the Company has agreed to indemnify Piper Jaffray Inc. against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters related to the Senior Notes offered hereby are being
passed upon for the Company by Sullivan & Worcester LLP, Boston, Massachusetts.
Certain matters will be passed upon for the Underwriter by Latham & Watkins, New
York, New York.
EXPERTS
The consolidated financial statements of the Company for each of the three
years in the period ended November 2, 1996, appearing in this Prospectus and
Registration Statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included herein. Such financial
statements are included herein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Proxy statements, reports
and other information concerning the Company can be inspected and copied at the
Commission's office at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and the Commission's Regional Offices in New York (7
World Trade Center, Suite 1300, New York, New York 10048) and Chicago (CitiCorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661), and
copies of such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a World Wide Web site (located at
http://www.sec.gov) which contains reports, proxy and information statements and
other information regarding the Company and other registrants that file
electronically with the Commission. The Company's Common Stock is listed on the
National Association of Securities Dealers Automated Quotation ("NASDAQ")
National Market System. Consequently, reports, proxy statements and other
information concerning the Company may also be inspected at the offices of the
National Association of Securities Dealers, Inc. ("NASD") at 1735 K Street,
N.W., Washington, D.C. 20006. This Prospectus does not contain all the
information set forth in the Registration Statement and exhibits thereto which
the Company has filed with the Commission under the Securities Act, which
Registration Statement and exhibits thereto may be obtained from the Public
Reference Section of the Commission at its principal office at 450 Fifth Street,
N.W., Washington, D.C. 20549 upon payment of the prescribed fees, and to which
reference is hereby made.
84
<PAGE> 90
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP........................................................... F-2
Consolidated Balance Sheets as of October 29, 1994, October 28, 1995, November 2, 1996
and February 1, 1997 (unaudited).................................................... F-3
Consolidated Statements of Income for fiscal years ended October 29, 1994, October 28,
1995 and November 2, 1996 and for the thirteen weeks ended February 1, 1997 and
January 27, 1996 (unaudited)........................................................ F-4
Consolidated Statements of Changes in Stockholders' Equity for fiscal years ended
October 29, 1994, October 28, 1995 and November 2, 1996 and for the thirteen weeks
ended February 1, 1997 (unaudited).................................................. F-5
Consolidated Statements of Cash Flows for fiscal years ended October 29, 1994, October
28, 1995 and November 2, 1996 and for the thirteen weeks ended February 1, 1997 and
January 27, 1996 (unaudited)........................................................ F-6
Notes to Consolidated Financial Statements............................................ F-8
</TABLE>
F-1
<PAGE> 91
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Central Tractor Farm & Country, Inc.
We have audited the accompanying consolidated balance sheets of Central
Tractor Farm & Country, Inc. as of October 29, 1994, October 28, 1995 and
November 2, 1996, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Central Tractor
Farm & Country, Inc. at October 29, 1994, October 28, 1995 and November 2, 1996,
and the consolidated results of its operations and its cash flows for the years
then ended, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
---------------------
Des Moines, Iowa
December 6, 1996
F-2
<PAGE> 92
CENTRAL TRACTOR FARM & COUNTRY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 29, OCTOBER 28, NOVEMBER 2, FEBRUARY 1,
1994 1995 1996 1997
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 2,582 $ 3,094 $ 3,809 $ 2,583
Receivable from sale of common stock (Note 5).... 6,703 -- -- --
Trade receivables, less allowances of $168 in
1994, $72 in 1995, $50 in 1996 and $50 in
1997........................................... 1,469 883 992 752
Inventory........................................ 75,044 93,874 107,203 106,262
Deferred income taxes (Note 6)................... 172 -- -- --
Other............................................ 1,511 1,383 2,368 4,635
Net assets of discontinued operations (Note 9)... 8,113 13,520 -- --
--------- --------- --------- ---------
Total current assets............................... 95,594 112,754 114,372 114,232
Property, improvements and equipment:
Leasehold improvements........................... 7,740 9,988 12,803 13,469
Furniture and fixtures........................... 14,614 18,253 23,766 24,421
Capitalized property rights (Note 4)............. 2,508 2,508 2,859 2,859
Automobiles and trucks........................... 499 817 1,065 1,131
--------- --------- --------- ---------
25,361 31,566 40,493 41,880
Less allowances for depreciation and
amortization................................... 10,917 13,339 16,036 16,954
--------- --------- --------- ---------
14,444 18,227 24,457 24,926
Goodwill, net of amortization of $3,490 in 1994,
$4,014 in 1995, $4,592 in 1996 and $4,759 in
1997............................................. 17,454 16,930 19,018 19,592
Other intangible assets, net of amortization of
$2,406 in 1994, $2,527 in 1995, $2,759 in 1996
and $2,849 in 1997............................... 1,630 1,406 1,016 946
Other assets....................................... 775 660 375 426
Noncurrent assets of discontinued operations....... 9,519 -- -- --
--------- --------- --------- ---------
Total assets....................................... $ 139,416 $ 149,977 $ 159,238 $ 160,122
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit (Note 3)..................... $ 977 $ 6,789 $ 3,669 $ 19,900
Accounts payable................................. 37,557 39,150 41,081 33,225
Accrued payroll and bonuses...................... 4,438 2,553 3,631 1,829
Deferred income taxes (Note 6)................... -- -- 913 1,595
Accrued income taxes............................. 140 163 4 --
Other accrued expenses........................... 1,482 1,506 1,101 1,318
Current portion of long-term debt and capital
lease obligation............................... 558 97 170 1,770
--------- --------- --------- ---------
Total current liabilities.......................... 45,152 50,258 50,569 59,637
Long-term debt (due to related party), less current
portion (Notes 2 and 3).......................... 16,017 16,000 16,000 6,400
Capital lease obligations, less current portion
(Note 4)......................................... 942 862 1,341 1,298
Deferred income taxes (Note 6)..................... 1,570 1,580 1,265 1,331
--------- --------- --------- ---------
Total liabilities.................................. 63,681 68,700 69,175 68,666
Stockholders' equity (Notes 3 and 5):
Preferred stock, $.01 par value: authorized
shares -- 5,000,000; none issued or
outstanding.................................... -- -- -- --
Common stock, $.01 par value: authorized
shares -- 45,000,000; issued and outstanding
shares -- 10,576,676 in 1994, 10,576,676 in
1995, 10,589,082 in 1996, and 10,670,892 in
1997........................................... 106 106 106 106
Stock warrant outstanding........................ 665 665 665 665
Additional paid-in capital....................... 69,667 69,667 69,709 69,961
Retained earnings................................ 5,297 10,839 19,583 20,724
--------- --------- --------- ---------
Total stockholders' equity......................... 75,735 81,277 90,063 91,456
Commitments (Notes 4 and 7)........................ -- -- -- --
--------- --------- --------- ---------
Total liabilities and stockholders' equity......... $ 139,416 $ 149,977 $ 159,238 $ 160,122
========= ========= ========= =========
</TABLE>
See accompanying notes.
F-3
<PAGE> 93
CENTRAL TRACTOR FARM & COUNTRY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THIRTEEN WEEKS ENDED
-------------------------------------------- ----------------------------
OCTOBER 29, OCTOBER 28, NOVEMBER 2, JANUARY 27, FEBRUARY 1,
1994 1995 1996 1996 1997
----------- ----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................. $231,064 $251,703 $293,020 $69,967 $71,479
Cost of sales......................... 161,523 177,340 207,228 51,105 51,070
-------- -------- -------- ------- -------
Gross profit.......................... 69,541 74,363 85,792 18,862 20,409
Selling, general and administrative
expenses, including amounts with
related parties (Note 2)............ 54,548 58,294 68,197 16,061 17,614
Amortization of intangibles........... 841 862 938 221 257
-------- -------- -------- ------- -------
Operating income...................... 14,152 15,207 16,657 2,580 2,538
Interest expense, including amounts
with related parties (Note 2)....... 4,774 1,302 1,663 360 525
-------- -------- -------- ------- -------
Income from continuing operations
before income taxes and
extraordinary item.................. 9,378 13,905 14,994 2,220 2,013
Income taxes (Note 6)................. 4,197 5,720 6,250 940 872
-------- -------- -------- ------- -------
Income from continuing operations
before extraordinary item........... 5,181 8,185 8,744 1,280 1,141
Discontinued operations (Notes 6 and
9):
Income (loss) from discontinued
operations, net of income taxes
(benefit) of $(340) in 1994 and
$474 in 1995...................... (745) 812 -- -- --
Loss on sale of Herschel
Corporation, net of $665 income
tax benefit....................... -- (3,455) -- -- --
-------- -------- -------- ------- -------
Loss from discontinued operations..... (745) (2,643) -- -- --
-------- -------- -------- ------- -------
Income before extraordinary item...... 4,436 5,542 8,744 1,280 1,141
Extraordinary loss on early
extinguishment of debt, net of
income tax benefit of $2,073
(Note 5)............................ 3,110 -- -- -- --
-------- -------- -------- ------- -------
Net income............................ $ 1,326 $ 5,542 $ 8,744 $ 1,280 $ 1,141
======== ======== ======== ======= =======
Per share (Note 1):
Income from continuing operations
before extraordinary item......... $ 0.66 $ 0.74 $ 0.80 $ $.12 $ .10
Discontinued operations:
Income (loss) from operations..... (0.10) 0.07 --
Loss on sale...................... -- (0.31) -- -- --
-------- -------- -------- ------- -------
Loss from discontinued operations... (0.10) (0.24) -- -- --
Extraordinary loss.................. (0.40) -- -- -- --
Net income.......................... 0.17 0.50 0.80 .12 .10
Weighted average common and common
equivalent shares outstanding
(Note 1)............................ 7,791 11,019 10,986 10,969 10,975
</TABLE>
See accompanying notes.
F-4
<PAGE> 94
CENTRAL TRACTOR FARM & COUNTRY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
FISCAL YEARS ENDED OCTOBER 29, 1994,
OCTOBER 28, 1995 AND NOVEMBER 2, 1996, AND
THIRTEEN WEEKS ENDED FEBRUARY 1, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NOTE
STOCK ADDITIONAL RECEIVABLE TOTAL
COMMON WARRANT PAID-IN FROM RETAINED STOCKHOLDERS'
STOCK OUTSTANDING CAPITAL STOCKHOLDER EARNINGS EQUITY
------ ----------- ---------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stockholders' equity at October
30, 1993....................... $ 70 $ 665 $ 19,664 $(83) $ 3,971 $24,287
Repurchase of common stock..... -- -- (70) -- -- (70)
Reduction in notes from
stockholders................ -- -- -- 83 -- 83
Issuance of common stock in
connection with the
Company's initial public
offering, net of offering
expenses (Note 5)........... 36 -- 50,073 -- -- 50,109
Net income....................... -- -- -- -- 1,326 1,326
---- ---- ------- ---- ------- -------
Stockholders' equity at October
29, 1994....................... 106 665 69,667 -- 5,297 75,735
Net income..................... -- -- -- -- 5,542 5,542
---- ---- ------- ---- ------- -------
Stockholders' equity at October
28, 1995....................... 106 665 69,667 -- 10,839 81,277
Exercise of common stock
options..................... -- -- 42 -- -- 42
Net income..................... -- -- -- -- 8,744 8,744
---- ---- ------- ---- ------- -------
Stockholders' equity at November
2, 1996........................ 106 665 69,709 -- 19,583 90,063
Exercise of common stock
options..................... -- -- 252 -- -- 252
Net income..................... -- -- -- -- 1,141 1,141
---- ---- ------- ---- ------- -------
Stockholders' equity at February
1, 1997........................ $106 $ 665 $ 69,961 $ -- $20,724 $91,456
==== ==== ======= ==== ======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 95
CENTRAL TRACTOR FARM & COUNTRY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THIRTEEN WEEKS ENDED
--------------------------------------- ----------------------------
OCTOBER 29, OCTOBER 28, NOVEMBER 2, JANUARY 27, FEBRUARY 1,
1994 1995 1996 1996 1997
----------- ----------- ----------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations before
extraordinary item............................ $ 5,181 $ 8,185 $ 8,744 $ 1,280 $ 1,141
Adjustments to reconcile pretax income from
continuing operations to net cash provided by
(used in) continuing operations:
Depreciation and amortization of property,
improvements and equipment.................. 2,206 2,523 3,056 694 918
Amortization of intangibles and other deferred
assets...................................... 1,180 862 998 221 257
Loss on sale of assets........................ 143 24 20 -- --
Deferred interest............................. 109 -- -- -- --
Deferred income taxes......................... 367 800 1,100 652 748
Changes in operating assets and liabilities:
Trade receivables........................... (362) 586 83 (86) 240
Inventory................................... (23,345) (18,830) (4,549) (1,867) 941
Other current assets........................ (330) 128 (972) (601) (2,267)
Accounts payable............................ 11,371 1,593 (3,806) (4,587) (7,856)
Accrued expenses............................ (91) (1,838) 287 (401) (1,589)
-------- -------- -------- ------- -------
(3,571) (5,967) 4,961 (4,695) (7,467)
-------- -------- -------- ------- -------
Income (loss) from discontinued operations...... (745) (2,643) -- -- --
Adjustments to reconcile pretax income (loss)
from discontinued operations to net cash
provided by discontinued operations:
Loss on sale of Herschel Corporation.......... -- 4,120 -- -- --
Depreciation and amortization of property,
improvements and equipment.................. 559 559 -- -- --
Amortization of intangibles................... 561 561 -- -- --
Deferred interest............................. 336 -- -- -- --
Deferred income taxes......................... (38) (618) (367) (367) --
Changes in operating assets and liabilities... (1,321) (651) 13,520 13,520 --
-------- -------- -------- ------- -------
(648) 1,328 13,153 13,153 --
Extraordinary loss on early extinguishment of
debt.......................................... (3,110) -- -- -- --
-------- -------- -------- ------- -------
Net cash provided by (used in) operating
activities.................................... (7,329) (4,639) 18,114 8,458 (7,467)
INVESTING ACTIVITIES
Purchases of property, improvements and
equipment..................................... $ (5,207) $ (6,339) $ (8,789) $(1,252) $(1,387)
Acquisition of certain net assets of Big Bear
(Note 10)..................................... -- -- (5,650) -- --
Other........................................... (54) (74) 255 (176) (812)
Discontinued operations......................... (255) (400) -- -- --
-------- -------- -------- ------- -------
Net cash used in investing activities........... (5,516) (6,813) (14,184) (1,428) (2,199)
</TABLE>
F-6
<PAGE> 96
CENTRAL TRACTOR FARM & COUNTRY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THIRTEEN WEEKS ENDED
------------------------------------------- ----------------------------
OCTOBER 29, OCTOBER 28, NOVEMBER 2, JANUARY 27, FEBRUARY 1,
1994 1995 1996 1996 1997
----------- ----------- ----------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
FINANCING ACTIVITIES
Repurchase of common stock....... (70) -- -- -- --
Proceeds from sale of assets..... -- 7 -- -- --
Borrowings under line of
credit......................... 39,025 67,020 86,782 16,075 54,020
Repayments on line of credit..... (38,048) (61,208) (89,902) (22,864) (37,789)
Borrowings under bank term
loan........................... -- -- -- -- 8,000
Payments on long-term debt....... (37,757) (372) (17) -- (16,000)
Payments on capitalized lease
obligations.................... (244) (186) (120) (41) (43)
Proceeds from issuance of common
stock.......................... 43,406 6,703 42 -- 252
-------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities........... 6,312 11,964 (3,215) (6,830) 8,440
-------- -------- -------- -------- --------
Net increase (decrease) in cash
and cash equivalents........... (6,533) 512 715 200 (1,226)
Cash and cash equivalents at
beginning of period............ 9,115 2,582 3,094 3,094 3,809
-------- -------- -------- -------- --------
Cash and cash equivalents at end
of period...................... $ 2,582 $ 3,094 $ 3,809 $ 3,294 $ 2,583
======== ======== ======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the period for
interest....................... $ 7,925 $ 1,491 $ 1,991 $ 383 $ 364
Cash paid during the period for
income taxes................... 1,815 5,324 5,675 907 417
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING
ACTIVITIES
Receivable from sale of common
stock.......................... 6,703 -- -- -- --
</TABLE>
See accompanying notes.
F-7
<PAGE> 97
CENTRAL TRACTOR FARM & COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED OCTOBER 29, 1994,
OCTOBER 28, 1995 AND NOVEMBER 2, 1996 AND
THIRTEEN WEEKS ENDED FEBRUARY 1, 1997 (UNAUDITED) AND
JANUARY 27, 1996 (UNAUDITED)
1. SUMMARY OF ACCOUNTING POLICIES AND OTHER MATTERS
Business and Principles of Consolidation
Central Tractor Farm & Country, Inc. and subsidiaries (the Company) is an
agricultural specialty retailer which operates retail stores primarily located
in the Midwest and Northeastern United States. The Company also sells
merchandise on a wholesale basis under various distributor agreements throughout
the United States. With the sale of the net operating assets of Herschel
Corporation, a wholly-owned subsidiary of the Company, continuing operations
constitute one business segment for financial reporting purposes.
The Company operates on a 52-53 week fiscal year ending on the Saturday
nearest to October 31. References to fiscal 1997 are for the thirteen weeks
ended February 1, 1997.
All significant intercompany transactions have been eliminated from the
consolidated financial statements.
Interim Financial Information
The consolidated financial statements as of February 1, 1997 and for the
thirteen weeks ended January 27, 1996 and February 1, 1997 and related
disclosures in these notes have not been audited. The interim financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the thirteen weeks ended February 1, 1997 are not
necessarily indicative of the results that may be expected for the year ending
November 1, 1997.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less when purchased
to be cash equivalents. Investments, including repurchase agreements and
commercial paper, are carried at cost, which approximates market.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Trade Receivables
Most of the Company's retail sales are cash or credit card sales, while
wholesale sales are generally on account. Concentrations of credit risk with
respect to trade receivables are limited due to the number of customers of the
Company and their geographic dispersion. The allowance for doubtful accounts is
based on a current analysis of receivable delinquencies and historical loss
experience.
F-8
<PAGE> 98
CENTRAL TRACTOR FARM & COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Inventory
Inventory is recorded at cost, including warehousing and freight costs,
determined principally by the last-in, first-out (LIFO) method, which is not in
excess of market. The Company reviews its inventory for slow-moving, obsolete or
otherwise unsalable items on a regular basis throughout the year, including at
the time of physical inventory counts. Write-downs are made for any estimated
losses to be incurred, which have not been material, with respect to
slow-moving, obsolete or otherwise unsalable inventory as such inventory is
identified. Inventories valued using the LIFO method were approximately
$3,926,000, $4,851,000, $5,081,000 and $5,277,000 at October 29, 1994, October
28, 1995, November 2, 1996 and February 1, 1997, respectively, less than the
amounts of such inventories valued at current cost.
Property, Improvements and Equipment
Property, improvements and equipment are carried at cost less allowances
for depreciation and amortization. Depreciation and amortization expense is
computed primarily on a basis of the straight-line method over the estimated
useful lives of the assets as follows:
<TABLE>
<S> <C>
Leasehold improvements (not in excess of underlying lease
terms)..................................................... 5 to 20 years
Furniture and fixtures....................................... 5 to 15 years
Automobiles and trucks....................................... 3 to 10 years
</TABLE>
Certain long-term lease transactions have been accounted for as capital
leases. The property rights recorded under direct financing leases are amortized
on a straight-line basis over the lesser of the useful life or the respective
terms of the leases.
Goodwill and Other Intangible Assets
Goodwill is being amortized utilizing the straight-line method principally
over periods of 40 years. Other intangible assets are being amortized over
periods of expected benefit, ranging from 5 to 24 years. The carrying value of
goodwill and other intangibles is reviewed continually to determine whether any
impairment has occurred. This review takes into consideration the recoverability
of the unamortized amounts based on a comparison of the estimated undiscounted
future cash flows of the related business lines to the respective carrying value
of the related assets, including goodwill and other intangibles. To the extent
that the estimated undiscounted future cash flows are less than the carrying
value of the assets, an impairment loss can be measured based upon various
methods, including undiscounted cash flows, discounted cash flows and fair
value. Based upon undiscounted cash flows, no impairment of goodwill or other
intangibles was determined to exist and, accordingly, no measurement was
required.
Deferred Income Taxes
The Company uses the liability method of accounting for income taxes. Under
this method, deferred income tax assets and liabilities are determined based on
the difference between financial reporting and income tax bases of assets and
liabilities using the enacted marginal tax rates. Deferred income tax expenses
or credits are based on the changes in the asset or liability from period to
period.
Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value of financial instruments:
Cash equivalents, short-term investments, accounts receivable and
payable, and bank line of credit: Carrying amounts reported in the
Company's consolidated balance sheets based on historical cost approximate
estimated fair value for these instruments, due to their short-term nature.
F-9
<PAGE> 99
CENTRAL TRACTOR FARM & COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The fair value of the convertible long-term debt and bank term loan is
estimated to approximate their carrying value as of the respective
balance-sheet date and was based on the estimated market price for each
security as of that date.
Returns and Warranties
Costs relating to merchandise returns from sales at retail stores and
through distributors are not significant and are accounted for as they occur.
Catalogs, Sale Flyers and Advertising Costs
The direct cost of printing and mailing the Company's annual mail order
catalog is deferred and amortized against mail order revenues over the year the
catalog is in use. The direct cost of printing and distributing sale flyers is
deferred and amortized over the life of the flyer which is generally two weeks
or less. Other advertising costs are expensed as incurred. Unamortized amounts
relating to the costs of the annual catalog and periodic sale flyers is
immaterial at each fiscal year-end and amounted to $945,000 at February 1, 1997.
Advertising expenses were approximately $6,184,000, $7,228,000, $8,841,000 and
$2,671,000 and $2,022,000 for fiscal 1994, 1995 and 1996, and for the thirteen
weeks ended January 27, 1996 and February 1, 1997, respectively.
Store Pre-Opening Costs
Direct costs, which consist principally of rent, employee compensation and
travel costs for merchandise set-up and supplies, incurred in setting up new
stores for opening are deferred and amortized over the first twenty-six weeks of
store operations. The amount of unamortized store pre-opening costs at October
29, 1994, October 28, 1995, November 2, 1996, and February 1, 1997 amounted to
$502,000, $431,000, $1,123,000 and $1,385,000, respectively.
Earnings Per Share
Per share earnings is based on the weighted average number of shares of
common stock and common stock equivalents outstanding and assuming all stock
options issued prior to the Company's initial public offering and the stock
warrant were outstanding at the beginning of each respective year. The dilutive
effect of outstanding stock options and the stock warrant were determined based
upon the Treasury Stock Method. Fully diluted earnings per share did not vary
significantly from earnings per share as presented.
Emerging Accounting Issues
The Company is not aware of any accounting standards which have been issued
and which will require the Company to change its current accounting policies or
adopt new policies, the effect of which would be material to the Company's
financial statements.
2. TRANSACTIONS WITH RELATED PARTIES
Certain investment funds (collectively referred to as "BCC Funds") managed
by Butler Capital Corporation ("BCC") owned a majority of the outstanding common
stock of the Company which was sold on December 23, 1996 (see Note 12). The BCC
Funds held the senior and subordinated notes extinguished in October 1994, and
the 7% convertible notes (see Note 3). Interest paid on such notes in fiscal
1994, 1995, 1996 and 1997 was approximately $6,960,000, $883,000, $1,425,000 and
$165,000, respectively.
A company affiliated with the BCC Funds was paid a management and
consulting fee of approximately $238,000 in fiscal 1994.
F-10
<PAGE> 100
CENTRAL TRACTOR FARM & COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The Company purchases inventory from two suppliers who are controlled by
the BCC Funds. Purchases from these suppliers aggregated approximately
$3,882,000, $6,254,000, $6,228,000 and $1,982,000 for fiscal years 1994, 1995,
1996 and 1997, respectively.
3. LINE OF CREDIT AND LONG-TERM DEBT
On January 28, 1994, the Company entered into a line of credit agreement
with a commercial bank through February 1, 1998. At November 2, 1996, borrowings
of $3,669,000 and letters of credit totaling approximately $1,515,000 were
outstanding against the line of credit. Available borrowings under the line of
credit were $25,000,000 each year from November 1 through May 31 and $12,000,000
from June 1 through October 31. Interest on the outstanding borrowing varied,
but was primarily payable monthly at an annual rate equal to the bank's prime
rate. The interest rate on October 29, 1994, October 28, 1995 and November 2,
1996 was 8.25%, 8.75%, and 8.25%, respectively. In addition, the Company was
required to pay commitment fees ranging from 0.375% down to 0.125% on the total
credit line, less outstanding borrowing. During the period from April 15 through
December 31 in each year, the Company must have borrowing less than $5,000,000
outstanding under this line of credit for a consecutive period of 45 days. The
line of credit contained, among other provisions, requirements that the Company
maintain a minimum current ratio, leverage ratio and fixed charge coverage
ratio, and restricted the payment of cash dividends.
On December 23, 1996, the Company entered into a credit facility with a
bank (the New Credit Facility) which consists of an $8.0 million, five-year term
loan facility, which was fully funded, and a $30.0 million revolving credit
facility under which $19.9 million was drawn as of February 1, 1997. The amounts
funded and drawn under the New Credit Facility were used, in part, to repay
outstanding borrowings under the Company's prior line of credit agreement and to
prepay (without payment of any prepayment premium) all of the Company's 7%
convertible notes outstanding in the amount of $16.0 million.
The New Credit Facility will mature on December 31, 2001. Borrowings under
the New Credit Facility will bear interest at rates based upon prime or the
Eurodollar rate plus a margin. At February 1, 1997, the interest rate on the New
Term Loan was 7.89% and the interest rate on the New Revolving Credit Facility
was 8.20%. In addition, the Company is required to pay a commitment fee equal to
0.5% of the revolving credit facility, less outstanding borrowings.
The term loan must be repaid in ten installments of $0.8 million beginning
June 30, 1997, plus annual prepayments based on the Company's excess cash flow,
as defined.
The New Credit Facility agreement contains covenants which require the
Company to maintain a minimum: consolidated net worth; earnings before taxes,
interest, depreciation and amortization (EBITDA); ratio of EBITDA to cash
interest payable; and ratio of debt to EBITDA. The covenants also restrict,
among other things, the payment of dividends, incurrence of debt, and
disposition of assets.
The New Credit Facility is secured by substantially all of the assets of
the Company.
At February 1, 1997, substantially all retained earnings were restricted
from payment of cash dividends under the Company's New Credit Facility.
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
FEBRUARY
OCTOBER 29, OCTOBER 28, NOVEMBER 2, 1,
1994 1995 1996 1997
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
7% convertible notes......... $16,000,000 $16,000,000 $16,000,000 $ --
Bank term loan............... -- -- -- 8,000,000
Other........................ 388,989 17,044 -- --
----------- ----------- ----------- ----------
16,388,989 16,017,044 16,000,000 8,000,000
Less current portion......... 371,944 17,044 -- 1,600,000
----------- ----------- ----------- ----------
$16,017,045 $16,000,000 $16,000,000 $6,400,000
=========== =========== =========== ==========
</TABLE>
F-11
<PAGE> 101
CENTRAL TRACTOR FARM & COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Interest on the convertible notes was payable quarterly at 7.0% per annum
and the entire principal amount was due October 31, 2002. The note could be
prepaid after October 14, 1999, at a premium of 2.0%, which declined by 1.0%
annually on each October 14 thereafter. The holders of the convertible notes had
the right, at any time prior to the close of business on October 31, 2002, to
convert the principal amounts into shares of common stock at a conversion price
of $19.375 per share. The conversion price of the convertible notes was subject
to adjustment in certain events, including a common stock split, the issuance of
securities convertible or exchangeable into common stock at less than the then
fair market value of the common stock and certain mergers, consolidations or
sales of stock. The convertible notes were subordinated to the principal amounts
outstanding pursuant to the line of credit.
As of February 1, 1997, maturities of long-term debt are as follows: 1997 -
$1600; 1998 - $800; 1999 - $1,600; 2000 - $1,600; 2001 - $1,600; and 2002 -
$800.
4. LEASE OBLIGATIONS
The Company has entered into certain long-term lease agreements for the use
of warehouses, certain retail store facilities and computer equipment. These
leases have been accounted for as purchases of property rights and designated as
capitalized leases.
Amortization expense relating to such property rights recorded under
capitalized leases was $213,000, $130,000, $125,000, and $36,000 for fiscal
1994, 1995, 1996 and 1997, respectively. The net book value of property rights
recorded under capital leases was $829,000, $699,000, $926,000, and $889,000 at
October 29, 1994, October 28, 1995, November 2, 1996 and February 1, 1997,
respectively.
As of November 2, 1996, the debt associated with the capitalized property
rights is represented by the present value of the minimum lease payments as
follows:
<TABLE>
<S> <C>
Fiscal year ended in:
1997............................................................. $ 347,108
1998............................................................. 324,648
1999............................................................. 292,968
2000............................................................. 292,968
2001............................................................. 292,968
After 2001....................................................... 735,000
----------
Total minimum lease payments..................................... 2,285,660
Less amount representing interest................................ 774,663
----------
Present value of minimum lease payments.......................... 1,510,997
Less current installments........................................ 170,072
----------
$1,340,925
==========
</TABLE>
The Company also has entered into certain noncancelable operating leases
for the use of real estate, automobiles and trucks, and office equipment.
Aggregate rental expense for operating leases for fiscal 1994, 1995, 1996 and
1997 was approximately $6,724,000, $7,833,000, $9,294,000 and $2,607,000,
respectively.
F-12
<PAGE> 102
CENTRAL TRACTOR FARM & COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The following is a summary of minimum rental commitments as of November 2,
1996, for operating leases:
<TABLE>
<CAPTION>
AUTOMOBILE OFFICE
FISCAL YEAR-END REAL ESTATE AND TRUCKS EQUIPMENT TOTAL
------------------------ ----------- ---------- --------- -----------
<S> <C> <C> <C> <C>
1997.................... $ 9,479,335 $ 12,293 $ 52,328 $ 9,543,956
1998.................... 8,320,110 8,195 52,328 8,380,633
1999.................... 6,822,291 -- 46,280 6,868,571
2000.................... 5,288,555 -- 16,544 5,305,099
2001.................... 2,927,707 -- 1,972 2,929,679
After 2001.............. 6,315,729 -- -- 6,315,729
----------- -------- --------- -----------
$39,153,727 $ 20,488 $ 169,452 $39,343,667
=========== ======== ========= ===========
</TABLE>
5. CAPITAL STOCK AND STOCK OPTIONS
Capital Stock
During October 1994, the Company completed an initial public offering for
the sale of 3,565,000 shares of its common stock. The net proceeds from the
offering were used to prepay both principal and prepayment premium on the
outstanding Senior Notes and a portion of the outstanding Subordinated Notes.
Prepayment premiums on the early extinguishment of these notes resulted in an
extraordinary loss of $3,110,000, net of income tax benefit. The remaining
Subordinated Notes in the amount of $16,000,000 were exchanged for notes which
were convertible into the Company's common stock (see Notes 3 and 12). At
October 29, 1994, $6,703,000 of the net proceeds representing the Underwriter's
exercise of their over-allotment option was receivable. This amount was received
on November 2, 1994.
The Board of Directors is authorized to issue up to an aggregate of
5,000,000 shares of preferred stock, $0.01 par value per share, in one or more
series, each series to have voting preferences or other rights as determined by
the Board of Directors.
Under the Company's stockholders' agreement, common stock acquired by a
management stockholder is subject to certain restrictions on the sale or
transfer of such shares.
Stock Options
The Company has stock option arrangements with various officers, directors
and other members of management which it accounts for under the provisions of
APB Opinion No. 25 and related interpretations. The option prices approximated
fair market value at the date of grant. The options generally vested over
periods of three to seven years and must be exercised no later than ten years
from the date of grant. As a result of a change in control (see Note 12), all
outstanding options vested and became exercisable on December 23, 1996. Shares
of common stock issuable upon exercise of stock options are subject to
restrictions on transfer.
F-13
<PAGE> 103
CENTRAL TRACTOR FARM & COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
A summary of common stock option activity through February 1, 1997 is as
follows:
<TABLE>
<CAPTION>
THIRTEEN
FISCAL YEAR WEEKS ENDED
-------------------------------------------- FEBRUARY 1,
1994 1995 1996 1997
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Outstanding at beginning of
year........................ 468,923 637,774 623,960 662,683
Options granted............... 323,464 66,800 81,900 --
Options exercised............. -- -- (12,406) (81,810)
Options canceled.............. (154,613) (80,614) (30,771) --
--------- -------- -------- --------
Outstanding at end of year.... 637,774 623,960 662,683 580,873
========= ======== ======== ========
Range of option prices per
share:
Outstanding................. $3.08-$15.50 $ 3.08-$15.50 $ 3.08-$15.50 $3.08-$15.50
Granted during year......... $3.41-$15.50 $11.50-$15.50 $11.38-$14.50
</TABLE>
As of February 1, 1997, the Company has reserved 832,215 shares of common
stock for issuance under stock option arrangements described above. In addition,
the Company has reserved 230,523 shares of common stock for issuance under the
stock warrant.
Compensation expense charged to operating income relating to stock option
grants amounts to $111,000 for fiscal 1994, $1,000 for fiscal 1995, $0 for
fiscal 1996, and $0 for fiscal 1997.
Under FASB No. 123, certain pro forma information is required as if the
Company had accounted for the options granted during fiscal 1996 under the
alternative fair value method of Statement 123. The fair value for the options
was estimated at the date of grant using the Black-Scholes option valuation
model with the following assumptions:
<TABLE>
<S> <C>
Risk-free interest rate................................................... 5.0%
Expected dividend yield................................................... none
Expected volatility....................................................... 0.36
Expected life of option................................................... 7 years
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded stock options, and because changes
in the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options
For purposes of pro forma disclosures, the estimated fair value of the
options granted in fiscal 1996 is amortized to expense, net of related pro forma
income tax benefits, over the options' vesting periods. Since all of the options
vested as of December 23, 1996, the remaining unamortized fair value, net of
income tax benefit, at that date was included in pro forma net income for the
thirteen weeks ended February 1, 1997. The Company's pro forma information
follows (in thousands except for net income per share information):
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
FISCAL 1996 FEBRUARY 1, 1997
------------ ---------------------
<S> <C> <C>
Pro forma net income............................... $8,715 $ 862
Pro forma net income per share..................... .79 .08
</TABLE>
F-14
<PAGE> 104
CENTRAL TRACTOR FARM & COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences
between the amount of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
OCTOBER OCTOBER
29, 28, NOVEMBER 2, FEBRUARY 1,
1994 1995 1996 1997
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Deferred tax liabilities:
Differences in depreciation on
property, improvements and
equipment....................... $1,789,000 $1,890,000 $ 1,766,000 $1,823,000
LIFO and uniform capitalization
differences on inventories...... 787,000 1,391,000 1,160,000 1,351,000
Prepaid advertising................ 211,000 174,000 244,000 395,000
Deferred leasing costs............. 185,000 82,000 -- --
Store pre-opening costs............ 208,000 172,000 449,000 563,000
Other.............................. 10,000 10,000 9,000 --
---------- ---------- ---------- ----------
Total deferred tax liabilities....... 3,190,000 3,719,000 3,628,000 4,132,000
---------- ---------- ---------- ----------
Deferred tax assets:
Loss on sale of discontinued
operations:
Ordinary loss................... $ -- $ 665,000 $ -- $ --
Capital loss carryforward....... -- 755,000 755,000 755,000
Allowance for doubtful accounts.... 101,000 45,000 20,000 20,000
Compensation and employee benefit
accruals........................ 174,000 148,000 58,000 58,000
Operating leases................... 330,000 261,000 273,000 269,000
Accrued profit sharing
contributions................... 323,000 321,000 356,000 139,000
Stock warrant...................... 279,000 266,000 266,000 266,000
Accrued store closing costs........ 168,000 86,000 32,000 28,000
Capitalized property rights and
lease obligations treated as
operating leases for income tax
purposes........................ 126,000 97,000 234,000 236,000
Other.............................. 291,000 250,000 211,000 190,000
---------- ---------- ---------- ----------
1,792,000 2,894,000 2,205,000 1,961,000
Less valuation allowance for
capital loss
carryforward.................... -- (755,000) (755,000) (755,000)
---------- ---------- ---------- ----------
Total deferred tax assets............ 1,792,000 2,139,000 1,450,000 1,206,000
---------- ---------- ---------- ----------
Net deferred tax liabilities
$1,398,000 $1,580,000 $ 2,178,000 $2,926,000
========== ========== ========== ==========
</TABLE>
The capital loss carryforward relating to the sale of Herschel will expire
in the year 2001.
F-15
<PAGE> 105
CENTRAL TRACTOR FARM & COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THIRTEEN WEEKS ENDED
------------------------------------------ --------------------------
OCTOBER 29, OCTOBER 28, NOVEMBER 2, JANUARY 27, FEBRUARY 1,
1994 1995 1996 1996 1997
----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Continuing operations:
Current:
Federal....................... $ 3,121,000 $ 3,768,000 $3,951,000 $ 212,000 $ 97,000
State......................... 709,000 1,152,000 1,199,000 76,000 27,000
----------- ----------- ----------- --------- ---------
3,830,000 4,920,000 5,150,000 288,000 124,000
Deferred......................... 367,000 800,000 1,100,000 652,000 748,000
----------- ----------- ----------- --------- ---------
4,197,000 5,720,000 6,250,000 940,000 872,000
Discontinued operations:
Current.......................... (302,000) 427,000 367,000 367,000 --
----------- ----------- ----------- --------- ---------
Deferred......................... (38,000) (618,000) (367,000) (367,000) --
----------- ----------- ----------- --------- ---------
(340,000) (191,000) -- -- --
----------- ----------- ----------- --------- ---------
Extraordinary loss -- currently
deductible....................... (2,073,000) -- -- -- --
----------- ----------- ----------- --------- ---------
Total.............................. $ 1,784,000 $ 5,529,000 $6,250,000 $ 940,000 $ 872,000
=========== =========== =========== ========= =========
</TABLE>
Total reported income tax expense differs from the tax that would have
resulted by applying the statutory expected federal income tax rate to income
before taxes. The reasons for these differences are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THIRTEEN WEEKS ENDED
----------------------------------------- --------------------------
OCTOBER 29, OCTOBER 28, NOVEMBER 2, JANUARY 27, FEBRUARY 1,
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Income tax at federal statutory
rate.............................. $ 1,057,000 $ 3,764,000 $ 5,098,000 $ 755,000 $ 684,000
Increases in taxes resulting from:
State income taxes, net of federal
income tax effect.............. 403,000 897,000 833,000 135,000 120,000
Goodwill amortization............. 215,000 215,000 178,000 45,000 45,000
Capital loss carryforward......... -- 755,000 -- -- --
Other, net........................ 109,000 102,000 141,000 5,000 23,000
Reduction of prior year
overaccruals................... -- (204,000) -- -- --
----------- ----------- ----------- -------- --------
$ 1,784,000 $ 5,529,000 $ 6,250,000 $ 940,000 $ 872,000
=========== =========== =========== ======== ========
</TABLE>
7. EMPLOYMENT COMMITMENTS
The Company has employment agreements with three officers of the Company
which provide for annual salaries amounting to approximately $775,000. Upon
termination of employment for death, disability or without cause, compensation
may be continued for a period not to exceed two years.
8. PROFIT SHARING PLAN
The Company has a profit sharing plan covering all employees who meet
certain eligibility requirements. The plan provides for discretionary employer
contributions and allows voluntary participant contributions. Company
contributions are determined by its Board of Directors. The Company incurred
expense in
F-16
<PAGE> 106
CENTRAL TRACTOR FARM & COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
connection with the profit sharing plan of $770,000, $804,000 and $881,000 and
$125,000 for fiscal 1994, 1995 and 1996, and 1997 respectively.
9. DISCONTINUED OPERATIONS
During fiscal 1996, the Company completed the sale of its wholly owned
subsidiary, Herschel Corporation ("Herschel"), a manufacturer and wholesale
distributor of equipment parts for use in the farming industry. Herschel has
been reported as a discontinued segment of the business; accordingly, its net
assets and operating results have been segregated in the consolidated financial
statements. The net assets of Herschel Corporation have been classified as
current at October 28, 1995 as the carrying amount approximates the selling
price, plus advances to be repaid, less expenses of sale, and were realized upon
closing in December 1995.
Summarized financial information of the Company's income (loss) from
discontinued operations follow:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------
OCTOBER 29, OCTOBER 28,
1994 1995
----------- -----------
<S> <C> <C>
Net sales................................................. $23,312,046 $22,969,504
Income (loss) before income taxes......................... (1,085,217) 1,286,242
Income taxes (credit)..................................... (340,000) 474,127
Income (loss) from discontinued operations................ (745,217) 812,115
</TABLE>
10. ACQUISITION
On May 31, 1996, the Company acquired 31 retail stores and related net
operating assets from Big Bear Farm Stores, Inc. ("Big Bear"), an agricultural
specialty retailer, for approximately $5,650,000. The transaction was accounted
for as a purchase. The purchase price was allocated based on fair value as
follows:
<TABLE>
<S> <C>
Inventories..................................................... $ 8,780,000
Accounts receivable and other assets............................ 206,000
Leaseholds and equipment........................................ 517,000
Deferred income taxes........................................... 135,000
Goodwill........................................................ 2,666,000
Accounts payable and accrued expenses........................... (6,654,000)
-----------
$ 5,650,000
===========
</TABLE>
The results of operations of Big Bear from the date of purchase to the end
of fiscal year 1996 are included in the accompanying consolidated statement of
income.
Pro forma amounts, based on the assumption that the purchase occurred at
the beginning of fiscal 1995, are as follows (in thousands, except per share
data):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THIRTEEN WEEKS ENDED
--------------------------------- --------------------
OCTOBER 28, NOVEMBER 2, JANUARY 27,
1995 1996 1996
----------- ----------------- --------------------
<S> <C> <C> <C>
Net sales.................................... $ 275,685 $ 307,847 $ 77,050
Net income................................... 6,018 9,104 1,518
Net income per share......................... .55 .83 .14
</TABLE>
F-17
<PAGE> 107
CENTRAL TRACTOR FARM & COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the unaudited quarterly results of
operations for the years ended October 28, 1995 and November 2, 1996 (in
thousands, except per share data):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Fiscal year ended October 28, 1995:
Net sales................................. $61,836 $59,347 $74,362 $56,158
Gross profit.............................. 17,362 18,214 22,557 16,230
Income from continuing operations......... 1,473 2,121 4,249 342
Income (loss) from discontinued
operations............................. (1) 467 187 (3,296)
Net income (loss)......................... 1,472 2,588 4,436 (2,954)
Per share:
Income from continuing operations...... 0.13 0.19 0.39 0.03
Income (loss) from discontinued
operations........................... -- 0.04 0.02 (0.30)
Net income (loss)...................... 0.13 0.23 0.40 (0.27)
Fiscal year ended November 2, 1996:
Net sales................................. 69,967 62,989 86,169 73,895
Gross profit.............................. 18,862 19,245 25,417 22,268
Net income................................ 1,280 1,684 3,937 1,843
Net income per share...................... 0.12 0.15 0.36 0.17
</TABLE>
The sum of quarterly per share amounts do not necessarily equal the annual
amount reported, as per share amounts are computed separately for each quarter
and the full year based on respective weighted average of common and common
equivalent shares outstanding.
12. SUBSEQUENT EVENTS
On November 27, 1996, the Board of Directors of the Company approved, and
the Company entered into, a merger agreement (the "Merger Agreement") with J.W.
Childs Equity Partners, L.P. and two of its affiliates (collectively, "Childs")
that provides for the acquisition of the Company by Childs in a two-stage
transaction. The Merger Agreement provides that following the acquisition by
Childs of all of the Company shares held by affiliates of Butler Capital
Corporation (collectively, "BCC"), an affiliate of Childs will merge with and
into the Company, and Childs will acquire the remaining shares of the Company
held by public stockholders for $14.25 per share in cash. The consummation of
the merger is subject to the satisfaction of certain conditions including, among
other things, the availability of sufficient funds to consummate the merger
pursuant to commitments obtained by Childs from its prospective lenders.
Pursuant to an agreement executed contemporaneously with the Merger
Agreement between Childs and affiliates of BCC, the BCC affiliates have sold
6,831,729 shares of the Company's common stock to Childs for a cash
consideration of $14.00 per share. Certain members of management also sold
146,299 shares to Childs for a cash consideration of $14.00 per share. The
agreement also provided that immediately following the conclusion of the stock
sale, the Company would prepay (without payment of any prepayment premium) all
of the Company's 7% convertible notes held by BCC affiliates with a face amount
of $16,000,000.
As of February 1, 1997, Childs owns 65.4% of the Company's outstanding
common stock. While the Merger Agreement is subject to stockholder approval,
Childs owns a sufficient number of shares of Company common stock to adopt and
approve the Merger.
The Company has filed a registration statement under the Securities Act of
1933 to offer for sale $100 million of senior notes. The proceeds of the
offering will be principally used to repay $36 million of debt incurred by
Childs in purchasing the 65.4% ownership described above, and to pay $52 million
of merger consideration to acquire the remaining shares and stock options held
by public stockholders and certain
F-18
<PAGE> 108
CENTRAL TRACTOR FARM & COUNTRY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
members of management. The remaining proceeds will principally be used to pay
fees and expenses including discounts and commissions in connection with the
note offering.
Pro forma condensed consolidated financial data presented below is based on
the historical financial statements of the Company included herein, adjusted to
give effect to: (i) the acquisition of 31 stores and certain net operating
assets from Big Bear by the Company; (ii) the Acquisition of the Company by
Childs and the Note offering described above; and (iii) the New Credit Facility
and debt repayment described in Note 3, as though these transactions had
occurred on October 29, 1996.
Pro forma adjustment to the historical financial statements are based upon
available data and certain assumptions that the Company believes are reasonable.
The pro forma condensed consolidated financial data is not necessarily
indicative of the Company's financial position or results of operations that
might have occurred had the aforementioned transactions been completed as of the
date indicated above and do not purport to represent what the Company's
consolidated financial position or results of operations might be for any future
period or date.
The Acquisition will be accounted for using the purchase method of
accounting. The total purchase price will be allocated to the tangible and
intangible assets and the liabilities of the Company based upon their respective
fair values. The allocation of the aggregate purchase price included in the pro
forma condensed consolidated financial data is preliminary. However, the Company
does not expect that the final allocation of the purchase price will materially
alter the following pro forma financial position and results of operations.
<TABLE>
<CAPTION>
PRO FORMA FINANCIAL
POSITION AS OF
FEBRUARY 1, 1997
-------------------
(IN THOUSANDS)
<S> <C>
Total current assets......................................... $119,509
Property, improvements and equipment, net.................... 24,926
Goodwill..................................................... 85,565
Other assets................................................. 7,126
--------
Total assets................................................. $237,126
========
Current liabilities.......................................... $ 58,928
Long-term debt............................................... 107,698
Other long-term liabilities.................................. 1,331
Stockholders' equity......................................... 69,169
--------
Total liabilities and stockholders' equity................... $237,126
========
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA RESULTS OF
OPERATIONS FOR THE
THIRTEEN WEEKS ENDED
---------------------------
JANUARY 27, FEBRUARY 1,
1996 1997
----------- -----------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
Net sales............................................... $77,050 $71,479
Operating income........................................ 2,631 2,195
Net loss................................................ (489) (837)
Net loss per share...................................... $ (0.04) $ (0.08)
</TABLE>
F-19
<PAGE> 109
[MAP SHOWING CT STORES LOCATIONS AND CT STORE FORMAT FLOORPLAN]
<PAGE> 110
===============================================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE
SECURITIES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS NOT BEEN A CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 9
Use of Proceeds....................... 14
Capitalization........................ 15
Pro Forma Condensed Consolidated
Financial Data...................... 16
Selected Historical and Pro Forma
Financial Data...................... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 23
Business.............................. 29
Management............................ 38
Security Ownership of Certain
Beneficial Owners and Management.... 43
Certain Transactions.................. 45
Description of Senior Notes........... 46
Description of New Credit Facility.... 72
Description of Holding Preferred
Stock............................... 73
Underwriting.......................... 83
Legal Matters......................... 84
Experts............................... 84
Available Information................. 84
Index to Financial Statements......... F-1
</TABLE>
===============================================================================
===============================================================================
[LOGO]
CENTRAL TRACTOR FARM & COUNTRY, INC.
$100,000,000 % SENIOR
NOTES DUE 2007
------------------------
PROSPECTUS
------------------------
NATIONSBANC CAPITAL MARKETS, INC.
, 1997
===============================================================================
<PAGE> 111
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
Set forth below is an estimate of the amount of fees and expenses to be
incurred in connection with the issuance and distribution of the Senior Notes
registered hereby, other than underwriting discounts and commissions.
<TABLE>
<S> <C>
Registration Fee under Securities Act.................................... $ 30,303.03
NASD Filing Fee.......................................................... 10,500.00
Blue Sky Fees and Expenses............................................... 15,000.00
Legal Fees............................................................... 300,000.00
Accounting Fees.......................................................... 125,000.00
Printing and Engraving................................................... 50,000.00
Rating Agencies.......................................................... 100,000.00
Trustee Fees............................................................. 10,500.00
Miscellaneous Fees....................................................... 33,696.97
-----------
Total.......................................................... 675,000.00
===========
</TABLE>
- ---------------
* All expenses are estimated except the SEC registration fee and the NASD filing
fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("DGCL") provides that
a corporation may indemnify any director or officer made a party to any
proceeding against judgments, penalties, fines, settlements and reasonable
expenses, unless it is established that (i) the act or omission of the director
was material to the matter giving rise to the proceeding, and was committed in
bad faith or was a result of deliberate dishonesty, (ii) director actually
received an improper personal benefit or (iii) in a criminal proceeding,
director had reasonable cause to believe the act or omission was unlawful. A
director may not be indemnified in any proceeding charging improper personal
benefit, if director was adjudged to be liable and, in a derivative action,
there shall not be indemnification if the director has been adjudged liable to
the corporation. A director or officer of a corporation who has been successful
in the defense of any proceeding shall be indemnified against reasonable costs
incurred in such defense. Indemnification may not be made unless authorized
pursuant to a determination that the director has met the requisite standard of
conduct.
Paragraph 10 of the Company's Restated Certificate of Incorporation
provides that the Company shall, to the maximum extent permitted from time to
time under the law of the State of Delaware, indemnify and upon request shall
advance expenses to any person who is or was a party or is threatened to be made
a party to any threatened, pending or completed action, suit, proceeding or
claim, whether civil, criminal, administrative or investigative, by reason of
the fact that such person is or was or has agreed to be a director or officer of
the Company or while a director or officer is or was serving at the request of
the Company as a director, officer, partner, trustee, employee or agent of any
corporation, partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, against expenses (including
attorney's fees and expenses), judgments, fines, penalties and amounts paid in
settlement incurred in connection with the investigation, preparation to defend
or defense of such action, suit, proceeding or claim; provided, however, that
the foregoing shall not require the Company to indemnify or advance expenses to
any person in connection with any action, suit, proceeding, claim or
counterclaim initiated by or on behalf of such person. Such indemnification
shall not be exclusive of other indemnification rights arising under any by-law,
agreement, vote of directors or stockholders or otherwise and shall inure to the
benefit of the heirs and legal representatives of such person. Any person
seeking indemnification under paragraph 10 shall be deemed to have met the
standard of conduct required for such indemnification unless the contrary shall
be established. Any repeal or modification of the foregoing provisions of
paragraph 10 shall not adversely affect any right or
II-1
<PAGE> 112
protection of a director or officer of the Company with respect to any acts or
omissions of such director or officer occurring prior to such repeal of
modification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- -----------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement
1.2 -- Form of Engagement Letter for Qualified Independent Underwriter
3(i).1 -- Restated Certificate of Incorporation, filed as an exhibit 3(i).1 to the Company's
Registration Statement on Form S-1 (File #33-82620) originally filed on August 9,
1994 and incorporated herein by reference
3(i).2 -- Certificate of Merger dated October 5, 1994, filed as an exhibit 3(i).2 to the
Company's Registration Statement on Form S-1 (File #33-82620) originally filed on
August 9, 1994 and incorporated herein by reference
3(ii) -- By-Laws of the Company, filed as an exhibit (3(ii) to the Company's Registration
Statement on Form S-1 (File #33-82620) originally filed on August 9, 1994 and
incorporated herein by reference
4.1 -- Form of Common Stock Certificate of the Company, filed as an exhibit 4.1 to the
Company's Registration Statement on Form S-1 (File #33-82620) originally filed on
August 9, 1994 and incorporated herein by reference
4.2 -- Exchange Agreement dated October 14, 1994, among the Company, Mezzanine Lending
Associates I, L.P., Mezzanine Lending Associates II, L.P., and Mezzanine Lending
Associates III, L.P., filed as an exhibit 4.2 to the Company's Registration
Statement on Form S-1 (File #33-82620) originally filed on August 9, 1994 and
incorporated herein by reference
4.3 -- Form of 7% Convertible Subordinated Note due 2002 (contained as Exhibit 2 to the
Exchange Agreement filed as Exhibit 4.2), filed as an exhibit 4.3 to the Company's
Registration Statement on Form S-1 (File #33-82620) originally filed on August 9,
1994 and incorporated herein by reference
4.4 -- Form of Indenture relating to the Senior Notes
4.5 -- Form of Senior Note (included in Exhibit 4.4)
5 -- Opinion of Sullivan & Worcester LLP
10.1 -- Credit Agreement dated January 28, 1994 among the Company, Herschel Corporation and
First Bank National Association, filed as an exhibit 10.1 to the Company's
Registration Statement on Form S-1 (File #33-82620) originally filed on August 9,
1994 and incorporated herein by reference
10.2 -- Stockholder's Agreement, dated October 14, 1994 among the Company, Mezzanine
Lending Associates I, L.P., Mezzanine Lending Associates II, L.P., Mezzanine
Lending Associates III, L.P. and the individual stockholders party thereto, filed
as an exhibit 10.2 to the Company's Registration Statement on Form S-1 (File
#33-82620) originally filed on August 9, 1994 and incorporated herein by reference
10.3 -- Form of Stock Option Agreement of the Company with respect to options issued prior
to September 14, 1994, filed as an exhibit 10.3 to the Company's Registration
Statement on Form S-1 (File #33-82620) originally filed on August 9, 1994 and
incorporated herein by reference
</TABLE>
II-2
<PAGE> 113
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- -----------
<S> <C> <C>
10.4 -- 1994 Stock Incentive Plan, filed as an exhibit 10.4 to the Company's Registration
Statement on Form S-1 (File #33-82620) originally filed on August 9, 1994 and
incorporated herein by reference
10.5 -- Employment Agreement between the Company and James T. McKitrick dated as of
September 16, 1994, filed as an exhibit 10.5 to the Company's Registration
Statement on Form S-1 (File #33-82620) originally filed on August 9, 1994 and
incorporated herein by reference
10.6 -- Employment Agreement between the Company and Dean Longnecker dated as of September
16, 1994, filed as an exhibit 10.6 to the Company's Registration Statement on Form
S-1 (File #33-82620) originally filed on August 9, 1994 and incorporated herein by
reference
10.7 -- Employment Agreement between the Company and Michael London dated as of May 23,
1994, filed as an exhibit 10.7 to the Company's Registration Statement on Form S-1
(File #33-82620) originally filed on August 9, 1994 and incorporated herein by
reference
10.8 -- Warrant dated August 31, 1993, registered in the name of BCC Industrial Services,
Inc., filed as an exhibit 10.8 to the Company's Registration Statement on Form S-1
(File #33-82620) originally filed on August 9, 1994 incorporated herein by
reference
10.9 -- Merger Agreement dated as of September 14, 1994 between the Company and Central
Tractor Farm & Country, Inc., an Iowa Corporation, filed as an exhibit 10.9 to the
Company's Registration Statement on Form S-1 (File #33-82620) originally filed on
August 9, 1994 and incorporated herein by reference
10.10 -- 1994 Directors' Stock Option Plan, filed as an exhibit 10.10 to the Company's
Registration Statement on Form S-1 (File #33-82620) originally filed on August 9,
1994 and incorporated herein by reference
10.11 -- First Amendment to Credit Agreement dated December 3, 1994 among the Company,
Herschel Corporation and First Bank National Association, filed as an exhibit 10.11
to the Company's Form 10-K originally filed on January 26, 1996 and incorporated
herein by reference
10.12 -- Second Amendment to Credit Agreement dated May 16, 1995 among the Company, Herschel
Corporation and First Bank National Association, filed as an exhibit 10.12 to the
Company's 10-K originally filed on January 26, 1996 and incorporated herein by
reference
10.13 -- Third Amendment to Credit Agreement dated December 1, 1995 among the Company and
First Bank National Association, filed as an exhibit 10.13 to the Company's 10-K
originally filed on January 26, 1996 and incorporated herein by reference
10.14 -- Asset Purchase Agreement By and Between Alamo Group (USA) Inc. (the "Buyer") and
Herschel Corporation and Central Tractor Farm and Country, Inc. (the "Sellers")
dated December 4, 1995, filed as an exhibit 10.14 to the Company's 10-K originally
filed on January 26, 1996 and incorporated herein by reference
10.15 -- Asset Purchase Agreement By and Between Central Tractor Farm & Country, Inc. (the
"Buyer") and Big Bear Farm Stores, Inc. (the "Seller") dated May 22, 1996, filed as
an exhibit 10.15 to the Company's 10-Q originally filed on September 9, 1996 and
incorporated herein by reference
10.16 -- Agreement and Plan of Merger dated November 27, 1996 by and among Central Tractor
Farm & Country, Inc., J.W. Childs Equity Partners, L.P., JWC Holdings I, Inc. and
JWC Acquisition, I, Inc., filed as an exhibit 10.16 to the Company's 8-K originally
filed on December 3, 1996 and incorporated herein by reference
</TABLE>
II-3
<PAGE> 114
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- -----------
<S> <C> <C>
10.17 -- Securities Purchase Agreement, dated as of November 27, 1996, by and among
Mezzanine Lending Associates I, L.P., Mezzanine Lending Associates II, L.P.,
Mezzanine Lending Associates III, L.P., Senior Lending Associates I, L.P., BCC
Industrial Services, JWC Acquisition, I, Inc., J.W. Childs Equity Partners, L.P.,
Central Tractor Farm & Country, Inc. filed as an exhibit 10.20 to JWCAC's Schedule
13D originally filed on December 9, 1996 and incorporated herein by reference
10.18 -- Letter Agreement, dated as of November 27, 1996 between JWC Acquisition I, Inc. and
Mr. James T. McKitrick, filed as an exhibit 10.21 to JWCAC's Schedule 13D
originally filed on December 9, 1996 and incorporated herein by reference
10.19 -- Letter Agreement, dated as of November 27, 1996 between JWC Acquisition I, Inc. and
Mr. G. Dean Longnecker, filed as an exhibit 10.21 to JWCAC's Schedule 13D
originally filed on December 9, 1996 and incorporated herein by reference
10.20 -- Commitment Letter, dated as of November 26, 1996, among NationsBank, N.A.,
NationsBanc Capital Markets, Inc., J.W. Childs Equity Parnters, L.P., JWC
Acquisition I, Inc. and JWC Holdings I, Inc., filed as an exhibit 10.23 to the
JWCAC's Schedule 13D originally filed on December 9, 1996 and incorporated herein
by reference
10.21 -- Commitment Letter, dated as of November 26, 1996, among NationsBridge, L.L.C., J.W.
Childs Equity Parnters, L.P., JWC Acquisition I, Inc. and JWC Holdings I, Inc.,
filed as an exhibit 10.24 to JWCAC's Schedule 13D originally filed on December 9,
1996 and incorporated herein by reference
10.22 -- Employment Agreement between the Company and George D. Miller dated May 6, 1996*
11 -- Statement Regarding Computation of Per Share Earnings
12 -- Schedule Regarding Computation of Ratio of Earnings to Fixed Charges
21 -- Subsidiaries of the Company, filed as exhibit 21 to the Company's Annual Report on
Form 10-K for the year ended November 2, 1996 and incorporated herein by reference
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Sullivan & Worcester LLP (included in Exhibit 5)
23.3 -- Consent of John W. Childs*
23.4 -- Consent of Jerry D. Horn*
23.5 -- Consent of Steven G. Segal*
23.6 -- Consent of Adam L. Suttin*
23.7 -- Consent of Jeffrey B. Swartz*
23.8 -- Consent of William E. Watts*
23.9 -- Consent of Habib Y. Gorgi
24 -- Power of Attorney*
25 -- Statement of Eligibility of Trustee
</TABLE>
- ---------------
* Previously filed
** To be filed by amendment.
(b) Financial Statement Schedules.
No Financial Statement Schedules have been presented since the required
information is not present or not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the consolidated financial statements or the notes thereto.
II-4
<PAGE> 115
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that:
(a)(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of a registration statement in reliance upon Rule 430A and contained
in the form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of the registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-5
<PAGE> 116
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Central Tractor Farm & Country, Inc. has duly caused this amendment to
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Des Moines, State of Iowa, on this 18th day of
March, 1997.
CENTRAL TRACTOR FARM & COUNTRY, INC.
By: /s/ JAMES T. MCKITRICK
------------------------------------
James T. McKitrick, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this amendment to Registration Statement on Form S-1 has been signed below by
the following persons in the capacities and on the dates indicated;
<TABLE>
<S> <C> <C>
/s/ JAMES T. MCKITRICK President and Chief March 18, 1997
- --------------------------------------------- Executive Officer, Director
James T. McKitrick (Principal Executive
Officer)
/s/ DEAN LONGNECKER Executive Vice President of March 18, 1997
- --------------------------------------------- Finance, Director
Dean Longnecker (Principal Financial and
Accounting Officer)
/s/ STEVEN G. SEGAL Director March 18, 1997
- ---------------------------------------------
Steven G. Segal
/s/ ADAM L. SUTTIN Director March 18, 1997
- ---------------------------------------------
Adam L. Suttin
</TABLE>
II-6
<PAGE> 117
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- -----------------------------------------------------------------------------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement
1.2 -- Form of Engagement Letter for Qualified Independent Underwriter
3(i).1 -- Restated Certificate of Incorporation, filed as an exhibit 3(i).1 to the Company's
Registration Statement on Form S-1 (File #33-82620) originally filed on August 9,
1994 and incorporated herein by reference
3(i).2 -- Certificate of Merger dated October 5, 1994, filed as an exhibit 3(i).2 to the
Company's Registration Statement on Form S-1 (File #33-82620) originally filed on
August 9, 1994 and incorporated herein by reference
3(ii) -- By-Laws of the Company, filed as an exhibit (3(ii) to the Company's Registration
Statement on Form S-1 (File #33-82620) originally filed on August 9, 1994 and
incorporated herein by reference
4.1 -- Form of Common Stock Certificate of the Company, filed as an exhibit 4.1 to the
Company's Registration Statement on Form S-1 (File #33-82620) originally filed on
August 9, 1994 and incorporated herein by reference
4.2 -- Exchange Agreement dated October 14, 1994, among the Company, Mezzanine Lending
Associates I, L.P., Mezzanine Lending Associates II, L.P., and Mezzanine Lending
Associates III, L.P., filed as an exhibit 4.2 to the Company's Registration
Statement on Form S-1 (File #33-82620) originally filed on August 9, 1994 and
incorporated herein by reference
4.3 -- Form of 7% Convertible Subordinated Note due 2002 (contained as Exhibit 2 to the
Exchange Agreement filed as Exhibit 4.2), filed as an exhibit 4.3 to the Company's
Registration Statement on Form S-1 (File #33-82620) originally filed on August 9,
1994 and incorporated herein by reference
4.4 -- Form of Indenture relating to the Senior Notes
4.5 -- Form of Senior Note (included in Exhibit 4.4)
5 -- Opinion of Sullivan & Worcester LLP
10.1 -- Credit Agreement dated January 28, 1994 among the Company, Herschel Corporation and
First Bank National Association, filed as an exhibit 10.1 to the Company's
Registration Statement on Form S-1 (File #33-82620) originally filed on August 9,
1994 and incorporated herein by reference
10.2 -- Stockholder's Agreement, dated October 14, 1994 among the Company, Mezzanine
Lending Associates I, L.P., Mezzanine Lending Associates II, L.P., Mezzanine
Lending Associates III, L.P. and the individual stockholders party thereto, filed
as an exhibit 10.2 to the Company's Registration Statement on Form S-1 (File
#33-82620) originally filed on August 9, 1994 and incorporated herein by reference
10.3 -- Form of Stock Option Agreement of the Company with respect to options issued prior
to September 14, 1994, filed as an exhibit 10.3 to the Company's Registration
Statement on Form S-1 (File #33-82620) originally filed on August 9, 1994 and
incorporated herein by reference
10.4 -- 1994 Stock Incentive Plan, filed as an exhibit 10.4 to the Company's Registration
Statement on Form S-1 (File #33-82620) originally filed on August 9, 1994 and
incorporated herein by reference
10.5 -- Employment Agreement between the Company and James T. McKitrick dated as of
September 16, 1994, filed as an exhibit 10.5 to the Company's Registration
Statement on Form S-1 (File #33-82620) originally filed on August 9, 1994 and
incorporated herein by reference
10.6 -- Employment Agreement between the Company and Dean Longnecker dated as of September
16, 1994, filed as an exhibit 10.6 to the Company's Registration Statement on Form
S-1 (File #33-82620) originally filed on August 9, 1994 and incorporated herein by
reference
10.7 -- Employment Agreement between the Company and Michael London dated as of May 23,
1994, filed as an exhibit 10.7 to the Company's Registration Statement on Form S-1
(File #33-82620) originally filed on August 9, 1994 and incorporated herein by
reference
10.8 -- Warrant dated August 31, 1993, registered in the name of BCC Industrial Services,
Inc., filed as an exhibit 10.8 to the Company's Registration Statement on Form S-1
(File #33-82620) originally filed on August 9, 1994 incorporated herein by
reference
10.9 -- Merger Agreement dated as of September 14, 1994 between the Company and Central
Tractor Farm & Country, Inc., an Iowa Corporation, filed as an exhibit 10.9 to the
Company's Registration Statement on Form S-1 (File #33-82620) originally filed on
August 9, 1994 and incorporated herein by reference
10.10 -- 1994 Directors' Stock Option Plan, filed as an exhibit 10.10 to the Company's
Registration Statement on Form S-1 (File #33-82620) originally filed on August 9,
1994 and incorporated herein by reference
10.11 -- First Amendment to Credit Agreement dated December 3, 1994 among the Company,
Herschel Corporation and First Bank National Association, filed as an exhibit 10.11
to the Company's Form 10-K originally filed on January 26, 1996 and incorporated
herein by reference
10.12 -- Second Amendment to Credit Agreement dated May 16, 1995 among the Company, Herschel
Corporation and First Bank National Association, filed as an exhibit 10.12 to the
Company's 10-K originally filed on January 26, 1996 and incorporated herein by
reference
10.13 -- Third Amendment to Credit Agreement dated December 1, 1995 among the Company and
First Bank National Association, filed as an exhibit 10.13 to the Company's 10-K
originally filed on January 26, 1996 and incorporated herein by reference
10.14 -- Asset Purchase Agreement By and Between Alamo Group (USA) Inc. (the "Buyer") and
Herschel Corporation and Central Tractor Farm and Country, Inc. (the "Sellers")
dated December 4, 1995, filed as an exhibit 10.14 to the Company's 10-K originally
filed on January 26, 1996 and incorporated herein by reference
10.15 -- Asset Purchase Agreement By and Between Central Tractor Farm & Country, Inc. (the
"Buyer") and Big Bear Farm Stores, Inc. (the "Seller") dated May 22, 1996, filed as
an exhibit 10.15 to the Company's 10-Q originally filed on September 9, 1996 and
incorporated herein by reference
10.16 -- Agreement and Plan of Merger dated November 27, 1996 by and among Central Tractor
Farm & Country, Inc., J.W. Childs Equity Partners, L.P., JWC Holdings I, Inc. and
JWC Acquisition, I, Inc., filed as an exhibit 10.16 to the Company's 8-K originally
filed on December 3, 1996 and incorporated herein by reference
10.17 -- Securities Purchase Agreement, dated as of November 27, 1996, by and among
Mezzanine Lending Associates I, L.P., Mezzanine Lending Associates II, L.P.,
Mezzanine Lending Associates III, L.P., Senior Lending Associates I, L.P., BCC
Industrial Services, JWC Acquisition, I, Inc., J.W. Childs Equity Partners, L.P.,
Central Tractor Farm & Country, Inc. filed as an exhibit 10.20 to JWCAC's Schedule
13D originally filed on December 9, 1996 and incorporated herein by reference
10.18 -- Letter Agreement, dated as of November 27, 1996 between JWC Acquisition I, Inc. and
Mr. James T. McKitrick, filed as an exhibit 10.21 to JWCAC's Schedule 13D
originally filed on December 9, 1996 and incorporated herein by reference
10.19 -- Letter Agreement, dated as of November 27, 1996 between JWC Acquisition I, Inc. and
Mr. G. Dean Longnecker, filed as an exhibit 10.21 to JWCAC's Schedule 13D
originally filed on December 9, 1996 and incorporated herein by reference
10.20 -- Commitment Letter, dated as of November 26, 1996, among NationsBank, N.A.,
NationsBanc Capital Markets, Inc., J.W. Childs Equity Parnters, L.P., JWC
Acquisition I, Inc. and JWC Holdings I, Inc., filed as an exhibit 10.23 to the
JWCAC's Schedule 13D originally filed on December 9, 1996 and incorporated herein
by reference
10.21 -- Commitment Letter, dated as of November 26, 1996, among NationsBridge, L.L.C., J.W.
Childs Equity Parnters, L.P., JWC Acquisition I, Inc. and JWC Holdings I, Inc.,
filed as an exhibit 10.24 to JWCAC's Schedule 13D originally filed on December 9,
1996 and incorporated herein by reference
10.22 -- Employment Agreement between the Company and George D. Miller dated May 6, 1996*
11 -- Statement Regarding Computation of Per Share Earnings
12 -- Schedule Regarding Computation of Ratio of Earnings to Fixed Charges
21 -- Subsidiaries of the Company, filed as exhibit 21 to the Company's Annual Report on
Form 10-K for the year ended November 2, 1996 and incorporated herein by reference
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Sullivan & Worcester LLP (included in Exhibit 5)
23.3 -- Consent of John W. Childs*
23.4 -- Consent of Jerry D. Horn*
23.5 -- Consent of Steven G. Segal*
23.6 -- Consent of Adam L. Suttin*
23.7 -- Consent of Jeffrey B. Swartz*
23.8 -- Consent of William E. Watts*
23.9 -- Consent of Habib Y. Gorgi
24 -- Power of Attorney*
25 -- Statement of Eligibility of Trustee
</TABLE>
- ---------------
* Previously filed
** To be filed by amendment.
<PAGE> 1
Exhibit 1.1
CENTRAL TRACTOR FARM & COUNTRY, INC.
___% SENIOR NOTES DUE 2007
UNDERWRITING AGREEMENT
March __, 1997
NationsBanc Capital Markets, Inc.
NationsBank Corporate Center
100 North Tryon Street
Charlotte, North Carolina 28255
Dear Sirs:
Central Tractor Farm & Country, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to NationsBanc Capital Markets, Inc. (the
"Underwriter") $100.0 million principal amount of its ___% Senior Notes due 2007
(the "Securities"). The Securities are to be issued pursuant to the provisions
of an indenture dated as of March ___, 1997 (the "Indenture") between the
Company, as issuer, and Marine Midland Bank, as Trustee (the "Trustee").
SECTION 1. INTRODUCTION. The Securities are being issued and sold in
connection with the acquisition (the "Acquisition") of the Company by JWC
Acquisition I, Inc., a Delaware corporation ("JWCAC"), an indirect subsidiary of
J.W. Childs Equity Partners, L.P. ("Childs"), pursuant to a merger agreement,
dated November 27, 1996 (the "Merger Agreement") among the Company, JWCAC and
Childs. The Merger Agreement provides for (i) the purchase by JWCAC (the
"Initial Stock Purchase") of 1,048,214 shares of common stock, par value $.01
per share, of the Company ("Company Stock") owned by Butler Capital Corporation
and its affiliates (collectively, the "Shareholder") at a price per share of
Company Stock of $14.00, (ii) following the expiration of all applicable
regulatory waiting periods, the purchase by Company (the "Additional Stock
Purchase") of (x) 5,783,515 shares of the Company Stock from the Shareholder at
a price per share of Company Stock of $14.00 and (y) warrants (the "Warrants")
to purchase 230,523 shares of Company Stock from the Shareholder at a price per
share of Company Stock of $14.00 (or approximately $10.40 per share net of the
exercise price), (iii) concurrently with the Additional Stock Purchase, the
retirement by the Company (the "Note Retirement") of the $16.0 million aggregate
principal amount 7% Convertible Subordinated Notes due 2002 (the "Convertible
Note") issued by the Company to the Shareholder at an aggregate price of $16.0
million, plus accrued interest, (iv) on January 2, 1997, the purchase by JWCAC
of 146,299 shares of Company Stock from certain members of senior management
(the "Management Stock Purchase" and, collectively with the Initial Stock
Purchase and the Additional Stock Purchase, the "Stock Purchase") of the Company
at a price per share of Company Stock of $14.00 and (v) on the Closing Date of
the Offering, the merger (the "Merger") of the Company and JWCAC, with the
Company surviving such Merger. Certain members of management of the Company have
agreed to exchange their equity securities in the Company (on the basis of
$14.00 per share) for equity securities in CT Holding, Inc., a Delaware
corporation ("Holding"), the parent corporation of JWCAC, in connection with the
consummation of the Merger. Pursuant to the Merger, each remaining share of
outstanding Company Stock will be converted into the right to receive $14.25.
<PAGE> 2
Approximately $14.7 million of funds have been used to consummate the
Initial Stock Purchase all of which has been provided through the issuance and
sale of common stock of Holding for cash, the proceeds of which were contributed
to the common equity of JWCAC (the "Initial Stock Purchase Financing").
Approximately $104.0 million in additional funds have been used to effect the
Additional Stock Purchase, the Management Stock Purchase and the Note
Retirement, to pay the costs and expenses related to the Additional Stock
Purchase and the Management Stock Purchase and to provide for ongoing debt
service after completion of the Additional Stock Purchase and the Management
Stock Purchase. Of such amount: (i) approximately $65.4 million has been
provided through the issuance and sale of equity of Holding of which (x)
approximately $55.4 million has been provided through the issuance and sale of
common stock of Holding (the net cash proceeds of which has been contributed the
common equity of JWCAC (the "Common Equity Financing"), and (y) approximately
$10.0 million has been provided through the issuance and sale for cash of
preferred stock of Holding (the "Preferred Equity Financing" and, collectively
with the Stock Purchase Financing and the Common Equity Financing, the "Equity
Financing"); and (ii) up to $38.0 million has been provided through revolving
loan facilities made available to the Company (such facilities being referred to
herein as the "New Credit Facility"). The Acquisition, the Stock Purchase, the
Note Retirement, the Merger, the Equity Financing and the New Credit Facility
are herein collectively referred to as the "Transaction."
The Merger Agreement and the documents entered into in connection therewith
including, without limitation, the agreements attached thereto as exhibits, are
herein collectively referred to as the "Merger Documents." This Agreement, the
Securities and the Indenture are herein collectively referred to as the
"Offering Documents." The Offering Documents, the New Credit Facility, the
Merger Documents and the documents pursuant to which the Equity Financing and
the Note Retirement have been and will be consummated are herein collectively
referred to as the "Transaction Documents." The time of the concurrent
consummation of the Merger and the Offering is referred to herein as the
"Effective Time."
The Company hereby agrees with the Underwriter as follows:
SECTION 2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company represents and warrants to, and agrees with, the Underwriter that:
(a) It has prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Act"), a registration statement on Form S-1 (No. 333-19613),
including a preliminary prospectus subject to completion, relating to the
Securities. The registration statement, as amended at the time it becomes
effective or, if a post-effective amendment is filed with respect thereto, as
amended by such post-effective amendment at the time of its effectiveness,
including in each case, financial statements and exhibits and the information
(if any) contained in a prospectus subsequently filed with the Commission
pursuant to Rule 424(b) under the Act and deemed to be a part of the
registration statement at the time of its effectiveness pursuant to Rule 430A
under the Act, is hereinafter referred to as the "Registration Statement;" and
the prospectus in the form first used to confirm sales of the Securities,
whether or not filed with the Commission pursuant to Rule 424(b) under the Act,
is hereinafter referred to as the "Prospectus."
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus. When any Preliminary Prospectus was
filed with the Commission it (x)
2
<PAGE> 3
complied in all material respects with the requirements of the Act and (y)
did not include any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. When
the Registration Statement becomes effective and at all times subsequent
thereto up to the Closing Date (as defined herein), the Registration
Statement, the Prospectus and any amendments or supplements thereto, will
conform in all material respects with the requirements of the Act, and at
such effective time the Registration Statement will not include any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading, and the Prospectus, as amended or supplemented at the Closing
Date, if applicable, will not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements
contained therein, in the light of the circumstances under which they were
made, not misleading; except that the foregoing does not apply to (i) that
part of the Registration Statement that constitutes the Statement of
Eligibility and Qualification (Form T-1) under the Trust Indenture Act of
1939, as amended (together with the rules and regulations thereunder, the
"1939 Act"), of the Trustee, and (ii) statements or omissions in the
Registration Statement or the Prospectus, as amended or supplemented if
applicable, based upon written information furnished to the Company by the
Underwriter specifically for use therein. When the Registration Statement
becomes effective, including at the date of any post-effective amendment,
at the date of the Prospectus and any amendment or supplement thereto (if
different) and at the Closing Date, the Indenture will have been qualified
under and will conform in all material respects to the requirements of the
1939 Act.
(c) Since the respective dates of the most recent financial statements
appearing in the Registration Statement and the Prospectus, except as
otherwise stated therein, (i) the Company has not and, at and as of the
Effective Time, will not have incurred any liabilities or obligations,
direct or contingent, or entered into or agreed to enter into any
transactions or contracts (written or oral) not in the ordinary course of
business which liabilities, obligations, transactions or contracts would,
individually or in the aggregate, be material to the condition, financial
or otherwise, earnings, affairs or business prospects of the Company, (ii)
the Company has not, and, at and as of the Effective Time, will not have
purchased any of its outstanding capital stock, nor declared, paid or
otherwise made any dividend or distribution of any kind on its capital
stock, except as otherwise set forth in the Registration Statement and the
Prospectus and (iii) there shall not have been any change in the capital
stock or long-term indebtedness of the Company, except for those changes in
capital stock and long-term indebtedness contemplated by the Transaction
Documents.
(d) The Company is and, after giving effect to the Transaction, will
be, duly incorporated, and validity existing as a corporation in good
standing under the laws of Delaware with corporate power and authority to
own, lease and operate its properties and conduct its businesses as
described in the Registration Statement; The Company is and, after giving
effect to the Transaction, will be, duly qualified as a foreign corporation
to transact business, and is, and, after giving effect to the Transaction
will be, in good standing in each jurisdiction in which either owns or
leases properties or in which the conduct of its business requires such
qualification, except to the extent that the failure to be so qualified or
be in good standing would not (i) have a material adverse effect on the
assets, business, condition (financial or otherwise), results of operations
or prospects of the Company or (ii) materially and adversely affect the
offering of the Securities or any of the other transactions contemplated by
the Transaction Documents (any such event, a "Material Adverse Effect").
The Company has and at and as of the Effective Time, after giving effect to
the Transaction, no subsidiaries.
3
<PAGE> 4
(e) The Company has, and after giving effect to the Transaction, will
have the authorized, issued and outstanding capitalization set forth in the
Prospectus; all of the outstanding shares of capital stock of the Company
are and, after giving effect to the Transaction will be duly authorized and
validly issued, fully paid and nonassessable and not issued in violation of
any preemptive or similar rights.
(f) There are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or liens related to or
entitling any person to purchase or otherwise to acquire any shares of
capital stock of, or other ownership interest in, the Company, except as
otherwise disclosed in the Registration Statement. At and as of the
Effective Date, there will be no outstanding subscriptions, rights,
warrants options, calls, convertible securities, commitments of sale or
liens related to or entitling any person to purchase or otherwise to
acquire any shares of capital stock of, or other ownership interest in, the
Company except as otherwise disclosed in the Registration Statement.
(g) The Company is not, and after giving effect to the Transaction
will not be (i) in violation of its charter documents, (ii) in breach or
violation of any law, administrative regulation or administrative or court
decree or (iii) in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any material
contract, indenture, mortgage, loan agreement, note, lease or other
instrument to which it is a party or by which its respective properties may
be bound, other than with respect to clauses (ii) and (iii), breaches,
violations or defaults which would not have a Material Adverse Effect.
(h) No consent, approval, authorization or order of any court or
governmental authority or agency, or third party is required for the
performance of any of the Transaction Documents by the Company or the
consummation of the transactions contemplated by the Transaction Documents,
except such as may be required under state securities or Blue Sky laws. The
execution, delivery and performance by the Company of the Transaction
Documents and the consummation of the transactions contemplated thereby
will not conflict with or constitute a breach of, or default under, or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company, pursuant to any material
contract, indenture, mortgage, loan agreement, note, lease or other
instrument to which the Company is a party or by which it may be bound or
to which any of the property or assets of the Company is, or after giving
effect to the Transaction, will be subject, nor will such action result in
any violation of the provisions of the charter or by-laws of the Company or
any law, rules, regulation or administrative or court decree.
(i) The Company possesses, and after giving effect to the Transaction
will possess adequate certificates, authorities, permits or other
authorizations (collectively, "Permits") including, without limitation,
under any applicable Environmental Laws (as defined herein), issued by the
appropriate state, federal or foreign regulatory agencies or bodies
necessary to conduct its business as now or proposed to be conducted as set
forth in the Prospectus. The Company has, and after giving effect to the
Transaction will have fulfilled and performed all of its obligations with
respect to such Permits in all material respects. The Company has, and
after giving effect to the Transaction will not have received any notice or
proceedings relating to the revocation or modification of any such Permit
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would have a Material Adverse Effect.
4
<PAGE> 5
(j) There are no legal or governmental proceedings involving or
affecting the Company or any of its properties or assets which are required
to be described in a prospectus pursuant to the Act that are not described
in the Prospectus, nor are there any material contracts or other documents
which are required to be described in a prospectus pursuant to the Act that
are not described in the Prospectus. There are no material contracts or
other documents which are required to be filed as exhibits to the
Registration Statement by the Act which have not been so filed. Except as
set forth in the Prospectus, there is not pending or, to the knowledge of
the Company threatened any action, suit or proceeding before or by any
court or governmental agency or body, domestic or foreign, to which after
the Company (both before and after giving effect to the Transaction) is a
party, which affects the Company or, after giving effect to the
Transaction, will effect the Company, which, if the subject of an
unfavorable decision, ruling or finding, would have a Material Adverse
Effect.
(k) The Company has, and after giving effect to the Transaction, will
have good and marketable title in fee simple to all real property and good
and marketable title to all personal property owned by it and necessary in
the conduct of its business in each case free and clear of all liens,
encumbrances and defects except (i) such as are referred to in the
Prospectus, (ii) sales of inventory in the ordinary course of business or
(iii) such as do not materially adversely affect the value of such property
to it, and do not materially interfere with the use made and proposed to be
made of such property by it. All leases, contracts and agreements to which
the Company is, and after giving effect to the Transaction, will be a party
or by which it is bound are valid and enforceable against it and are valid
and enforceable against the other party or parties thereto and are in full
force and effect with only such exceptions as would not, individually or in
the aggregate, have a Material Adverse Effect.
(l) The Company has, and after giving effect to the Transaction, will
own or possess adequate licenses or other rights to use all patents,
trademarks, service marks, trade names, copyrights, know-how and other
intellectual property (collectively, "Trademarks") necessary to conduct the
business now or proposed to be operated by it as described in the
Prospectus, except as would not, individually or in the aggregate, have a
Material Adverse Effect; and the consummation of the transactions
contemplated hereby and by the Prospectus will not alter or impair any such
rights, except for such alterations or impairments as would not have a
Material Adverse Effect. The Company has not and, after giving effect to
the Transaction, will not have received any notice of infringement of or
conflict with (or know of any such infringement of or conflict with)
alleged rights of others with respect to any Trademarks (or questioning the
validity or effectiveness of any license or other agreement or instrument
relating thereto) which, if such alleged infringement or conflict were
sustained, would have a Material Adverse Effect; and to the best knowledge
of the Company, there is no valid basis for any such claim and the use of
such Trademarks by the Company does not infringe on the rights of any
person.
(m) The Company has, and after giving effect to the Transaction, will
have all the requisite corporate power and authority to executive, deliver
and perform its obligations under each of the Transaction Documents (other
than the Offering Documents); the Merger Agreement has been duly and
validly authorized, executed and delivered by the Company and, each of the
Transaction Documents and at and as of the Effective Time, will have been
duly and validly authorized, executed and delivered by the Company and will
constitute a valid and legally binding obligation of the Company
enforceable against the Company, in accordance with its terms; and the
Transaction has been duly authorized by the stockholders of the Company.
5
<PAGE> 6
(n) The Company has and, after giving effect to the Transaction, will
have, all requisite corporate power and authority to execute, deliver and
perform its obligations under the Offering Documents, as applicable, and to
authorize, issue, sell and deliver the Securities as provided herein and
therein.
(o) There exists as of the date hereof and will exist on the Closing
Date, after giving effect to the transactions contemplated by each of the
Transaction Documents, no event or condition which would constitute a
default or an event of default or other violation or breach of any
Transaction Document. Each of the representations and warranties of the
Company contained in each of the Transaction Documents (other than the
Offering Documents) are true and correct in all material respects. Each of
the Transaction Documents conforms to the description thereof in the
Registration Statement in all material respects.
(p) Except as disclosed in the Prospectus, and except as would not
individually or in the aggregate have a Material Adverse Effect, (w) the
Company is in compliance with all applicable Environmental Laws (as defined
below), (x) the Company has all permits, authorizations and approvals
required under any applicable Environmental Laws and is in compliance with
their requirements, (y) there are no pending or, to the best knowledge of
the Company, threatened Environmental Claims (as defined below) against the
Company and (z) the Company does not have knowledge of any circumstances
with respect to any of its properties or operations that could reasonably
be anticipated to form the basis of an Environmental Claim against the
Company or any of its properties or operations and the business operations
relating thereto. For purposes of this Agreement, the following terms shall
have the following meanings: "Environmental Law" means, with respect to any
person, any federal, state, local or municipal statute, law, rule,
regulation, ordinance, code, policy or rule of common law and any published
judicial or administrative interpretation thereof including any judicial or
administrative order, consent decree or judgment binding on such person or
any of its subsidiaries, relating to the environment, health, safety or any
chemical, material or substance, exposure to which is prohibited, limited
or regulated by any such governmental authority. "Environmental Claims"
means any and all administrative, regulatory or judicial actions, suits,
demands, demand letters, claims, liens, notices of noncompliance or
violation, investigations or proceedings relating in any way to any
Environmental Law.
(q) In the ordinary course of its business, the Company conducts a
periodic review of the effect of Environmental Laws on its business,
operations and properties of the Company, in the course of which it
identifies and evaluates associate costs and liabilities (including,
without limitation, any capital or operating expenditures required for
clean-up, closure of properties or compliance with Environmental Laws or
any permit, license or approval, any related constraints on operating
activities and potential liabilities to third parties). On the basis of
such review, the Company has reasonably concluded that such associated
costs and liabilities would not, singly or in the aggregate, have a
Material Adverse Effect.
(r) The Company has not and, after giving effect to the Transaction,
will not have violated any foreign, federal or state law relating to
discrimination in the hiring, promotion or pay of employees nor any
applicable foreign, federal or state wages and hours laws, nor any
provisions of the Employee Retirement Income Security Act or the rules and
regulations promulgated thereunder, which in each case would singly or in
the aggregate, have a Material Adverse Effect.
(s) There is (i) no unfair labor practice complaint pending against
the Company or, to the best knowledge of the Company, threatened against
it, before the National Labor Relations
6
<PAGE> 7
Board or any state or local labor relations board, and no significant
grievance or more significant arbitration proceeding arising out of or
under any collective bargaining agreement is so pending against the Company
or, to the best knowledge of the Company, threatened against it, and (ii)
no significant strike, labor dispute, slowdown or stoppage pending against
the Company or, to the best knowledge of the Company, threatened against
it.
(t) The Company carries and, after giving effect to the Transaction,
will carry reasonably adequate insurance (including self-insurance) in such
amounts and covering such risks as would be obtained by companies in the
same or similar businesses in the ordinary course for the conduct of its
business and the value of its properties.
(u) Ernst & Young LLP are independent public accountants of the
Company as required by the Act.
(v) The financial statements, together with related schedules and
notes forming part of the Registration Statement and the Prospectus (and
any amendment or supplement thereto), present fairly the consolidated
financial position, results of operations and changes in financial position
of the Company and its former subsidiaries on the basis stated in the
Registration Statement at the respective dates or for the respective
periods to which they apply; such statements and related schedules and
notes have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved, except as
disclosed therein; and the other financial and statistical information and
data set forth in the Registration Statement and the Prospectus (and any
amendment or supplement thereto) is, in all material respects, accurately
presented and prepared on a basis consistent with such financial
statements, except as otherwise stated therein. The statistical and
market-related data (including, without limitation, the estimated cost
savings information) included in the Registration Statement and the
Prospectus are based on or derived from sources which the Company believes
to be reliable and accurate.
(w) The pro forma financial statements (including the notes thereto)
and the other pro forma financial information included in the Prospectus
(i) comply as to form in all material respects with the applicable
requirements of Regulation S-X promulgated under the Exchange Act, (ii)
have been prepared in accordance with the Commission's rules and guidelines
with respect to pro forma financial statements and (iii) have been properly
computed on the bases described therein; the assumptions used in the
preparation of the pro forma financial data and other pro forma financial
information included in the Prospectus are reasonable in all material
respects and the adjustments used therein are appropriate in all material
respects to give effect to the transactions or circumstances referred to
therein.
(x) The Company is not, and after giving effect to the Transaction,
will not be an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of
1940, as amended.
(y) No holder of any security of the Company has any right to require
registration of shares of common stock or any other security of the
Company. At and as of the Effective Date, no holder of any security of the
Company will have any right to require registration of shares of common
stock or any other security of the Company.
7
<PAGE> 8
(z) The Company has complied with all provisions of Section 517.075,
Florida Statutes (Chapter 92-198, Laws of Florida).
(aa) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements that conform with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(bb) The Company has and, after giving effect to the Transaction, will
have filed all necessary federal, state and foreign income and franchise
tax returns required to be filed, other than those filings being contested
in good faith, and all material taxes, including withholding taxes,
penalties and interest, assessments, fees and other charges due pursuant to
such returns or pursuant to any assessment received by the Company have
been, and after giving effect to the Transaction, will be paid, other than
those being contested in good faith and for which adequate reserves have
been provided.
(cc) Except as stated in the Prospectus, the Company does not know of
any outstanding claims for services, either in the nature of a finder's
fee, financial advisory fee, origination fee or similar fee, with respect
to the transactions contemplated hereby.
(dd) This Agreement has been duly authorized, executed and delivered
by the Company and constitutes a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization or similar laws affecting the rights of creditors generally
and subject to general principles of equity and except insofar as the
enforceability and the indemnity and contribution provisions contained in
this Agreement may be limited by federal or state securities laws and the
public policy underlying such laws.
(ee) The Indenture has been duly qualified under the 1939 Act and has
been duly authorized, and when executed and delivered by the Company, will
be a valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization or similar laws affecting
the rights of creditors generally and subject to general principles of
equity.
(ff) The Securities have been duly authorized by the Company, and,
when executed and authenticated in accordance with the provisions of the
Indenture, will conform in all material respects to the description thereof
in the Prospectus and when delivered to and paid for by the Underwriter in
accordance with this Agreement, will be valid and binding obligations of
the Company, entitled to the benefits of the Indenture and will be
enforceable against the Company in accordance with their terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization or
similar laws affecting the rights of creditors generally and subject to
general principles of equity.
(gg) Neither the Company nor any agent thereof acting on the behalf of
its behalf has taken, and none of them will take, any action that might
cause the New Credit Facility, this
8
<PAGE> 9
Agreement or the issuance or sale of the Securities pursuant to the
terms of this Agreement to violate Regulation G (12 C.F.R. Part 207),
Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or
Regulation X (12 C.F.R. Part 224) of the Board of Governors of the
Federal Reserve System.
(hh) Immediately after the consummation of the Transaction, the fair
value and present fair saleable value of the assets of the Company will
exceed the sum of its stated liabilities and identified contingent
liabilities; and the Company is not, nor will the Company after giving
effect to the execution, delivery and performance of the Transaction
Documents and the consummation of the transactions contemplated thereby be,
(i) left with unreasonably small capital with which to carry on its
business as it is proposed to be conducted, (ii) unable to pay its debts
(contingent or otherwise) as they mature or (iii) otherwise insolvent.
SECTION 3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF JWCAC. JWCAC
represents and warrants to, and agrees with, the several Underwriters that:
(a) JWCAC has been duly incorporated, and JWCAC is validity existing
as a corporation in good standing under the laws of Delaware.
(b) All of the outstanding shares of capital stock of JWCAC are duly
authorized and validly issued, fully paid and nonassessable and not issued
in violation of any preemptive or similar rights.
(c) This Agreement has been duly authorized, executed and delivered by
JWCAC. JWCAC has all the requisite corporate power and authority to
executive, deliver and perform its obligations under each of the
Transaction Documents to which it is a party; the Merger Agreement has been
duly and validly authorized, executed and delivered by JWCAC and, each of
the Transaction Documents to which it is a party will, as of the Closing
Date, have been duly and validly authorized, executed and delivered by
JWCAC and, each of the Transaction Documents to which JWCAC is a party
constitute or will, as of the Closing Date, constitute a valid and legally
binding obligation of JWCAC, enforceable against JWCAC in accordance with
its terms, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization or similar laws affecting the rights of
creditors generally and subject to general principles of equity.
(d) No consent, approval, authorization or order of any court or
governmental authority or agency, or third party is required for the
performance of any of the Transaction Documents by JWCAC or the
consummation by JWCAC of the transactions contemplated by the Transaction
Documents, except those which have been obtained. The execution, delivery
and performance by JWCAC, to the extent it is a party thereto, of the
Transaction Documents and the consummation of the transactions contemplated
therein will not conflict with or constitute a breach of, or default under,
any material contract to which JWCAC is a party or by which it may be
bound, nor will such action result in any violation of the provisions of
the charter or by-laws of JWCAC or, except as would not have a Material
Adverse Effect, any law, rule, regulation or administrative or court
decree.
(e) JWCAC was formed solely for the purpose of consummating the
Transaction. JWCAC has no material assets or liabilities, conducts no
business and is a party to no material agreements other than this Agreement
and as described in the Prospectus.
9
<PAGE> 10
(f) Except as stated in the Prospectus, JWCAC does not know of any
outstanding claims for services, either in the nature of a finder's fee,
financial advisory fee, origination fee or similar fee, with respect to the
transactions contemplated hereby.
SECTION 4. PURCHASE, SALE AND DELIVERY OF SECURITIES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to issue and sell to
the Underwriter, and the Underwriter agrees to purchase from the Company at a
purchase price of __% of the principal amount thereof $100,000,000 principal
amount of Securities.
The Company will deliver the Securities to you for the accounts of the
Underwriter, against payment of the purchase price therefor by same day funds
drawn to the order of the Company or delivered by wire transfer in accordance
with the Company's instructions, at the office of Latham & Watkins, New York,
New York at 10:00 A.M., New York time, on March ___, 1997 or at such other place
or time not later than seven full business days thereafter as you and the
Company determine, such time being referred to herein as the "Closing Date."
The certificates for all the Securities so to be delivered will be in such
denominations and registered in such names as you request two full business days
prior to the Closing Date and will be made available at the office of
NationsBanc Capital Markets, Inc., Charlotte, North Carolina or, upon your
request, through the facilities of The Depository Trust Company, for checking
and packaging at least one full business day prior to the Closing Date.
SECTION 5. OFFERING BY THE UNDERWRITER. After the Registration Statement
becomes effective the Underwriter will offer the Securities for sale to the
public on the terms as set forth in the Prospectus. The price at which the
Securities will be sold to the public shall not be higher than the maximum price
recommended by Piper Jaffray Inc. acting as a "qualified independent
underwriter" (the "QIU"), within the meaning of Section (b)(15) of Rule 2720 of
the Conduct Rules of the National Association of Securities Dealers, Inc. (the
"NASD") with respect to the offering and sale of the Securities.
SECTION 6. CERTAIN COVENANTS. The Company covenants and agrees with the
Underwriter that:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement or a post-effective amendment
thereto to be declared effective before the offering of the Securities may
commence, the Company will endeavor to cause the Registration Statement or
such post-effective amendment to become effective as soon as possible and
will advise you promptly and, if requested by you, will confirm such advice
in writing, when the Registration Statement or such post-effective
amendment has become effective.
(b) The Company will not file any amendment to the Registration
Statement or make any amendment or supplement to the Prospectus, of which
you shall not previously have been advised or to which, after you shall
have received a copy of the document proposed to be filed, you shall
reasonably object.
(c) The Company will advise you promptly and, if requested by you,
will confirm such advice in writing: (i) when the Registration Statement
has become effective, if and when the Prospectus is sent for filing
pursuant to Rule 424 under the Act and when any post-effective amendment to
the Registration Statement becomes effective; (ii) of any request by the
Commission
10
<PAGE> 11
for amendment of or a supplement to the Registration Statement, any
preliminary prospectus or the Prospectus or for additional information;
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the suspension of
qualification of the Securities for offering or sale in any jurisdiction or
the initiation of any proceeding for such purpose; and (iv) during such
period as in the opinion of counsel for the Underwriter a Prospectus is
required by the Act to be delivered in connection with sales by the
Underwriter or any dealer, of any change in the Company's condition
(financial or other), business, prospects, properties, net worth or results
of operations, or of the happening of any event, which makes any statement
of a material fact made in the Registration Statement or the Prospectus (as
then amended or supplemented) untrue or which requires the making of any
additions to or changes in the Registration Statement or the Prospectus (as
then amended or supplemented) in order to state a material fact required by
the Act to be stated therein or necessary in order to make the statements
therein not misleading, or of the necessity to amend or supplement the
Prospectus (as then amended or supplemented) to comply with the Act or any
other law. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, the Company
will make every reasonable effort to obtain the withdrawal of such order at
the earliest possible time.
(d) As soon after the execution and delivery of this Agreement as
practicable and thereafter from time to time for such period as in the
opinion of counsel for the Underwriter a Prospectus is required by the Act
to be delivered in connection with sales by the Underwriter or any dealer,
the Company will expeditiously deliver to the Underwriter and each dealer,
without charge, as many copies of the Prospectus (and of any amendment or
supplement thereto) as you may request. The Company consents to the use of
the Prospectus (and of any amendment or supplement thereto), in accordance
with the provisions of the Act and with the securities or Blue Sky laws of
the jurisdictions in which the Securities are offered by the Underwriter
and by all dealers to whom the Securities may be sold, both in connection
with the offering and sale of the Securities and for such period of time
thereafter as the Prospectus is required by the Act to be delivered in
connection with sales by the Underwriter or any dealer. If during such
period of time any event shall occur that in the judgment of the Company or
in the opinion of counsel for the Underwriter is required to be set forth
in the Prospectus in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, or if it is
necessary to supplement or amend the Prospectus in order to comply with the
Act or any other law, the Company will forthwith prepare and, subject to
the provisions of paragraph (b) above, file with the Commission an
appropriate supplement or amendment thereto (or to such document), and will
expeditiously furnish to the Underwriter and any dealers a reasonable
number of copies thereof. In the event that the Company and the Underwriter
agree that the Prospectus should be amended or supplemented, the Company,
if requested by you, will promptly issue a press release announcing or
disclosing the matters to be covered by the proposed amendment or
supplement.
(e) The Company will mail and make generally available to its security
holders as soon as practicable an earnings statement covering a period of
at least twelve months after the effective date of the Registration
Statement (but in no event commencing later than 90 days after such date)
which shall satisfy the provisions of Section 11(a) of the Act (including
Rule 158). The Company will also advise you in writing when such statement
has been so made available.
(f) The Company will deliver to you as many signed and conformed
copies of the registration statement (as originally filed) and of each
amendment thereto (including exhibits filed
11
<PAGE> 12
therewith) as you may reasonably request and will also deliver to you a
conformed copy of the Registration Statement and each amendment thereto for
the Underwriter.
(g) The Company will endeavor, in cooperation with you, to qualify the
Securities for offering and sale under the applicable securities laws of
such states and other jurisdictions of the United States as you may
designate, and will maintain such qualifications in effect for as long as
may be required for the distribution of the Securities. The Company will
file such statements and reports as may be required by the laws of each
jurisdiction in which the Securities have been qualified as above provided.
(h) During the period of two years hereafter or for such period of
time as in the opinion of counsel for the Underwriter, a Prospectus is
required by the Act to be delivered in connection with sales by the
Underwriter or any dealer, the Company will furnish to you as soon as
practicable after the end of each fiscal year, a copy of its annual report
to stockholders, if any, for such year, and the Company will furnish to you
(i) as soon as available, a copy of each report (including, without
limitation, quarterly reports containing the Company's consolidated balance
sheet, a consolidated statement of operations and a consolidated statement
of cash flows) or definitive proxy statement of the Company filed with the
Commission under the Exchange Act or mailed to stockholders, and (ii) from
time to time, such other information concerning the Company as you may
reasonably request.
(i) If Rule 430A of the Act is employed, the Company will timely file
the Prospectus pursuant to Rule 424(b) under the Act and will advise you of
the time and manner of such filing. The Company will timely complete all
required filings and otherwise fully comply in a timely manner with all
provisions of the Exchange Act.
(j) During the period beginning on the date hereof and continuing to
and including the Closing Date, the Company will not offer, sell contract
to sell or otherwise dispose of any debt securities of the Company or
warrants to purchase debt securities of the Company substantially similar
to the Securities (other than the Securities), without your prior written
consent.
(k) The Company will use its best efforts to do and perform all things
required or necessary to be done and performed under this Agreement by it
prior to the Closing Date and to satisfy all conditions precedent to the
delivery of the Securities.
(l) The Company will apply the net proceeds from the sale of the
Securities (together with any other net proceeds received pursuant to the
Transaction) as set forth under "Use of Proceeds" in the Prospectus.
SECTION 7. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITER. The
obligations of the Underwriter to purchase and pay for the Securities on the
Closing Date will be subject to satisfaction of each of the following
conditions:
(a) Each of the representations and warranties on the part of the
Company and JWCAC contained herein shall be true and correct in all
material respects on the date herein and on the Closing Date with the same
force and effect as if made on and as of the Closing Date.
(b) The Registration Statement shall have become effective (or if a
post-effective amendment is required to be filed pursuant to Rule 430A
under the Act, such post-effective
12
<PAGE> 13
amendment shall have become effective) not later than 5:00 P.M. New York
time, on the date of this Agreement, or such later time or date as shall
have been consented to by you, and all filings, if any, required by Rules
424 and 430A under the Act shall have been timely made; and prior to the
Closing Date no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall
have been instituted, or to the knowledge of the Company or you, shall be
contemplated by the Commission, and any request of the Commission for
additional information (to be included in the registration statement or the
Prospectus or otherwise) shall have been complied with to your
satisfaction.
(c) You shall not have advised the Company that the Registration
Statement or Prospectus, or any amendment or supplement thereto, contains
an untrue statement of fact or omits to state a fact which, you have
concluded, is material and in the case of an omission is required to be
stated therein or is necessary to make the statements therein not
misleading.
(d) (i) Since the date of the latest balance sheet included in the
Registration Statement and the Prospectus, there shall not have been any
material adverse change, or any development involving a prospective
material adverse change, in the condition, financial or otherwise, or in
the earnings, affairs or business prospects, whether or not arising in the
ordinary course of business, of the Company, (ii) since the date of the
latest balance sheet included in the Registration Statement and the
Prospectus there shall not have been any change, or any development
involving a prospective material adverse change, in the capital stock or in
the long-term debt of the Company from that set forth in the Registration
Statement and Prospectus, (iii) the Company shall have no liability or
obligation, direct or contingent, which is material to it, other than those
reflected in the Registration Statement and the Prospectus and (iv) on the
Closing Date you shall have received a certificate of the Company, dated
the Closing Date, signed on its behalf by (x) the president or any vice
president and (y) a principal financial or accounting officer of the
Company confirming, as of the Closing Date, the matters set forth in
paragraphs (a), (b), (c) and (d) of this Section 7 and confirming that the
representations and warranties contained in Section 2 are true and correct
with the same force and effect as though made on and as of the Closing
Date.
(e) As of the Closing Date, the Company will have delivered to the
Underwriter true and correct executed copies of the Transaction Documents
in the form as originally executed, together with all related documents,
instruments and agreements and all schedules or exhibits thereto; there
will have been no amendments, alterations, modifications or waivers thereto
or in the exhibits or schedules thereto other than those as to which the
Underwriter shall previously have been advised and shall not have
reasonably objected after being furnished a copy thereof.
(f) On the Closing Date, the Underwriter and the QIU shall have
received a certificate, dated the Closing Date, of JWCAC, signed on behalf
of such party by (x) the president or any vice president and (y) any other
officer confirming, as of the Closing Date, the matters set forth in
paragraph (a) of this Section 7 (as to JWCAC) and confirming that the
representations and warranties of JWCAC contained in Section 3 are true and
correct with the same force and effect as though made on and as of the
Closing Date.
(g) None of the issuance and sale of the Securities pursuant to this
Agreement, the Acquisition or any of the other transactions contemplated by
any of the Transaction Documents or the Prospectus shall be enjoined
(temporarily or permanently) and no restraining order or other injunctive
order shall have been issued or any action, suit or proceeding shall have
been commenced with respect to this Agreement, the Merger Agreement, the
New Credit Facility, the
13
<PAGE> 14
Acquisition or any of the other transactions contemplated by the
Transaction Documents or the Prospectus, before any court or governmental
authority.
(h) On the Closing Date, the Underwriter and the QIU shall have
received copies of all opinions delivered by any counsel, consultants or
advisors to JWCAC or any of its affiliates, and such other certificates,
documents and opinions reasonably obtainable by JWCAC or any of its
affiliates delivered to any party under the Transaction Documents, in each
case, together with letters addressed to the Underwriter and QIU, stating
that the Underwriter and the QIU may rely on such certificates, documents
and opinions as if they had been addressed to the Underwriter and the QIU.
(i) The Underwriter and the QIU shall have received a favorable
opinion of Sullivan & Worcester LLP, counsel for the Company, dated the
Closing Date to the effect that:
(i) The Company is duly incorporated and is validly existing as a
corporation in good standing under the laws of Delaware with corporate
power and authority to own, lease and operate its properties and
conduct its business as described in the Registration Statement; and
is duly qualified as a foreign corporation to transact business and is
in good standing in each jurisdiction in which it owns or leases
property or in which the conduct of its business requires such
qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a Material Adverse
Effect.
(ii) The Company has the authorized, issued and outstanding
capital stock as set forth in the Prospectus; all of the outstanding
shares of capital stock of the Company has been duly authorized and
validly issued, are fully paid and nonassessable and were not, to the
best of such counsel's knowledge, issued in violation of any
preemptive or similar rights.
(iii) To the knowledge of such counsel, there are, and after
giving effect to the Transaction, will be, no outstanding
subscriptions, rights, warrants, calls, commitments of sale or options
to acquire, or instruments convertible into or exchangeable for, any
such shares of capital stock or other equity interest of the Company,
except as described in the Prospectus.
(iv) The Company has all the requisite corporate power and
authority to execute, deliver and perform its respective obligations
under each of the Transaction Documents to which it is a party.
(v) The Company has duly authorized, executed and delivered each
of the Transaction Documents to which it is party.
(vi) The Company has duly and validly authorized this Agreement
and the consummation by the Company of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by the
Company.
(vii) The Indenture has been duly qualified under the 1939 Act.
The Company has duly and validly authorized, executed and delivered
the Indenture, and the Indenture constitutes a valid and binding
agreement of, the Company enforceable against it in accordance with
its terms except that (a) the obligations, rights and remedies of
parties
14
<PAGE> 15
may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium, marshaling or other similar laws affecting generally
creditors' rights and remedies, and (ii) general principles of equity
(regardless of whether considered in a proceeding at law or in
equity), including, without limitation, the discretion of any court of
competent jurisdiction in granting specific performance or other
equitable relief.
(viii) The Company has, and after giving effect to the
Transaction, will have duly authorized the Securities, which, when
executed and authenticated in accordance with the provisions of the
Indenture, and delivered to and paid for by the Underwriter in
accordance with the terms of this Agreement, will be valid and binding
obligations of the Company enforceable against the Company (both
before and after giving effect to the Transaction) in accordance with
their terms except that (a) the obligations, rights and remedies of
parties may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium, marshaling or other similar laws affecting generally
creditors' rights and remedies, and (ii) general principles of equity
(regardless of whether considered in a proceeding at law or in
equity), including, without limitation, the discretion of any court of
competent jurisdiction in granting specific performance or other
equitable relief, and will be entitled to the benefits of the
Indenture.
(ix) The Indenture and the Securities conform in all material
respects to the descriptions thereof contained in the Prospectus.
(x) JWCAC has been duly incorporated and is validly existing as a
corporation in good standing under the laws of Delaware.
(xi) All of the outstanding shares of capital stock of JWCAC have
been duly authorized and validly issued, are fully paid and
nonassessable and were not, to the best of such counsel's knowledge,
issued in violation of any preemptive or similar rights.
(xii) JWCAC has, both before and after giving effect to the
Transaction, all the requisite corporate power and authority to
execute, deliver and perform its obligations under each of the
Transaction Documents to which it is a party.
(xiii) JWCAC has duly authorized, executed and delivered each of
the Transaction Documents to which it is a party.
(xiv) The Transaction Documents constitute valid and legally
binding obligations of JWCAC, enforceable against JWCAC (to the extent
JWCAC is a party thereto), in accordance with its terms, except that
(a) the obligations, rights and remedies of parties may be limited by
(i) bankruptcy, insolvency, reorganization, moratorium, marshaling or
other similar laws affecting generally creditors' rights and remedies,
and (ii) general principles of equity (regardless of whether
considered in a proceedings at law or in equity), including, without
limitation, the discretion of any court of competent jurisdiction in
granting specific performance or other equitable relief.
(xv) No consent, approval, authorization or order of any court or
governmental authority or agency, or third party is required (which
has not been obtained) for the performance of any of the Transaction
Documents by JWCAC (to the extent JWCAC is a party thereto) or the
consummation by JWCAC of the transactions contemplated by the
15
<PAGE> 16
Transaction Documents, except as may be required under state
securities or Blue Sky laws. To the best of their knowledge and
information, the execution, delivery and performance by JWCAC of the
Transaction Documents to which it is a party and the consummation of
the transactions contemplated thereby will not conflict with or
constitute a breach of, or default under (or an event which with
notice or passage of time or both would constitute or a default under)
or violation of any of (A) any material contract, indenture, mortgage,
loan agreement, note, lease or other instrument to which is a party or
by which it may be bound or to which any of its property or assets is,
and at and as of the Effective Time will be subject, (B) the
provisions of the charter or by-laws of JWCAC, or (C) (assuming
compliance with all applicable state securities or Blue Sky laws) any
law, administrative regulation or administrative or court decree
applicable to JWCAC or any of its properties or assets, except for any
such breach or violation which would not, individually or in the
aggregate, have a Material Adverse Effect.
(xvi) The Registration Statement is effective under the Act and,
to the best of their knowledge and information, no stop order
suspending the effectiveness of the Registration Statement has been
issued under the Act or proceedings therefor initiated or threatened
by the Commission.
(xvii) No consent, approval, authorization or order of any court
or governmental authority or agency, or third party is required (which
has not been obtained) in connection with the consummation by the
Company of the transactions contemplated by the Transaction Documents,
except such as may be required under state securities or Blue Sky
laws. To the best of their knowledge and information, the execution,
delivery and performance by the Company of the Transaction Documents
and the consummation of the transactions contemplated thereby will not
conflict with or constitute a breach of, or default under (or an event
which with notice or passage of time or both would constitute or a
default under) or violation of any of (A) any material contract,
indenture, mortgage, loan agreement, note, lease or other instrument
to which is a party or by which it may be bound or to which any of its
property or assets is, and at and as of the Effective Time will be
subject, (B) the provisions of the charter or by-laws of the Company,
or (C) (assuming compliance with all applicable state securities or
Blue Sky laws) any law, administrative regulation or administrative or
court decree applicable to the Company or any of its properties or
assets, except for any such breach or violation which would not,
individually or in the aggregate, have a Material Adverse Effect.
(xviii) To the best of their knowledge and information, the
execution, delivery and performance by the Company of the Transaction
Documents and the consummation of the transactions contemplated
thereby will not conflict with or constitute a breach of, or default
under (or an event which with notice or passage of time or both would
constitute or a default under) or violation of any of (A) any material
contract, indenture, mortgage, loan agreement, note, lease or other
instrument to which is a party or by which it may be bound or to which
any of its property or assets is, and at and as of the Effective Time
will be subject, (B) the provisions of the charter or by-laws of the
Company, or (C) (assuming compliance with all applicable state
securities or Blue Sky laws) any law, administrative regulation or
administrative or court decree applicable to the Company or any of its
properties or assets, except for any such breach or violation which
would not, individually or in the aggregate, have a Material Adverse
Effect.
16
<PAGE> 17
(xix) The Company is not, and after giving effect to the
Acquisition to will not be in violation of its charter documents.
(xx) After due inquiry, such counsel does not know of any legal
or governmental proceeding pending or threatened to which the Company
is, and after giving effect to the Acquisition will be a party or to
which any of its properties is or will be subject that is required to
be described in the Registration Statement or the Prospectus and is
not so described or of any material contract or other document that is
required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement
that is not so described or filed as required.
(xxi) To such counsel's knowledge, no legal or governmental
proceedings are pending or threatened to which the Company is, or
after giving effect to the Acquisition, will be a party or to which
any of its properties is subject which, if determined adversely to
such party would result, individually or in the aggregate, in a
Material Adverse Effect, or which seeks to restrain, enjoin, prevent
the consummation of or otherwise challenge the issuance and sale of
the Securities or the consummation of the other transactions
contemplated by the Transaction Documents.
(xxii) The Company is not, and after giving effect to the
Acquisition will not be an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(xxiii) Neither the consummation of the transactions contemplated
by the New Credit Facility and this Agreement nor the issuance or sale
of the Securities will violate Regulation G (12 C.F.R. Part 207),
Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R. Part 221)
or Regulation X (12 C.F.R. Part 224) of the Board of Governors of the
Federal Reserve System.
(xxiv) Such counsel is of the opinion that the Registration
Statement (other than the financial statements and other financial
information included therein, as to which no opinion need be
expressed) complies as to form in all material respects with the
requirements of the Act and the Rules and Regulations.
(xxv) In addition to the foregoing, although such counsel has not
verified, are not passing upon and does not assume any responsibility
for, the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus, such
counsel has reviewed and discussed such statements with certain
directors and officers of the Company, its accountants, the
Underwriter and its counsel and in the course of such review and
discussion, no facts come to our attention that lead such counsel to
believe that (other than the financial statements and other financial
and statistical information included therein, as to which no belief
need be expressed and except for that part of the Registration
Statement that constitutes the Form T-1) the Registration Statement,
at the time it became effective, did not contain any untrue statement
of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading, or to believe that the Prospectus, as amended or
supplemented at the Closing Date, contains any untrue statement of a
material fact or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading.
17
<PAGE> 18
With respect to subparagraph (xxv) of paragraph (i) above, such
counsel may state its belief is based upon its participation in the
preparation of the Registration Statement and Prospectus and any amendments
or supplements thereto and review and discussion of the contents thereof,
but is without independent check or verification except as specified. With
respect to paragraphs (vii) and (viii) of paragraph (i) above, (A) such
counsel may limit such opinions insofar as, enforcement of any rights may
be (x) subject to an implied duty to take action and make determinations on
a reasonable basis and in good faith, and (y) limited by the following
general principles of contract law: (I) the unenforceability of provisions
to the effect that provisions therein may only be amended or waived in
writing to the extent that an oral agreement modifying such provisions has
been entered into, and (II) the general rule that, where less than all of
an agreement is enforceable, the balance is enforceable only when the
unenforceable portion is not an essential part of the agreed exchange and
(B) such counsel need not provide an opinion as to (x) the enforceability
of the premium described in the second paragraph of Section 6.02 of the
Indenture, to the extent that a court may find that such premium
constitutes a penalty, (y) the effectiveness of prospective waivers of
rights to notice or a hearing, or other rights granted by constitution or
statue, powers of attorney, provisions purporting to relieve parties of the
consequences of their own negligence or misconduct, or provisions granting
indemnity or a right of contribution (which may be limited by federal or
state securities laws or public policy), or provisions purporting to
establish evidentiary standards, or (z) whether state court outside of the
State of New York or a Federal court would give effect to the choice of New
York law provided for in the Indenture.
(j) The Underwriter and the QIU shall have received a favorable
opinion of Latham & Watkins, counsel for the Underwriter, dated the Closing
Date, in form and substance satisfactory to you.
(k) The Underwriter and the QIU shall have received from Ernst & Young
LLP, two letters, the first delivered the day of but prior to the execution
of, and dated the date of, this Agreement and the other dated the Closing
Date, addressed to the Underwriter and the QIU, in the form heretofore
agreed (and in the case of the second such letter consistent with the first
such letter) with such variations as are reasonably acceptable to you.
(l) Each of the Stock Purchase and the Note Retirements, shall have
been consummated on the terms and conditions set forth in the Transaction
Documents (without waiver).
(m) On the Closing Date:
(i) the Certificate of Merger with respect to the Merger shall be
in form and substance satisfactory to the Underwriter and Latham &
Watkins, counsel for the Underwriter, shall have been pre-cleared for
filing with the Secretary of State of the State of Delaware and shall
be ready in all respects for filing immediately upon consummation of
each of the transactions contemplated by the Prospectus to be
consummated prior to the Merger;
(ii) the New Credit Facility with aggregate advances and
commitments thereunder of not less than $38.0 million shall be in full
force and effect, no event shall have occurred and no event shall have
failed to occur, which would relieve the lenders under the New Credit
Facility (the "Lenders") of their obligation to advance funds, or
preclude them from advancing funds to the Company thereunder, and
concurrently with
18
<PAGE> 19
the Closing the Lenders shall have advanced funds under the New Credit
Facility in such amounts as are necessary to fund the Acquisition
(after giving effect to the Equity Financing and the sale of the
Securities hereunder); and
(iii) the Equity Financing shall have been consummated on terms
and conditions satisfactory to the Underwriter and the existing
preferred stock of Holding shall have been exchanged for new preferred
stock of Holding having terms and conditions acceptable to the
Underwriter.
(n) Simultaneously with the Closing, the closing contemplated by the
Merger Agreement, including, without limitation, the Merger, shall have
been consummated in accordance with the terms of the Merger Agreement.
(o) Counsel for the Underwriter shall have been furnished with such
other documents and opinions as they may reasonably require.
SECTION 8. PAYMENT OF EXPENSES. Whether or not any of the transactions
contemplated hereby are consummated, or this Agreement is terminated, the
Company agrees to pay all costs, expenses, fees and taxes incident to (i) the
preparation, printing, filing and distribution under the Act of the Registration
Statement (including financial statements and exhibits), the Prospectus, each
preliminary prospectus, and all amendments and supplements to any of them, (ii)
the preparation, printing (including word processing and duplication costs) and
delivery of this Agreement, the Indenture, Preliminary and Supplemental Blue Sky
Memoranda and all other agreements, memoranda, correspondence and other
documents printed and delivered in connection with the offering of the
Securities, (iii) the registration with the Commission, and the issuance by the
Company of the Securities, (iv) the registration or qualification of the
Securities for offer and sale under the securities or Blue Sky laws of the
several states as described in Section 6(e) (including the reasonable fees and
disbursements of your counsel relating to such registration or qualification),
(v) the fees and expenses of rating agencies, (vi) the furnishing of such copies
of the Registration Statement, Prospectus and preliminary prospectus, and all
amendments and supplements to any of them, as may be reasonably requested by
you; (vii) filings and clearance with the NASD in connection with the offering;
(viii) the listing of the Securities on a stock exchange or automated quotation
system, if any; (ix) the QIU (including fees and disbursements of counsel for
the QIU); (x) expenses of the Company in connection with any meetings with
prospective investors in the Securities; (xi) advertising relating to the
offering of the Securities (to the extent specifically approved by the Company);
and (xii) the performance by the Company of its other obligations under this
Agreement, including (without limitation) the fees of the Trustee, the costs of
the Trustee's personnel and other internal costs, the cost of printing and
engraving the certificates representing the Securities, all expenses and taxes
incident to the sale and the delivery of the Securities to you, and fees and
expenses of counsel for the Company for providing such opinions as you may
reasonably request.
If this Agreement is terminated by you in accordance with the provisions of
Section 7 or Section 11, the Company and JWCAC jointly and severally shall
reimburse you for all of your out-of-pocket expenses, including the reasonable
fees and disbursements of counsel for the Underwriter.
SECTION 9. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to
indemnify and hold harmless the Underwriter and each person, if any, who
controls the Underwriter within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, from and against any and all losses, claims, damages,
liabilities or judgments (including without limiting the foregoing the
reasonable legal and other expenses incurred in connection with any action, suit
or proceeding or any claim asserted) arising
19
<PAGE> 20
out of any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or the Prospectus or any preliminary
prospectus, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or expenses are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to the
Underwriter furnished in writing to the Company by the Underwriter expressly for
use therein. This indemnity agreement will be in addition to any liability which
the Company may otherwise have to the persons referred to above in this Section
9(a).
(b) The Underwriter agrees to indemnify and hold harmless the Company, its
directors, its officers who sign the Registration Statement and each person, if
any, who controls the Company within the meaning of either Section 15 of the Act
or Section 20 of the Exchange Act from and against any and all losses, claims,
damages liabilities and judgments (including without limiting the foregoing the
reasonable legal and other expenses incurred in connection with any action, suit
or proceeding or any claim asserted) arising out of any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or the Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) or any preliminary
prospectus, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but only with reference to information relating to the
Underwriter furnished to the Company in writing by the Underwriter through you
expressly for use in the Registration Statement, the Prospectus, any amendment
or supplement thereto, or any preliminary prospectus.
(c) In case any action or proceeding (including any governmental or
regulatory investigation or proceeding) shall be instituted involving any person
in respect of which indemnity may be sought pursuant to either of the two
preceding paragraphs, such person (hereinafter called the "indemnified party")
shall promptly notify the person against whom such indemnity may be sought
(hereinafter called the "indemnifying party") in writing and the indemnifying
party, upon request of the indemnified party, shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to the indemnified
party to represent the indemnified party and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such action or
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel, (ii) the
indemnifying party shall have failed to assume the defense and employ counsel or
(iii) the named parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing interests among them. It is understood that the indemnifying
party shall not, in connection with any proceeding or related proceedings in the
same jurisdiction, be liable for (a) the reasonable fees and expenses of more
than one separate firm (in addition to local counsel) for the Underwriter and
all persons, if any, who control the Underwriter within the meaning of either
Section 15 of the Act or Section 20 of the Exchange Act and (b) the reasonable
fees and expenses of more than one separate firm (in addition to local counsel)
for the Company its directors, its officers who sign the Registration Statement
and each person, if any, who controls the Company within the meaning of either
Section 15 of the Act or Section 20 of the Exchange Act and that all such fees
and expenses shall be reimbursed as they are incurred. In the case of any such
separate firm for the Underwriter and such control persons of the Underwriter,
such firm shall be designated in writing by the Underwriter. In the case of any
such separate firm for the Company, and such directors, officers and control
persons of the Company, such firm shall be designated in writing by the Company.
The indemnifying party shall not be liable for any settlement of any proceeding
effected without its written
20
<PAGE> 21
consent; but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or judgment.
Notwithstanding the immediately preceding sentence, if in any case where the
fees and expenses of counsel are at the expense of the indemnifying party and an
indemnified party shall have requested the indemnifying party to reimburse the
indemnified party for such fees and expenses of counsel as incurred, such
indemnifying party agrees that it shall be liable for any settlement of any
action effected without its written consent if (i) such settlement is entered
into more than twenty business days after the receipt by such indemnifying party
of the aforesaid request and (ii) such indemnifying party shall have failed to
reimburse the indemnified party in accordance with such request for
reimbursement prior to the date of such settlement. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
(d) If the indemnification provided for in this Section 9 is unavailable to
an indemnified party in respect of any losses, claims, damages, liabilities or
judgments referred to therein, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities and expenses (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriter on
the other from the offering of the Securities or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and the
Underwriter 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 benefits received by
the Company on the one hand and the Underwriter on the other shall be deemed to
be in the same proportions as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriter, in each case as set forth
in the table on the cover page of the Prospectus. The relative fault of the
Company on the one hand and the Underwriter 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 to state a material fact relates to
information supplied by the Company or by the Underwriter and the party's
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
(e) The Company and the Underwriter agree that it would not be just and
equitable if contribution pursuant to Section 9(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any 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 Section 9(d), in no event shall the
Underwriter be required to contribute any amount in excess of the amount by
which the total price at which the Securities underwritten by it and distributed
to the public were offered to the public exceeds the amount of any damages which
the Underwriter 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.
21
<PAGE> 22
SECTION 10. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.
All representations, warranties and agreements contained in this Agreement, or
contained in certificates of officers of the Company and JWCAC submitted
pursuant hereto, including indemnity and contribution agreements, shall remain
operative and in full force and effect, regardless of any termination of this
Agreement, or any investigation made by or on behalf of the Underwriter or any
person controlling the Underwriter by or on behalf of the Company, its officers
or directors, and shall survive acceptance and payment for the Securities
hereunder.
SECTION 11. EFFECTIVENESS OF AGREEMENT AND TERMINATION. This Agreement
shall become effective upon the later of (x) execution and delivery hereof by
the parties hereto and (y) release of notification of the effectiveness of the
Registration Statement by the Commission.
This Agreement may be terminated for any reason at any time prior to the
Closing Date by the Underwriter upon the giving of written notice of such
termination to the Company, if prior to the Closing Date (i) there has been,
since the respective dates as of which information is given in the Registration
Statement, any material adverse change in the condition, financial or otherwise,
earnings, business affairs or business prospects of the Company, whether or not
arising in the ordinary course of business, or (ii) there has occurred any
outbreak or escalation of hostilities or other calamity or crisis or material
change in existing financial, political, economic or securities market
conditions, the effect of which is such as to make it, in the judgment of the
Underwriter impracticable or inadvisable to market the Securities in the manner
contemplated in the Prospectus or enforce contracts for the sale of the
Securities, or (iii) trading generally on either the American Stock Exchange,
the New York Stock Exchange or the NASDAQ National Market System has been
suspended, or minimum or maximum prices for trading have been fixed, or maximum
ranges for prices for securities have been required, by either of said exchanges
or the NASDAQ National Market System or by order of the Commission or any other
governmental authority, or if a banking moratorium has been declared by either
Federal or New York authorities. In the event of any such termination, the
provisions of Section 8, the indemnity agreement and contribution provisions set
forth in Section 9, and the provisions of Sections 10, 13 and 14 shall remain in
effect.
SECTION 12. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunications. Notice to the
Underwriter shall be directed to NationsBanc Capital Markets, Inc., 100 North
Tryon Street, Charlotte, North Carolina 28255, Attention: Syndicate; notices to
the Company shall be directed to such party at Central Tractor Farm & Country,
Inc., 3915 Delaware Avenue, Des Moines, Iowa 50316-0330, Attention: President
(with a copy to the Treasurer) with a copy to J.W. Childs Associates, L.P., One
Federal Street, 21st Floor, Boston, Massachusetts 02110.
SECTION 13. PARTIES. This Agreement shall inure to the benefit of and be
binding upon the Company, JWCAC, the Underwriter, each director, officer and any
controlling persons referred to herein and their respective successors and
assigns. Nothing expressed or mentioned in this Agreement is intended or shall
be construed to give any other person, firm or corporation any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision herein contained. No purchaser of Securities from the Underwriter
shall be deemed to be a successor or assign by reason merely of such purchase.
SECTION 14. GOVERNING LAW. This Agreement shall be governed by the laws of
the State of New York.
22
<PAGE> 23
This Agreement may be signed in two or more counterparts each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument.
23
<PAGE> 24
If the foregoing is in accordance with your understanding of our agreement,
please sign this Agreement and return it to us.
Very truly yours,
CENTRAL TRACTOR FARM & COUNTRY, INC.
By:
-----------------------------------
Name:
Title:
JWC ACQUISITION I, INC.
By:
-----------------------------------
Name:
Title:
NATIONSBANC CAPITAL MARKETS, INC.
By
-----------------------------
Name:
Title:
24
<PAGE> 1
Exhibit 1.2
March __, 1997
Central Tractor Farm & Country, Inc.
3915 Delaware Avenue
Des Moines, Iowa 50316
NationsBanc Capital Markets, Inc.
NationsBank Corporate Center
100 North Tryon Street
Charlotte, North Carolina 28255
Re: Central Tractor Farm & Country, Inc.
Offering of $100,000,000 __% Senior Notes
Due 2007 (Registration Statement on
Form S-1, File No. 333-19613)
Ladies and Gentlemen:
We understand that Central Tractor Farm & Country, Inc. (the "Company")
intends to register and publicly offer for sale the above-referenced securities
(the "Securities") in an offering (the "Offering") to be underwritten solely by
NationsBanc Capital Markets, Inc. ("NCMI"). NCMI and the Company have advised us
that the participation by NCMI in the Offering will require the participation of
a "qualified independent underwriter" as defined in Rule 2720(b)(15) of the
Conduct Rules (the "Conduct Rules") of the National Association of Securities
Dealers, Inc. (the "NASD"). This letter agreement (the "Agreement") describes
the terms on which we are being retained to serve and upon which we agree to act
as such a "qualified independent underwriter" in connection with the Offering.
As used herein, the term "Registration Statement" means the
above-referenced Registration Statement on Form S-1, including the related
prospectus, as amended, or deemed to be amended pursuant to Rule 430A under the
Securities Act of 1933, as amended (the "Act"), and the term "Prospectus" means
the prospectus included in the Registration Statement and any prospectus or
prospectus supplement filed with the Securities and Exchange Commission (the
"Commission") pursuant to Rule 424(b) of the Act.
1. Satisfaction of Requirements. We represent that, as appropriate, we
satisfy or will satisfy the requirements of clauses (A) through (F) of Rule
2720(b)(15) of the Conduct Rules at the times designated therein. We have
participated and will continue to participate
1
<PAGE> 2
in the preparation of the Registration Statement (including the Prospectus) and
in conferences and discussions with members of the management of, and counsel
to and independent public accountants for, the Company and NCMI and we confirm
that we have exercised and will continue to exercise the usual standards of due
diligence in respect thereof. We will also update our due diligence as required
by our activities as qualified independent underwriter in connection with
supplements or amendments to the Prospectus or the Registration Statement.
Subject to the terms and conditions of this Agreement, we hereby agree, in
accordance with clause (G) of Rule 2720(b)(15) of the Conduct Rules, in acting
as a qualified independent underwriter, to undertake the legal responsibilities
and liabilities of an underwriter under the Act, specifically including those
inherent in Section 11 thereof. It is specifically understood, however, that we
will bear such legal responsibilities and liabilities only to the extent, if
any, that a court of competent jurisdiction rules in a judgment that has become
final, and not subject to further appeal, that we, in our capacity as a
"qualified independent underwriter," bear the legal responsibilities of an
"underwriter" under the Act. We understand that views expressed by the NASD and
the Commission indicate that, in acting as a "qualified independent
underwriter," we may be deemed to be an "underwriter" within the meaning of the
Act. These are, however, questions of statutory interpretation regarding the
underwriting status of a "qualified independent underwriter" that have not yet
been judicially determined in all jurisdictions.
2. Pricing Opinion. In connection with the Offering, we will deliver to
NCMI the pricing opinion required by Rule 2710(c)(8) of the Conduct Rules. Such
opinion will be delivered immediately prior to the signing of the Underwriting
Agreement (as hereinafter defined). The pricing opinion will be in substantially
the form of Appendix I attached hereto.
3. Consent. All references to us in the Registration Statement or the
Prospectus or in any other filing, report, document, release or other
communication prepared, issued or transmitted in conjunction with the Offering
by the Company or NCMI shall be subject to our prior consent with respect to
form and substance, which consent shall not be unreasonably withheld. Each of
the Company and NCMI will cause any corporation controlling, controlled by or
under common control with it, and any representative or agent of the Company or
NCMI, as the case may be, or of any such corporation, who or which prepares,
issues or transmits
2
<PAGE> 3
any filing, report, document, release or other communication in connection
with the Offering which refers to us, to obtain our prior consent with respect
to the form and substance thereof, which consent shall not be unreasonably with
held. Notwithstanding the foregoing, counsel to the Company or the Underwriters
may, without our prior consent, refer to us in any correspondence with the NASD
or the Commission which relates to the transactions contemplated by this
Agreement.
4. Underwriting Agreement. The Company hereby agrees that it will,
prior to or concurrently with the sale of any of the Securities, duly execute
and deliver to us an Underwriting Agreement substantially in the form of Exhibit
1.1 to the Registration Statement, as amended to date. Such Underwriting
Agreement, in the form executed and delivered by the Company, is herein referred
to as the "Underwriting Agreement".
5. Availability of Information. The Company hereby agrees to provide
us, prior to the closing of the sale of the Securities and at the Company's
expense, with such information and documentation with respect to its business,
financial condition and other matters as we may reasonably request in connection
with the performance of our services hereunder, including without limitation
copies of all correspondence with the Commission or the NASD in the possession
of the Company.
6. Fees and Expenses. As compensation for the services to be rendered
by us under this Agreement, the Company agrees to pay us $100,000 at the closing
of the sale of the Securities by the Company to NCMI (but only if such closing
occurs). In addition, whether or not the purchase and sale of the Securities by
NCMI is consummated, the Company agrees to promptly reimburse us for all of our
out-of-pocket expenses (including reasonable fees and disbursement of our
counsel) reasonably incurred by us in connection with this Agreement and the
services contemplated hereby.
7. Representations and Warranties of the Company. The Company agrees
that all of its representations and warranties contained in the Underwriting
Agreement shall be deemed to be incorporated by reference herein and made to us
hereunder as of the times such representations and warranties are made in
accordance with the terms of the Underwriting Agreement.
8. Covenants of the Company. The Company agrees that all of the
covenants and other agreements contained in the Underwriting Agreement shall be
deemed to be incorporated by reference herein and made
3
<PAGE> 4
for our benefit hereunder. Prior to the closing of the sale of the Securities,
the Company will make its auditors, counsel, officers and directors reasonably
available to us to discuss with us any aspect of the Company that we may deem
relevant. In addition, the Company will promptly advise us of all telephone
conversations with the NASD and the Commission known to the Company that relate
to or may affect the sale of the Securities.
9. Indemnification and Contribution. The Company hereby agrees to
indemnify and hold harmless Piper Jaffray Inc., and its directors, officers,
employees, representatives or agents and each person, if any, who controls Piper
Jaffray Inc. within the meaning of Section 15 of the Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the rules
and regulations thereunder (individually, a "PJI Indemnified Party" or
collectively, the "PJI Indemnified Parties") from and against any and all
losses, claims, damages, liabilities and expenses, joint or several, to which
any PJI Indemnified Party may become subject, under the Act or otherwise
(including in settlement of any litigation if such settlement is effected with
the written consent of the Company), insofar as such losses, claims, damages,
liabilities and expenses (or actions in respect thereof) arise out of or are
based upon (i) our activities under this Agreement, or (ii) the breach of any
representation, warranty or covenant of the Company set forth in this Agreement,
or (iii) any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or the Prospectus or in any amendment or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities and expenses are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information relating to us furnished in writing to the Company by us expressly
for use therein; provided, however, that the Company shall not be liable in any
such case to the extent that any such loss, claim, damage, liability or expense
is found in a final judgment by a court of competent jurisdiction, not subject
to further appeal, to have resulted from Piper Jaffray Inc.'s willful misconduct
or gross negligence.
In addition to its other obligations under this Section 9, the Company
agrees that, as an interim measure during the pendency of any claim, action,
investigation, inquiry or other proceeding regarding matters described in the
first paragraph of this Section 9, the Company will reimburse each PJI
Indemnified Party on a monthly basis for all
4
<PAGE> 5
reasonable legal fees or other expenses, incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the Company's obligation to reimburse such
PJI Indemnified Party for such expenses and possibility that such payments
might later be held to have been improper by a court of competent jurisdiction.
To the extent that any such interim reimbursement payment is so held to have
been improper, each PJI Indemnified Party that received such payment shall
promptly return it to the party or parties that made such payment, together
with interest, compounded daily, determined on the basis of the prime rate (or
other commercial lending rate for borrowers of the highest credit standing)
announced from time to time by Norwest Bank Minnesota National Association (the
"Prime Rate"). Any such interim reimbursement payments which are not made to a
PJI Indemnified Party within 30 days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request.
Promptly after receipt by a PJI Indemnified Party of notice of the
commencement of any action, such PJI Indemnified Party shall, if a claim in
respect thereof is to be made against the Company hereunder, notify the Company
in writing of the commencement thereof; but the omission so to notify the
Company shall not relieve the Company from any liability that it may have to any
PJI Indemnified Party. In case any such action shall be brought against any PJI
Indemnified Party, and it shall notify the Company of the commencement thereof,
the Company shall be entitled to participate in, and, to the extent that it
shall wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel satisfactory to such PJI Indemnified
Party, and after notice from the Company to such PJI Indemnified Party of the
PJI Indemnifying Party's election so to assume the defense thereof, the Company
shall not be liable to such PJI Indemnified Party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
if, in the reasonable judgment of the PJI Indemnified Parties, it is advisable
for the PJI Indemnified Parties to be represented as a group by separate
counsel, the PJI Indemnified Parties shall have the right to employ a single
counsel to represent the PJI Indemnified Parties who may be subject to liability
arising from any claim in respect of which indemnity may be sought by the PJI
Indemnified Parties hereunder, in which event the reasonable fees and expenses
of such separate counsel shall be borne by the Company and reimbursed to the PJI
Indemnified Parties as incurred (in accordance with the provisions of the second
paragraph in this Section 9 above). The Company shall not be
5
<PAGE> 6
obligated under any settlement agreement relating to any action under this
Section 9 to which it has not agreed in writing.
If the indemnification provided for in this Section 9 is unavailable or
insufficient to hold harmless a PJI Indemnified Party hereunder, then the
Company shall contribute to the amount paid or payable by any such PJI
Indemnified Party as a result of such losses, claims, damages, liabilities and
expenses in such proportion so that the PJI Indemnified Parties in the aggregate
are responsible for that portion represented by the percentage that Piper
Jaffray Inc.'s fee under this Agreement bears to the total of the proposed
maximum aggregate offering price for all the Securities set forth on the cover
of the Registration Statement, and the Company shall be responsible for the
balance. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law, then the Company shall contribute
to such amount paid or payable by the PJI Indemnified Parties in such proportion
as is appropriate to reflect not only the relative benefits but also the
relative fault of the Company and the PJI Indemnified Parties on the other in
connection with the matters that resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative faults in connection with any such matters or any other matters
shall be determined by reference to, among other things, the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
any such matter or other matters. The Company and we agree that it would not be
just and equitable if contributions pursuant to this Section 9 were to be
determined by pro rata allocation or by any other method of allocation that does
not take account of the equitable considerations referred to in this paragraph.
In no case shall the PJI Indemnified Parties be required to contribute in the
aggregate an amount exceeding the fees received by Piper Jaffray Inc. pursuant
to this Agreement. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act shall be entitled to contribution form any
person who was not guilty of such fraudulent misrepresentation.
The obligations of the Company under this Section 9 shall be in addition to
any liability which the Company may otherwise have.
10. Required Documentation. The Company and, with respect to the legal
opinion of Latham & Watkins referred to in clause (ii) in this Section 10, NCMI
covenant with us that:
(i) the "comfort letters" of Ernst & Young LLP to be delivered to
6
<PAGE> 7
NCMI pursuant to Section 7(k) of the Underwriting Agreement shall also be
addressed and delivered to us;
(ii) the legal opinions of Sullivan & Worcester LLP and Latham & Watkins to be
delivered to NCMI pursuant to Sections 7(i) and 7(j) of the Underwriting
Agreement, respectively, shall also be addressed to us; and
(iii) copies of all certificates, opinions, letters and reports to be delivered
to NCMI by or on behalf of the Company pursuant to the Underwriting Agreement
shall be delivered to us by the Company and each person issuing any such
certificate, opinion, letter or report shall be directed by the Company to
authorize us to rely thereon to the same extent as if addressed directly to us.
11. Survival of Representations, Warranties, Indemnification and
Contribution. The foregoing representations and warranties, and
indemnification and contribution provisions, shall remain in full force and
effect regardless of any investigations made by or for us and shall survive
delivery of or payment for the Securities. Our successors and assigns shall be
entitled to the benefits of the indemnification and contribution provisions, and
the same shall be binding upon the successors and assigns of the Company.
12. Authorization. Each of the parties hereto represents and warrants
to the others that this Agreement has been duly authorized, executed and
delivered by such party and constitutes its valid and binding obligation.
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota (without regard to conflicts
of laws principles).
14. Counterparts. This Agreement may be signed in two or more
counterparts, which together shall constitute one and the same instrument.
7
<PAGE> 8
_____________________________
Please confirm your agreement hereto by signing and returning the attached
copy of this letter. Upon receipt thereof, this letter and said signed duplicate
copy will evidence the agreement between you and us.
Very truly yours,
PIPER JAFFRAY INC.
By:
Name:
Title:
Confirmed and accepted on the date
first above written:
CENTRAL TRACTOR FARM &
COUNTRY, INC.
By:
Name:
Title:
NATIONSBANC CAPITAL MARKETS, INC.
By:
Name:
Title:
8
<PAGE> 9
APPENDIX I TO QIU
ENGAGEMENT LETTER
, 1997
Central Tractor Farm & Country, Inc.
3915 Delaware Avenue
Des Moines, Iowa 50316
NationsBanc Capital Markets, Inc.
767 5th Avenue
New York, New York 10153
Re: Central Tractor Farm & Country, Inc.
Offering of $100,000,000 Senior Notes Due 2007
Ladies and Gentlemen:
Reference is made to the Conduct Rules (the "Conduct Rules") of the
National Association of Securities Dealers, Inc. and specifically to Rules
2710(c)(8) and 2720 therein, and to the proposed issuance by Central Tractor
Farm & Country, Inc. of Senior Notes Due 2007 in the aggregate principal amount
of $100,000,000 (the "Notes"). We hereby confirm that we are acting as a
"qualified independent underwriter" within the meaning of Rule 2720 of the
Conduct Rules.
In accordance with the requirement of Conduct Rules 2710(c)(8) and
2720(c)(3), we recommend to you that the yield at which the Notes are to be
distributed to the public, expressed as an annual percentage rate of interest on
the face value of the Notes (accruing after the date of issuance of the Notes
and payable in cash semiannually, commencing ______________, 1997), should not
be lower than ___%.
In arriving at our opinion, we have undertaken such reviews, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we have reviewed the information set forth in the prospectus (the
"Prospectus") relating to the Common Stock, as included in the Registration
Statement on Form S-1 originally filed with the Securities and Exchange
Commission and any amendments thereto (collectively, the "Registration
Statement"). We have
9
<PAGE> 10
also participated in the preparation of the Registration Statement and
Prospectus and have performed due diligence with respect to the information
contained therein. In the course of our valuation for purposes of arriving at
our recommendation with respect to the minimum yield on the Notes, we conducted
a review of the Company and made inquiries of its management, counsel and
independent public accountants. Among the factors also considered by us in
arriving at our opinion were the industry in which the Company competes,
estimates of the business potential of the Company, an assessment of the
Company's management, the general condition of the securities market, and the
demand for similar securities of companies believed by us to be comparable to
the Company.
Our opinion is based on economic, market, financial and other conditions as
they exist at the date hereof and can be evaluated by us and on the conditions
and circumstances of the Company as described in the Registration Statement.
Changes in the condition and circumstances of the Company from that described in
the Registration Statement and events occurring after the date hereof could
materially affect the opinion stated in this letter. We shall not be obligated
or required hereafter to reaffirm or revise these recommendations or otherwise
to comment on any events occurring after the date hereof or any changes in the
condition or circumstances of the Company from those described.
PIPER JAFFRAY INC.
By:
Managing Director
10
<PAGE> 1
Exhibit 4.4
CENTRAL TRACTOR FARM & COUNTRY, INC.
__% SENIOR NOTES DUE 2007
-----------------
INDENTURE
Dated as of ______, 1997
-----------------
MARINE MIDLAND BANK
Trustee
<PAGE> 2
CROSS-REFERENCE TABLE*
Trust Indenture
Act Section Indenture Section
310 (a)(1)....................................................... 7.10
(a)(2)...................................................... 7.10
(a)(3) ..................................................... N.A.
(a)(4)...................................................... N.A.
(a)(5)...................................................... 7.10
(b) ........................................................ 7.10
(c) ........................................................ N.A.
311 (a) ......................................................... 7.11
(b) ........................................................ 7.11
(c) ........................................................ N.A.
312 (a).......................................................... 2.05
(b)......................................................... N.A.
(c) ........................................................ N.A.
313 (a) ......................................................... 7.06
(b) ........................................................ 7.06
(c) ........................................................ 7.06
(d)......................................................... 7.06
314 (a) ......................................................... N.A.
(b) ........................................................ N.A.
(c)(1) ..................................................... N.A.
(c)(2) ..................................................... N.A.
(c)(3) ..................................................... N.A.
(d)......................................................... N.A.
(e) ....................................................... N.A.
(f)......................................................... N.A.
315 (a).......................................................... N.A.
(b)......................................................... 7.05
(c) ....................................................... N.A.
(d)......................................................... N.A.
(e)......................................................... N.A.
316 (a)(last sentence) .......................................... N.A.
(a)(1)(A)................................................... N.A.
(a)(1)(B) .................................................. N.A.
(a)(2) ..................................................... N.A.
(b) ........................................................ N.A.
(c) ........................................................ 2.13
317 (a)(1) ...................................................... N.A.
(a)(2)...................................................... N.A.
(b) ........................................................ N.A.
318 (a).......................................................... N.A.
(b)......................................................... N.A.
(c)......................................................... N.A.
N.A. means not applicable.
*This Cross-Reference Table is not part of this Indenture.
2
<PAGE> 3
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions.............................................. 1
Section 1.02. Other Definitions........................................ 15
Section 1.03. Incorporation by Reference of Trust Indenture Act........ 15
Section 1.04. Rules of Construction.................................... 16
ARTICLE 2
THE SENIOR NOTES
Section 2.01. Form and Dating.......................................... 16
Section 2.02. Execution and Authentication............................. 17
Section 2.03. Registrar and Paying Agent............................... 17
Section 2.04. Paying Agent to Hold Money in Trust...................... 18
Section 2.05. Lists of Holders of the Senior Notes..................... 18
Section 2.06. Transfer and Exchange.................................... 18
Section 2.07. Replacement Senior Notes................................. 19
Section 2.08. Outstanding Senior Notes................................. 19
Section 2.09. Treasury Senior Notes.................................... 19
Section 2.10. Temporary Senior Notes................................... 20
Section 2.11. Cancellation............................................. 20
Section 2.12. Defaulted Interest....................................... 20
Section 2.13. Record Date.............................................. 20
Section 2.14. CUSIP Number............................................. 20
Section 2.15. Computation of Interest.................................. 21
ARTICLE 3
REDEMPTION AND OFFERS TO PURCHASE
Section 3.01. Notices to Trustee....................................... 21
Section 3.02. Selection of Senior Notes to Be Purchased or
Redeemed................................................. 21
Section 3.03. Notice of Redemption..................................... 22
Section 3.04. Effect of Notice of Redemption........................... 22
Section 3.05. Deposit of Redemption or Purchase Price.................. 23
Section 3.06. Senior Notes Redeemed or Purchased in Part............... 23
Section 3.07. Optional Redemption...................................... 23
Section 3.08. Mandatory Redemption..................................... 24
Section 3.09. Asset Sale Offers........................................ 24
ARTICLE 4
COVENANTS
Section 4.01. Payment of Senior Notes.................................. 26
Section 4.02. Maintenance of Office or Agency.......................... 26
Section 4.03. Reports.................................................. 27
Section 4.04 Compliance Certificate................................... 28
Section 4.05. Taxes.................................................... 28
i
<PAGE> 4
Section 4.06. Stay, Extension and Usury Laws............................ 29
Section 4.07. Restricted Payments....................................... 29
Section 4.08. Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries................................... 31
Section 4.09 Additional Subsidiary Guarantees.......................... 32
Section 4.10. Asset Sales............................................... 32
Section 4.11. Transactions with Affiliates.............................. 33
Section 4.12. Liens..................................................... 33
Section 4.13. Sale and Leaseback Transactions........................... 34
Section 4.14. Incurrence of Indebtedness and Issuance of Preferred
Stock..................................................... 34
Section 4.15. Offer to Purchase Upon Change of Control.................. 37
Section 4.16. Corporate Existence....................................... 38
Section 4.17 Limitation on Issuances and Sales of Capital Stock of
Wholly Owned Restricted Subsidiaries...................... 39
Section 4.18 Payments for Consent...................................... 39
ARTICLE 5
SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of Assets.................. 39
Section 5.02. Successor Corporation Substituted......................... 40
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default......................................... 40
Section 6.02. Acceleration.............................................. 42
Section 6.03. Other Remedies............................................ 43
Section 6.04. Waiver of Past Defaults................................... 43
Section 6.05. Control by Majority....................................... 43
Section 6.06. Limitation on Suits....................................... 44
Section 6.07. Rights of Holders of Senior Notes to Receive
Payment................................................... 44
Section 6.08. Collection Suit by Trustee................................ 44
Section 6.09. Trustee May File Proofs of Claim.......................... 45
Section 6.10. Priorities................................................ 45
Section 6.11. Undertaking for Costs..................................... 46
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee......................................... 46
Section 7.02. Rights of Trustee......................................... 47
Section 7.03. Individual Rights of Trustee.............................. 48
Section 7.04. Trustee's Disclaimer...................................... 48
Section 7.05. Notice of Defaults........................................ 49
Section 7.06. Reports by Trustee to Holders of the Senior Notes......... 49
Section 7.07. Compensation and Indemnity................................ 49
Section 7.08. Replacement of Trustee.................................... 50
Section 7.09. Successor Trustee by Merger, etc.......................... 51
Section 7.10. Eligibility; Disqualification............................. 51
ii
<PAGE> 5
Section 7.11. Preferential Collection of Claims Against Company......... 51
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant
Defeasance................................................ 51
Section 8.02. Legal Defeasance and Discharge............................ 51
Section 8.03. Covenant Defeasance....................................... 52
Section 8.04. Conditions to Legal or Covenant Defeasance................ 52
Section 8.05. Deposited Money and Government Securities to be
Held in Trust; Other Miscellaneous Provisions............. 54
Section 8.06. Repayment to Company...................................... 55
Section 8.07. Reinstatement............................................. 55
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Senior Notes................ 55
Section 9.02. With Consent of Holders of Senior Notes................... 56
Section 9.03. Compliance with Trust Indenture Act....................... 58
Section 9.04. Revocation and Effect of Consents......................... 58
Section 9.05. Notation on or Exchange of Senior Notes................... 58
Section 9.06. Trustee to Sign Amendments, etc........................... 58
ARTICLE 10
MISCELLANEOUS
Section 10.01. Trust Indenture Act Controls.............................. 59
Section 10.02. Notices................................................... 59
Section 10.03. Communication by Holders of Senior Notes with
Other Holders of Senior Notes............................. 60
Section 10.04. Certificate and Opinion as to Conditions Precedent........ 60
Section 10.05. Statements Required in Certificate or Opinion............. 60
Section 10.06. Rules by Trustee and Agents............................... 61
Section 10.07. No Personal Liability of Directors, Officers,
Employees and Stockholders................................ 61
Section 10.08. Governing Law............................................. 61
Section 10.09. No Adverse Interpretation of Other Agreements............. 61
Section 10.10. Successors................................................ 61
Section 10.11. Severability.............................................. 62
Section 10.12. Counterpart Originals..................................... 62
Section 10.13. Table of Contents, Headings, etc.......................... 62
Section 10.14. Trustee To Include Paying Agent........................... 62
iii
<PAGE> 6
INDENTURE dated as of March , 1997 between Central Tractor Farm & Country,
Inc., a Delaware corporation, as Issuer (the "Company"), and Marine Midland
Bank, as trustee (the "Trustee").
The Company and the Trustee agree as follows for the benefit of each other
and for the equal and ratable benefit of the Holders of the __% Senior Notes due
2007:
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01. DEFINITIONS.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Acquisition" shall have the meaning set forth in the Prospectus of the
Company dated _______, 1997 relating to the Senior Notes.
"Additional Senior Notes" means up to $50 million aggregate principal
amount of Senior Notes (other than the Initial Senior Notes) issued under this
Indenture in accordance with Section 4.14 hereof, as part of the same series as
the Initial Senior Notes.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Applicable Premium" means, at any time with respect to any Senior Note,
the greater of (i) ___% of the then outstanding principal amount of such Senior
Note and (ii) the excess of (A) the present value of the remaining required
interest and principal payments due on such Senior Note (exclusive of accrued
and unpaid interest), computed using a discount rate equal to the Treasury Rate
plus ___ basis points, over (B) the then outstanding principal amount of such
Senior Note.
1
<PAGE> 7
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory or other current assets in the ordinary
course of business consistent with past practices (provided that the sale,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company and its Restricted Subsidiaries taken as a whole will be governed
by Section 4.15 hereof and/or Section 5.01 hereof and not by the provisions of
Section 4.10 hereof), and (ii) the issue or sale by the Company or any of its
Subsidiaries of Equity Interests of any of the Company's Subsidiaries, in the
case of either clause (i) or (ii), whether in a single transaction or a series
of related transactions that have a fair market value (as determined in good
faith by the Board of Directors) in excess of $1.0 million. Notwithstanding the
foregoing: (i) a transfer of assets by the Company to a Wholly Owned Restricted
Subsidiary or by a Subsidiary to the Company or to Wholly Owned Restricted
Subsidiary, (ii) an issuance of Equity Interests by a Wholly Owned Restricted
Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary, and
(iii) a Restricted Payment that is permitted under Section 4.07 hereof will not
be deemed to be Asset Sales.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Average Life" means, as of any date of determination, with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products of
the number of years from the date of determination to the dates of each
successive scheduled principal payments of such debt security multiplied by the
amount of each such principal payment by (ii) the sum of all such principal
payments.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state
law for the relief of debtors.
"Board of Directors" means the Board of Directors of the Company or any
authorized committee of the Board of Directors.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Borrowing Base" means, as of any date, an amount equal to the sum of (i)
80% of accounts receivable of the Company and its Restricted Subsidiaries as of
such date that are not more than 45 days past due (including accounts receivable
relating to any layaway or similar plan), plus (ii) 65% of the book value of all
inventory owned by the Company and its Restricted Subsidiaries as of such date,
in each case calculated on a consolidated basis in accordance with GAAP. To the
extent that information is not available as to the amount of accounts receivable
or inventory as of a specific date, the
2
<PAGE> 8
Company may utilize the most recent available information for purposes of
calculating the Borrowing Base.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be so required to be capitalized on the balance sheet in accordance
with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than one
year from the date of acquisition, (iii) certificates of deposit and Eurodollar
time deposits with maturities of one year or less from the date of acquisition,
bankers' acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any lender party to the New Credit Facility or with
any domestic commercial bank having capital and surplus in excess of $500.0
million and a Keefe Bank Watch Rating of "B" or better, (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (ii) and (iii) above entered into with any
financial institution meeting the qualifications specified in clause (iii) above
and (v) commercial paper of a domestic issuer having a rating of at least A-1 by
Standard and Poor's Ratings Services ("S&P") or P-1 by Moody's Investors
Service, Inc. ("Moody's") maturing within twelve months after the date of
acquisition.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act) other than the Principals or their Related Parties, (ii) the
adoption of a plan relating to the liquidation or dissolution of the Company,
(iii) the consummation of any transaction (including, without limitation, any
merger or consolidation) (a) prior to the initial underwritten public offering
by the Company or Holding of its Common Stock pursuant to an effective
registration statement under the Securities Act (the "IPO") the result of which
is that the Principals and their Related Parties become the "beneficial owner"
(as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act,
except that a person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is
currently exercisable or is exercisable only upon the occurrence of a subsequent
condition) of less than 50% of the Voting Stock of the Company (measured by
voting power rather than number of shares) or (b) after the IPO, any person (as
defined above), other than the Principals and their Related Parties,
3
<PAGE> 9
becomes the beneficial owner (as defined above), directly or indirectly, of 35%
or more of the Voting Stock of the Company and such person is or becomes,
directly or indirectly, the beneficial owner of a greater percentage of the
voting power of the Voting Stock of the Company, calculated on a fully diluted
basis, than the percentage beneficially owned by the Principals and their
Related Parties, (iv) the first day on which a majority of the members of the
Board of Directors of the Company are not Continuing Directors or (v) the
Company consolidates with, or merges with or into, any Person or sells, assigns,
conveys, transfers, leases or otherwise disposes of all or substantially all of
its assets to any Person, or any Person consolidates with, or merges with or
into, the Company, in any such event pursuant to a transaction in which any of
the outstanding Voting Stock of the Company is converted into or exchanged for
cash, securities or other property, other than any such transaction where the
Voting Stock of the Company outstanding immediately prior to such transaction is
converted into or exchanged for Voting Stock (other than Disqualified Stock) of
the surviving or transferee Person constituting a majority of the outstanding
shares of such Voting Stock of such surviving or transferee Person (immediately
after giving effect to such issuance). For purposes of this definition, any
transfer of an equity interest of an entity that was formed for the purpose of
acquiring Voting Stock of the Company will be deemed to be a transfer of such
portion of such Voting Stock as corresponds to the portion of the equity of such
entity that has been so transferred.
"Commission" means the Securities and Exchange Commission.
"Company" means Central Tractor Farm & Country, Inc., a Delaware
corporation, until a successor replaces it pursuant to Article 5 of this
Indenture and thereafter means such successor.
"Consolidated Cash Flow"means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus, without
duplication, (i) an amount equal to any extraordinary loss plus any net loss
realized in connection with an Asset Sale (to the extent such losses were
deducted in computing such Consolidated Net Income), plus (ii) provision for
taxes based on income or profits of such Person and its Subsidiaries for such
period, to the extent that such provision for taxes was included in computing
such Consolidated Net Income, plus (iii) consolidated interest expense of such
Person and its Subsidiaries for such period, whether paid or accrued and whether
or not capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations), to the extent that any
such expense was deducted in computing such Consolidated Net Income, plus (iv)
depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were paid
in a prior period) and other non-cash expenses (excluding any such non-cash
expense to the extent that it represents an accrual of or reserve for cash
expenses in any future period or amortization of a prepaid cash expense that was
paid in a prior period) of such Person and its Subsidiaries for such period to
the extent that such depreciation, amortization and other non-cash expenses were
deducted in computing such
4
<PAGE> 10
Consolidated Net Income, minus (v) non-cash items increasing such Consolidated
Net Income for such period, in each case, on a consolidated basis and determined
in accordance with GAAP. Notwithstanding the foregoing, the provision for taxes
based on the income or profits of, and the depreciation and amortization and
other non-cash charges of, a Subsidiary of a Person shall be added to
Consolidated Net Income to compute Consolidated Cash Flow only to the extent
(and in the same proportion) that the Net Income of such Subsidiary was included
in calculating the Consolidated Net Income of such Person and only if a
corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Subsidiary without prior approval (that has
not been obtained), pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Restricted Subsidiary
thereof, (ii) the Net Income of any Restricted Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or similar distributions
by that Restricted Subsidiary of that Net Income is not at the date of
determination permitted without any prior governmental approval (that has not
been obtained) or, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded, (iv) the cumulative effect of a change in accounting principles
shall be excluded and (v) the Net Income of any Unrestricted Subsidiary shall be
excluded, whether or not distributed to the Company or one of its Subsidiaries.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Disqualified Stock) that by its terms
is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of this Indenture in the book value of
any asset owned by such Person or a consolidated Subsidiary of such Person, (y)
all investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, Permitted Investments), and (z)
all unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
5
<PAGE> 11
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of this Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 10.02 hereof or such other address as to which the
Trustee may give notice to the Company.
"Credit Facilities" means, with respect to the Company, one or more debt
facilities (including, without limitation, the New Credit Facility) or
commercial paper facilities with banks or other institutional lenders providing
for revolving credit loans, term loans, receivables financing (including through
the sale of receivables to such lenders or to special purpose entities formed to
borrow from such lenders against such receivables) or letters of credit, in each
case, as amended, restated, modified, renewed, refunded, replaced or refinanced
in whole or in part from time to time. Indebtedness under Credit Facilities
outstanding on the date on which Senior Notes are first issued and authenticated
under this Indenture shall be deemed to have been incurred on such date in
reliance on the exception provided by clause (i) of the definition of Permitted
Debt.
"Custodian" means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Senior Notes mature.
"Dollars" and "$" mean lawful money of the United States of America.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the New Credit Facility) in
existence on the date of this Indenture, until such amounts are repaid.
6
<PAGE> 12
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations but excluding amortization
of debt issuance costs) and (ii) the consolidated interest expense of such
Person and its Restricted Subsidiaries that was capitalized during such period,
and (iii) any interest expense on Indebtedness of another Person that is
guaranteed by such Person or one of its Restricted Subsidiaries or secured by a
Lien on assets of such Person or one of its Restricted Subsidiaries (whether or
not such guarantee or Lien is called upon) and (iv) the product of (a) all cash
dividend payments on any series of preferred stock of such Person or any of its
Restricted Subsidiaries, other than dividend payments on Equity Interests
payable solely in Equity Interests (other than Disqualified Stock) of the
Company, times (b) a fraction, the numerator of which is one and the denominator
of which is one minus the then current combined federal, state and local
statutory tax rate of such Person and its Restricted Subsidiaries, expressed as
a decimal, in each case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the Company or
any of its Restricted Subsidiaries incurs, assumes, guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues or redeems
preferred stock subsequent to the commencement of the period for which the Fixed
Charge Coverage Ratio is being calculated but prior to the date on which the
event for which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, guarantee or redemption
of Indebtedness, or such issuance or redemption of preferred stock, as if the
same had occurred at the beginning of the applicable four-quarter reference
period. In addition, for purposes of making the computation referred to above,
(i) acquisitions that have been made by the Company or any of its Restricted
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be deemed to have occurred on the first day of the four-quarter reference
period and Consolidated Cash Flow for such reference period shall be calculated
without giving effect to clause (iii) of the proviso set forth in the definition
of Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, and
(iii) the Fixed Charges attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the obligations
giving rise to such Fixed Charges will not be obligations of the referent Person
or any of its Restricted Subsidiaries following the Calculation Date.
7
<PAGE> 13
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guaranteeing Subsidiary" means all present and future Subsidiaries of the
Company that have guaranteed, pursuant to a supplemental indenture, sustantially
in the form of Exhibit B hereto, the payment of all principal of, and interest
and premium, if any, on, the Senior Notes and all other amounts payable under
the Senior Notes or this Indenture, which guarantee shall be pari passu with or
senior to all other Indebtedness of such Restricted Subsidiary.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or the value of foreign currencies purchased or received by the Company in
the ordinary course of business.
"Holder" means a Person in whose name a Senior Note is registered.
"Holdings" means CT Holdings, Inc., a Delaware corporation, and its
successors.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
guarantee by such Person of any indebtedness of any other Person. The amount of
any Indebtedness outstanding as of any date shall be (i) the accreted value
thereof, in the case of any Indebtedness that does not require current payments
of interest, and (ii) the
8
<PAGE> 14
principal amount thereof, together with any interest thereon that is more than
30 days past due, in the case of any other Indebtedness.
"Indenture" means this Indenture, as amended or supplemented from time to
time in accordance with the terms hereof.
"Initial Senior Notes" means $100,000,000 aggregate principal amount of
Senior Notes issued under this Indenture on the Issue Date.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Subsidiary of the Company sells or otherwise disposes of
any Equity Interests of any direct or indirect Restricted Subsidiary of the
Company such that, after giving effect to any such sale or disposition, such
Person is no longer a Restricted Subsidiary of the Company, the Company shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Equity Interests of such Restricted
Subsidiary not sold or disposed of in an amount determined as provided in the
final paragraph of Section 4.07 hereof.
"Issue Date" means ______________, 1997
"JWCAC" means JWC Acquisition I, Inc., a Delaware corporation, and its
successors.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Merger" means the merger of the Company and JWCAC pursuant to a merger
agreement dated November 27, 1996 with the Company surviving the merger.
"New Credit Facility" means that certain `credit facility, dated as of
December 23, 1996, by and among the Company and Fleet National Bank, N.A., as
administrative agent, and NationsBank, N.A., as co-agent, providing for up to
$38.0
9
<PAGE> 15
million of term and revolving credit borrowings, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, renewed, refunded,
replaced or refinanced from time to time.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
(other than Indebtedness under the Credit Facilities) secured by a Lien on the
asset or assets that were the subject of such Asset Sale and any reserve for
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (iii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock or assets of the
Company or any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officer" means, with respect to any Person, the Chairman of the Board, the
Chief Executive Officer, the President, the Chief Operating Officer, the Chief
10
<PAGE> 16
Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the
Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of the Company
by two Officers of the Company, one of whom must be the principal executive
officer, principal financial officer or principal accounting officer of the
Company, that meets the requirements of Section 10.05 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is reasonably
acceptable to the Trustee that meets the requirements of Section 10.05 hereof.
The counsel may be an employee of or counsel to the Company, any Subsidiary of
the Company or the Trustee.
"Permitted Investments" means (a) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company; (b) any Investment in Cash
Equivalents; (c) any Investment by the Company or any Restricted Subsidiary of
the Company in a Person, if as a result of such Investment (i) such Person
becomes a Wholly Owned Restricted Subsidiary of the Company and a Guaranteeing
Subsidiary or (ii) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys all or substantially all of its assets to, or is
liquidated into, the Company or a Wholly Owned Restricted Subsidiary of the
Company or a Guaranteeing Subsidiary; (d) any Restricted Investment made as a
result of the receipt of non-cash consideration from an Asset Sale that was made
pursuant to and in compliance with Sections 3.09 and 4.10 hereof; (e) any
acquisition of assets solely in exchange for the issuance of Equity Interests
(other than Disqualified Stock) of the Company; and (f) other Investments in any
Person having an aggregate fair market value (measured on the date each such
Investment was made and without giving effect to subsequent changes in value),
when taken together with all other Investments made pursuant to this clause (f)
that are at the time outstanding, not to exceed $5.0 million.
"Permitted Liens" means (i) Liens securing Indebtedness under the Credit
Facilities that was permitted by the terms of this Indenture to be incurred;
(ii) Liens in favor of the Company; (iii) Liens on property of a Person existing
at the time such Person is merged into or consolidated with the Company or any
Subsidiary of the Company; provided that such Liens were in existence prior to
the 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; (iv) Liens on property existing at the time of acquisition thereof by
the Company or any Subsidiary of the Company, provided that such Liens were in
existence prior to the contemplation of such acquisition; (v) Liens to secure
the performance of statutory or regulatory obligations, leases, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in the
ordinary course of business; (vi) Liens to secure Indebtedness (including
Capital Lease Obligations) permitted by clause (iii) of the third paragraph of
Section 4.14 covering only the assets acquired with such Indebtedness; (vii)
Liens existing on the date of this Indenture; (viii) Liens for taxes,
assessments or governmental charges or claims that are not yet delinquent or
that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded, provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (ix) statutory and common law Liens of landlords and
carriers,
11
<PAGE> 17
warehousemen, mechanics, suppliers, materialmen, repairmen or other similar
Liens arising in the ordinary course of business and with respect to amounts not
yet delinquent or being contested in good faith by appropriate legal proceedings
promptly instituted and diligently conducted and for which a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made; (x) Liens incurred or deposits made in the ordinary course
of business in connection with workers' compensation, unemployment insurance and
other types of social security; (xi) easements, rights-of-way, municipal and
zoning ordinances and similar charges, encumbrances, title defects or other
irregularities that do not materially interfere with the ordinary course of
business of the Company or any of its Restricted Subsidiaries; (xii) Liens
encumbering property or assets under construction arising from progress or
partial payments by a customer of the Company or its Restricted Subsidiaries
relating to such property or assets; (xiii) any interest or title of a lessor in
the property subject to any Capitalized Lease or operating lease; (xiv) Liens
arising from filing Uniform Commercial Code financing statements regarding
leases; (xv) Liens in favor of the Company or any Restricted Subsidiary; (xvi)
Liens arising from the rendering of a final judgment or order against the
Company or any Restricted Subsidiary of the Company that does not give rise to
an Event of Default; (xvii) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of customs duties in connection
with the importation of goods; (xviii) Liens encumbering customary initial
deposits and margin deposits, and other Liens that are either within the general
parameters customary in the industry and incurred in the ordinary course of
business, in each case securing Indebtedness under interest rate agreements and
currency agreements and forward contracts, options, futures contracts, futures
options or similar agreements or arrangements designed solely to protect the
Company or any of its Restricted Subsidiaries from fluctuations in interest
rates, currencies or the price of commodities; (xix) Liens arising out of
conditional sale, title retention, consignment or similar arrangements for the
sale of goods entered into by the Company or any of its Restricted Subsidiaries
in the ordinary course of business in accordance with the past practices of the
Company and its Restricted Subsidiaries prior to the Closing Date; (xx) Liens
incurred in the ordinary course of business of the Company or any Subsidiary of
the Company with respect to obligations that do not exceed $2.5 million at any
one time outstanding and that (a) are not incurred in connection with the
borrowing of money or the obtaining of advances or credit (other than trade
credit in the ordinary course of business) and (b) do not in the aggregate
materially detract from the value of the property or materially impair the use
thereof in the operation of business by the Company or such Subsidiary; and
(xxi) Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse Debt
of Unrestricted Subsidiaries.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund, Existing
Indebtedness or other Indebtedness of the Company or any of its Restricted
Subsidiaries incurred in accordance with this Indenture (other than Indebtedness
incurred in accordance with clauses (i), (vi), (viii), (ix), (x), (xi), (xii),
(xiii) and (xiv) of the third paragraph of Section 4.14 hereof; provided that:
(i) the principal amount (or accreted value, if applicable) of such Permitted
Refinancing Indebtedness does not exceed the principal amount of (or accreted
value, if applicable), plus accrued interest on, the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount of
12
<PAGE> 18
reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date at or later than the final
maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded
is subordinated in right of payment to the Senior Notes, such Permitted
Refinancing Indebtedness has a final maturity date at or later than the final
maturity date of, and is subordinated in right of payment to, the Senior Notes
on terms at least as favorable to the Holders of Senior Notes as those contained
in the documentation governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred
either by the Company or by the Restricted Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Principals" means (i) J.W. Childs Equity Partners, L.P., (ii) each
Affiliate of J.W. Childs Equity Partners, L.P., as of the Issue Date, and (iii)
each officer or employee (including their respective immediate family members)
of J.W. Childs Associates, L.P. as of the Issue Date.
"Public Equity Offering" means an underwritten public offering of common
stock (other than Disqualified Stock) of the Company or Holdings, pursuant to an
effective registration statement filed with the Commission in accordance with
the Securities Act; provided, however, that, in the case of a Public Equity
Offering by Holdings, Holdings contributes to the capital of the Company net
cash proceeds thereof in an amount sufficient to redeem the Senior Notes called
for redemption in accordance with the terms thereof.
"Related Party" with respect to any Principal means (A) any controlling
stockholder or 80% (or more) owned Subsidiary of such Principal or (B) or trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A).
"Responsible Officer" when used with respect to the Trustee, means any
officer within the Corporate Trust Department of the Trustee (or any successor
group of the Trustee) with direct responsibility for the administration of this
Indenture and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Investment" means an Investment other than a Permitted
Investment.
13
<PAGE> 19
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Notes" means the __% Senior Notes due 2007, as amended or
supplemented from time to time pursuant to the terms hereof, that are issued
under this Indenture.
"Significant Restricted Subsidiary" means a Subsidiary, including its
Subsidiaries, which meets any of the following conditions:
(1) The Company's and its other Subsidiaries' investments in the advances
to the Subsidiary exceed 10% of the total assets of the Company and
its Subsidiaries consolidated as of the end of the most recently
completed fiscal year (for a proposed business combination to be
accounted for as a pooling of interests, this condition is also met
when a number of common shares exchanged or to be exchanged by the
Company exceeds 10% of its total common shares outstanding at the date
the combination is initiated); or
(2) The Company's and its other Subsidiaries' proportionate share of the
total assets (after intercompany eliminations) of the Subsidiary
exceeds 10% of the total assets of the Company and its Subsidiaries
consolidated as of the end of the most recent contemplated fiscal
year; or
(3) The Company's and its other Subsidiaries' equity in the income from
continuing operations before income taxes, extraordinary items and
cumulative effect of a change in accounting principle of the
Subsidiary exceeds 10% of such income of the Company and its
Subsidiaries consolidated for the most recently completed fiscal year.
The meaning of "Significant Subsidiary" shall be determined in accordance
with the computational note contained in the definition of "Significant
Subsidiary" in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to
the Securities Act, as such Regulation is in effect on the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of
14
<PAGE> 20
shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantee" means each unconditional Guarantee by any
Guaranteeing Subsidiary of the Company's Obligations under this Indenture and
the Senior Notes.
"Tax Sharing Agreement" means the tax sharing agreement among Holding, the
Company and any one or more of Holding's Subsidiaries, as amended from time to
time, so long as the method of calculating the amount of the Company's payments,
if any, to be made thereunder is not less favorable to the Company than as
provided in such agreement as in effect on the Issue Date (except to the extent
required to reflect changes in applicable federal or state tax laws), as
determined in good faith by the Board of Directors of the Company.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two Business Days prior to the date
fixed for prepayment (or, if such Statistical Release is no longer published,
any publicly available source of similar market data)) most nearly equal to the
then remaining Average Life to Stated Maturity of the Senior Notes; provided,
however, that if the Average Life to Stated Maturity of the Senior Notes is not
equal to the constant maturity of a United States Treasury security for which a
weekly average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that if the Average Life of the Senior Notes is less than one
year, the weekly average yield on actually traded United States Treasury
securities adjusted to a constant maturity of one year shall be used.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. [SECTIONS]
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the Trust Indenture Act of 1939; provided, however, that in the event the
Trust Indenture Act of 1939 is amended after such date, then "TIA" means, to the
extent required by such amendment, the Trust Indenture Act of 1939 as so
amended.
"Trustee" means the party named as such above until a successor replaces it
in accordance with the applicable provisions of this Indenture and thereafter
means the successor serving hereunder.
"Unrestricted Subsidiary" means (i) any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution; but only to the extent that such Subsidiary: (a) has no Indebtedness
other than Non-Recourse Debt; (b) is not party to any agreement, contract,
arrangement or understanding with the
15
<PAGE> 21
Company or any Restricted Subsidiary of the Company unless the terms of any such
agreement, contract, arrangement or understanding are no less favorable to the
Company or such Restricted Subsidiary than those that might be obtained at the
time from Persons who are not Affiliates of the Company (as determined in good
faith by the Board of Directors); (c) is a Person with respect to which neither
the Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation (x) to subscribe for additional Equity Interests or (y) to maintain
or preserve such Person's financial condition or to cause such Person to achieve
any specified levels of operating results; and (d) has not guaranteed or
otherwise directly or indirectly provided credit support for any Indebtedness of
the Company or any of its Restricted Subsidiaries. Any such designation by the
Board of Directors shall be evidenced to the Trustee by filing with the Trustee
a certified copy of the Board Resolution giving effect to such designation and
an Officers' Certificate certifying that such designation complied with the
foregoing conditions and was permitted by Section 4.07 hereof. If, at any time,
any Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of this Indenture and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under Section 4.14 hereof, the Company shall be in
default of such covenant). The Board of Directors of the Company may at any time
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that such designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of the Company of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if (i) such
Indebtedness is permitted under Section 4.14 calculated on a pro forma basis as
if such designation had occurred at the beginning of the four-quarter reference
period, and (ii) no Default or Event of Default would be in existence following
such designation.
"Voting Stock" means, with respect to any Person, the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries
of such Person.
SECTION 1.02. OTHER DEFINITIONS.
Defined in
Term Section
---- -------
16
<PAGE> 22
"Affiliate Transaction"....................................... 4.11
"Asset Sale Offer"............................................ 4.10
"Change of Control Offer"..................................... 4.15
"Change of Control Payment"................................... 4.15
"Change of Control Payment Date".............................. 4.15
"Covenant Defeasance"......................................... 8.03
"Commencement Date"........................................... 4.10
"Event of Default"............................................ 6.01
"Excess Proceeds"............................................. 4.10
"incur"....................................................... 4.14
"Legal Defeasance" ........................................... 8.02
"Moody's" .................................................... 1.01
"Offer Amount"................................................ 3.09
"Offer Period"................................................ 3.09
"Paying Agent"................................................ 2.03
"Payment Default"............................................. 6.01
"Permitted Debt".............................................. 4.14
"Purchase Date"............................................... 3.09
"Registrar"................................................... 2.03
"Restricted Payments"......................................... 4.07
"S&P"......................................................... 1.01
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture, other than those
provisions of the TIA that may be excluded herein, which provision shall be
excluded to the extent specifically excluded in this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Senior Notes;
"indenture security holder" means a Holder of a Senior Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Senior Notes means the Company and any successor obligor
upon the Senior Notes, as the case may be.
All other terms used in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by a rule or regulation
promulgated by the Commission under the TIA have the meanings so assigned to
them.
17
<PAGE> 23
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned to
it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural include
the singular;
(5) provisions apply to successive events and transactions; and
(6) references to sections of or rules under the Securities Act or the
Exchange Act shall be deemed to include substitute, replacement or
successor sections or rules adopted by the Commission from time to
time.
ARTICLE 2
THE SENIOR NOTES
SECTION 2.01. FORM AND DATING.
The Senior Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A hereto, the terms of which are
incorporated in and made a part of this Indenture. The Senior Notes may have
notations, legends or endorsements approved as to form by the Company and
required by law, stock exchange rule, agreements to which the Company is
subject, or usage. Each Senior Note shall be dated the date of its
authentication. The Senior Notes shall be issuable in registered form, without
coupons, and only in denominations of $1,000 and integral multiples thereof.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
One Officer of the Company shall sign the Senior Notes for the Company by
manual or facsimile signature. The Company's seal shall be reproduced on the
Senior Notes and may be in facsimile form.
If an Officer of the Company whose signature is on a Senior Note no longer
holds that office at the time the Senior Note is authenticated, the Senior Note
shall nevertheless be valid.
A Senior Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature of the Trustee shall be conclusive
evidence that the Senior Note has been authenticated under this Indenture. The
form of Trustee's certificate of
18
<PAGE> 24
authentication to be borne by the Senior Notes shall be substantially as set
forth in Exhibit A hereto.
The Trustee shall, upon a written order of the Company signed by two
Officers of the Company, authenticate Senior Notes for original issue up to an
aggregate principal amount stated in the Senior Notes. The aggregate principal
amount of Senior Notes outstanding at any time shall not exceed such amount
except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the Company
to authenticate Senior Notes. Unless limited by the terms of such appointment,
an authenticating agent may authenticate Senior Notes whenever the Trustee may
do so. Each reference in this Indenture to authentication by the Trustee
includes authentication by such agent. An authenticating agent has the same
rights as an Agent to deal with the Company or an Affiliate of the Company.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain (i) an office or agency where Senior Notes may
be presented for registration of transfer or for exchange (including any
co-registrar, the "Registrar") and (ii) an office or agency where Senior Notes
may be presented for payment ("Paying Agent") within the City of and the State
of New York or, at the option of the Company, payment of interest may be made by
check mailed to the Holders at their respective addresses set forth in the
register of Holders. The Registrar shall keep a register of the Senior Notes and
of their transfer and exchange. The Company may appoint one or more
co-Registrars and one or more additional paying agents. The term "Paying Agent"
includes any additional paying agent. The Company may change any Paying Agent,
Registrar or co-Registrar without prior notice to any Holder. The Company shall
notify the Trustee and the Trustee shall notify the Holders of the name and
address of any Agent not a party to this Indenture. The Company may act as
Paying Agent, Registrar or co-Registrar. The Company shall enter into an
appropriate agency agreement with any Agent not a party to this Indenture, which
shall be subject to any obligations imposed by the provisions 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, or fails to
give the foregoing notice, the Trustee shall act as such, and shall be entitled
to appropriate compensation in accordance with Section 7.07 hereof.
The Company initially appoints the Trustee as Registrar, Paying Agent and
agent for service of notices and demands in connection with the Senior Notes.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
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 the
Holders or the Trustee all money held by the Paying Agent for the payment of
principal of, premium, if any, and interest on the Senior Notes, and shall
notify the Trustee of any Default by the Company in making any such payment.
While any such Default or Event of Default
19
<PAGE> 25
continues, the Trustee may require a Paying Agent to pay all money held by it to
the Trustee and to account for any funds disbursed. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon payment
over to the Trustee, the Paying Agent (if other than the Company) shall have no
further liability for the money delivered to the Trustee. If the Company acts as
Paying Agent, it shall segregate and hold in a separate trust fund for the
benefit of the Holders all money held by it as Paying Agent.
SECTION 2.05. LISTS OF HOLDERS OF THE SENIOR NOTES.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders and shall otherwise comply with TIA [SECTION] 312(a). If the Trustee is
not the Registrar, the Company shall furnish to the Trustee at least seven (7)
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 Holders, including
the aggregate principal amount of the Senior Notes held by each thereof, and the
Company shall otherwise comply with TIA [SECTION] 312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
When Senior Notes are presented to the Registrar with a request to register
the transfer or to exchange them for an equal principal amount of Senior Notes
of other denominations, the Registrar shall register the transfer or make the
exchange if its requirements for such transactions are met; provided, however,
that any Senior Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar and the Trustee duly executed by
the Holder thereof or by his attorney duly authorized in writing. To permit
registrations of transfer and exchanges, the Company shall issue and the Trustee
shall authenticate Senior Notes at the Registrar's request, subject to such
rules as the Trustee may reasonably require.
Neither the Company nor the Registrar shall be required to (i) issue,
register the transfer of or exchange Senior Notes during a period beginning at
the opening of business on a Business Day fifteen (15) days before the day of
any selection of Senior Notes for redemption or purchase under Section 3.02
hereof and ending at the close of business on the day of selection, (ii)
register the transfer of or exchange any Senior Note so selected for redemption
or purchase in whole or in part, except the unredeemed or unpurchased portion of
any Senior Note being redeemed or purchased in part or (iii) register the
transfer or exchange of a Senior Note between a record date and the next
succeeding interest payment date.
No service charge shall be made to any Holder for any registration of
transfer or exchange (except as otherwise expressly permitted herein), but the
Company may require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other than such
transfer tax or similar governmental charge payable upon exchanges pursuant to
Sections 2.10, 3.06 or 9.05 hereof, which shall be paid by the Company).
20
<PAGE> 26
Prior to due presentment to the Trustee for registration of the transfer of
any Senior Note, the Trustee, any Agent and the Company may deem and treat the
Person in whose name any Senior Note is registered as the absolute owner of such
Senior Note for the purpose of receiving payment of principal of, premium, if
any, and interest on such Senior Note and for all other purposes whatsoever,
whether or not such Senior Note is overdue, and none of the Trustee, any Agent
nor the Company shall be affected by notice to the contrary.
SECTION 2.07. REPLACEMENT SENIOR NOTES.
If any mutilated Senior Note is surrendered to the Trustee, or the Company
and the Trustee receive evidence to their satisfaction of the destruction, loss
or theft of any Senior Note and the ownership thereof, the Company shall issue
and the Trustee, upon the written order of the Company signed by two Officers of
the Company, shall authenticate a replacement Senior Note if the Trustee's
requirements for replacements of Senior Notes are met. If required by the
Trustee or the Company, an indemnity bond must be supplied by the Holder that is
sufficient in the reasonable judgment of the Trustee and the Company to protect
the Company, the Trustee, each Agent and each authenticating agent from any loss
which any of them may suffer if a Senior Note is replaced. The Company and the
Trustee may charge for its expenses in replacing a Senior Note.
Every replacement Senior Note is an additional Obligation of the Company
and shall be entitled to all of the benefits of this Indenture equally and
ratably with all other Senior Notes duly issued hereunder.
SECTION 2.08. OUTSTANDING SENIOR NOTES.
The Senior Notes outstanding at any time are all the Senior Notes
authenticated by the Trustee except for those canceled by it, those delivered to
it for cancellation and those described in this Section 2.08 as not outstanding.
If a Senior Note is replaced pursuant to Section 2.07 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Senior Note is held by a bona fide purchaser. If the principal amount
of any Senior Note is considered paid under Section 4.01 hereof, it ceases to be
outstanding and interest on it ceases to accrue. Subject to Section 2.09 hereof,
a Senior Note does not cease to be outstanding because the Company or an
Affiliate of the Company holds the Senior Note.
SECTION 2.09. TREASURY SENIOR NOTES.
In determining whether the Holders of the required principal amount of
Senior Notes have concurred in any direction, waiver or consent, Senior Notes
owned by the Company or any Affiliate of the Company shall be considered as
though not outstanding, except that for purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Senior Notes which a Responsible Officer of the Trustee knows to be so
owned shall be so considered. Notwithstanding the foregoing, Senior Notes that
are to be acquired by the Company or an Affiliate of the Company pursuant to an
exchange offer, tender offer or other
21
<PAGE> 27
agreement shall not be deemed to be owned by such entity until legal title to
such Senior Notes passes to such entity.
SECTION 2.10. TEMPORARY SENIOR NOTES.
Until definitive Senior Notes are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Senior Notes. Temporary
Senior Notes shall be substantially in the form of definitive Senior Notes but
may have variations that the Company and the Trustee consider appropriate for
temporary Senior Notes. Without unreasonable delay, the Company shall prepare
and the Trustee, upon receipt of the written order of the Company signed by two
Officers of the Company, shall authenticate definitive Senior Notes in exchange
for temporary Senior Notes. Until such exchange, temporary Senior Notes shall be
entitled to the same rights, benefits and privileges as definitive Senior Notes.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Senior Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Senior Notes surrendered to them for registration of transfer, exchange or
payment. The Trustee shall cancel all Senior Notes surrendered for registration
of transfer, exchange, payment, replacement or cancellation. Subject to Section
2.07 hereof, the Company may not issue new Senior Notes to replace Senior Notes
that it has redeemed or paid or that have been delivered to the Trustee for
cancellation. All cancelled Senior Notes held by the Trustee shall be destroyed
and certification of their destruction delivered to the Company, unless by a
written order, signed by two Officers of the Company, the Company shall direct
that cancelled Senior Notes be returned to it.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Senior Notes, the
Company shall pay the defaulted interest in any lawful manner plus, to the
extent lawful, interest payable on the defaulted interest, to the Persons who
are Holders on a subsequent special record date, which date shall be at the
earliest practicable date but in all events at least five (5) Business Days
prior to the payment date, in each case at the rate provided in the Senior Notes
and in Section 4.01 hereof. The Company shall fix or cause to be fixed each such
special record date and payment date, and shall, promptly thereafter, notify the
Trustee of any such date. At least fifteen (15) days before the special record
date, the Company (or the Trustee, in the name of and at the expense of the
Company) shall mail to Holders, at their addresses as they appear on the
register of Senior Notes maintained by the Registrar, a notice that states the
special record date, the related payment date and the amount of such interest to
be paid.
SECTION 2.13. RECORD DATE.
The record date for purposes of determining the identity of Holders
entitled to vote or consent to any action by vote or consent authorized or
permitted under this Indenture shall be determined as provided for in TIA
[SECTION] 316(c).
22
<PAGE> 28
SECTION 2.14. CUSIP NUMBER.
The Company in issuing the Senior Notes may use a "CUSIP" number and, if it
does so, the Trustee shall use the CUSIP number in notices of redemption or
exchange as a convenience to Holders; provided that any such notice may state
that no representation is made as to the correctness or accuracy of the CUSIP
number printed in the notice or on the Senior Notes and that reliance may be
placed only on the other identification numbers printed on the Senior Notes. The
Company will promptly notify the Trustee of any change in the CUSIP number.
SECTION 2.15. COMPUTATION OF INTEREST.
Interest on the Senior Notes will be computed on the basis of a 360-day
year comprised of twelve 30-day months.
ARTICLE 3
REDEMPTION AND OFFERS TO PURCHASE
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Senior Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 45 days but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (i) the Section of this Indenture pursuant
to which the redemption shall occur, (ii) the redemption date, (iii) the
principal amount of Senior Notes to be redeemed and (iv) the redemption price.
If the Company is required to make an offer to purchase Senior Notes
pursuant to the provisions of Sections 3.09 or 4.15 hereof, it shall furnish to
the Trustee, at least 45 days before the scheduled purchase date, an Officers'
Certificate setting forth (i) the Section of this Indenture pursuant to which
the offer to purchase shall occur, (ii) the terms of the offer, (iii) the
purchase price, (iv) the principal amount of the Senior Notes to be purchased,
(v) the purchase date, and (vi) further setting forth a statement to the effect
that (a) the Company or one of its Restricted Subsidiaries has effected an Asset
Sale and there are Excess Proceeds aggregating more than $5.0 million and the
amount of such Excess Proceeds or (b) a Change of Control has occurred, as
applicable.
SECTION 3.02. SELECTION OF SENIOR NOTES TO BE PURCHASED OR REDEEMED.
If less than all of the Senior Notes are to be redeemed or purchased at any
time, the Trustee shall select the Senior Notes to be redeemed or purchased
among the applicable Holders of the Senior Notes on a pro rata basis; provided
that no Senior Notes of $1,000 or less shall be redeemed in part.
The Trustee shall promptly notify the Company in writing of the Senior
Notes selected for redemption and, in the case of any Senior Note selected for
partial purchase or redemption, the principal amount thereof to be purchased or
redeemed. Senior Notes and portions of Senior Notes selected shall be in amounts
of $1,000 or whole multiples of $1,000; except that if all of the Senior Notes
of a Holder are to be
23
<PAGE> 29
purchased or redeemed, the entire outstanding amount of Senior Notes held by
such Holder, even if not a multiple of $1,000, shall be purchased or redeemed.
Except as provided in the preceding sentence, provisions of this Indenture that
apply to Senior Notes called for redemption also apply to portions of Senior
Notes called for redemption.
SECTION 3.03. NOTICE OF REDEMPTION.
At least 30 days but not more than 60 days before a redemption date, the
Company shall mail or cause to be mailed, by first class mail, a notice of
redemption to each Holder whose Senior Notes are to be redeemed at its
registered address.
The notice shall identify the Senior Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price (including accrued interest to the redemption
date);
(c) if any Senior Note is being redeemed in part, the portion of the
principal amount of such Senior Note to be redeemed and that, after
the redemption date upon surrender of such Senior Note, a new Senior
Note or Senior Notes in principal amount equal to the unredeemed
portion shall be issued upon cancellation of the original Senior Note;
(d) the name and address of the Paying Agent;
(e) that Senior Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption payment,
interest on Senior Notes called for redemption ceases to accrue on and
after the redemption date;
(g) the paragraph of the Senior Notes and/or Section of this Indenture
pursuant to which the Senior Notes called for redemption are being
redeemed; and
(h) 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
Senior Notes.
At the Company's request, the Trustee shall give the notice of redemption
in the Company's name and at its expense; provided, however, that the Company
shall have delivered to the Trustee, at least 45 days prior to the redemption
date, an Officers' Certificate requesting that the Trustee give such notice and
setting forth the information to be stated in such notice as provided in the
preceding paragraph. The notice mailed in the manner herein provided shall be
conclusively presumed to have been duly given whether or not the Holder receives
such notice. In any case, failure to give such notice
24
<PAGE> 30
by mail or any defect in the notice to the Holder of any Senior Note shall not
affect the validity of the proceeding for the redemption of any other Senior
Note.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section 3.03 hereof,
Senior Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price, plus accrued and unpaid interest, if
any, to such date. A notice of redemption may not be conditional.
SECTION 3.05. DEPOSIT OF REDEMPTION OR PURCHASE PRICE.
On or before 12:00 p.m. (New York City time) on each redemption date or the
date on which Senior Notes must be accepted for purchase pursuant to Section
3.09 or 4.15, the Company shall deposit with the Trustee or with the Paying
Agent money sufficient to pay the redemption or purchase price of and unpaid and
accrued interest, if any, on all Senior Notes to be redeemed or purchased on
that date. 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 or purchase price of
(including any applicable premium), and accrued interest on, all Senior Notes to
be redeemed or purchased.
If Senior Notes called for redemption or tendered in an Asset Sale Offer or
Change of Control Offer are paid or if the Company has deposited with the
Trustee or Paying Agent money sufficient to pay the redemption or purchase price
of, and unpaid and accrued interest, if any, on all Senior Notes to be redeemed
or purchased on and after the redemption or purchase date, interest shall cease
to accrue on the Senior Notes or the portions of Senior Notes called for
redemption or tendered and not withdrawn in an Asset Sale Offer or Change of
Control Offer (regardless of whether certificates for such securities are
actually surrendered). If a Senior Note is redeemed or purchased 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
Senior Note was registered at the close of business on such record date. If any
Senior Note called for redemption or subject to an Asset Sale Offer or Change of
Control Offer shall not be so paid upon surrender for redemption or purchase
because of the failure of the Company to comply with the preceding paragraph,
interest shall be paid on the unpaid principal, from the redemption or purchase
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 Senior
Notes and in Section 4.01 hereof.
SECTION 3.06. SENIOR NOTES REDEEMED OR PURCHASED IN PART.
Upon surrender of a Senior Note that is redeemed or purchased in part, the
Company shall issue and the Trustee shall authenticate for the Holder at the
expense of the Company a new Senior Note equal in principal amount to the
unredeemed or unpurchased portion of the Senior Note surrendered.
25
<PAGE> 31
SECTION 3.07. OPTIONAL REDEMPTION.
(a) Subject to Sections 3.07(b) and 3.07(c) below, the Senior Notes shall
not be redeemable at the Company's option prior to __________, 2002. Thereafter,
the Senior Notes shall be subject to redemption at any time at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest thereon to the applicable
redemption date, if redeemed during the twelve-month period beginning on
__________ of the years indicated below:
YEAR PERCENTAGE
2002 _____%
2003 _____
2004 _____
2005 and thereafter 100.00%
(b) Notwithstanding the foregoing, at any time on or before _____, 2000,
the Company may (but shall not have the obligation to) redeem up to 35% of the
aggregate principal amount of the Senior Notes at a redemption price of ___% of
the principal amount thereof, plus accrued and unpaid interest thereon to the
redemption date, with the net cash proceeds of a Public Equity Offering;
provided that at least 65% of the aggregate principal amount of Senior Notes
originally issued remain outstanding immediately after the occurrence of such
redemption; and provided, further, that such redemption shall occur within 60
days of the date of the closing of such Public Equity Offering.
(c) Upon the occurrence of a Change of Control prior to __________, 2002,
the Senior Notes shall be redeemable, in whole or in part, at the option of the
Company, upon not less than 30 nor more than 60 days prior notice to each Holder
of Senior Notes to be redeemed, at a redemption price equal to the sum of (i)
the then outstanding amount thereof plus (ii) accrued and unpaid interest, if
any, to the redemption date plus (iii) the Applicable Premium.
SECTION 3.08. MANDATORY REDEMPTION.
Except as set forth below under Section 3.09, Section 4.10 and Section 4.15
hereof, the Company shall not be required to make mandatory redemption or
sinking fund payments with respect to the Senior Notes.
26
<PAGE> 32
SECTION 3.09. ASSET SALE OFFERS.
In the event that the Company shall be required to commence an Asset Sale
Offer pursuant to Section 4.10 hereof, it shall follow the procedures specified
below:
The Asset Sale Offer shall remain open for 20 Business Days after the
Commencement Date relating to such Asset Sale Offer, except to the extent
required to be extended by applicable law (as so extended, the "Offer Period").
No later than five Business Days after the termination of the Offer Period (the
"Purchase Date"), the Company shall purchase the principal amount (the "Offer
Amount") of Senior Notes required to be purchased in such Asset Sale Offer
pursuant to Sections 3.02 and 4.10 hereof or, if less than the Offer Amount has
been tendered, all Senior Notes tendered in response to the Asset Sale Offer.
If the Purchase Date is on or after an interest payment record date and on
or before the related interest payment date, any interest accrued to such
Purchase Date shall be paid to the Person in whose name a Senior Note is
registered at the close of business on such record date, and no additional
interest shall be payable to Holders who tender Senior Notes pursuant to the
Asset Sale Offer.
On the Commencement Date of any Asset Sale Offer, the Company shall send or
cause to be sent, by first class mail, a notice to each of the Holders, with a
copy to the Trustee. Such notice, which shall govern the terms of the Asset Sale
Offer, shall contain all instructions and materials necessary to enable the
Holders to tender Senior Notes pursuant to the Asset Sale Offer and shall state:
(1) that the Asset Sale Offer is being made pursuant to this Section 3.09
and Section 4.10 hereof and the length of time the Asset Sale Offer
shall remain open;
(2) the Offer Amount, the purchase price and the Purchase Date;
(3) that any Senior Note not tendered or accepted for payment shall
continue to accrue interest;
(4) that, unless the Company defaults in the payment of the purchase
price, any Senior Note accepted for payment pursuant to the Asset Sale
Offer shall cease to accrue interest after the Purchase Date;
(5) that Holders electing to have a Senior Note purchased pursuant to any
Asset Sale Offer shall be required to surrender the Senior Note, with
the form entitled "Option of Holder to Elect Purchase" on the reverse
of the Senior Note completed, to the Company, a depositary, if
appointed by the Company, or a Paying Agent at the address specified
in the notice prior to the close of business on the last day of the
Offer Period;
27
<PAGE> 33
(6) that Holders shall be entitled to withdraw their election if the
Company, depositary or Paying Agent, as the case may be, receives, not
later than the close of business on the last day of the Offer Period,
a telegram, telex, facsimile transmission or letter setting forth the
name of the Holder, the principal amount of the Senior Note the Holder
delivered for purchase and a statement that such Holder is withdrawing
his election to have the Senior Note purchased;
(7) that, if the aggregate principal amount of Senior Notes surrendered by
Holders exceeds the Offer Amount, the Trustee shall select the Senior
Notes to be purchased on a pro rata basis (with such adjustments as
may be deemed appropriate by the Trustee so that only Senior Notes in
denominations of $1,000, or integral multiples thereof, shall be
purchased); and
(8) that Holders whose Senior Notes were purchased only in part shall be
issued new Senior Notes equal in principal amount to the unpurchased
portion of the Senior Notes surrendered.
On or before 12:00 p.m. (New York City time) on each Purchase Date, the
Company shall irrevocably deposit with the Trustee or Paying Agent in
immediately available funds the aggregate purchase price with respect to a
principal amount of Senior Notes equal to the Offer Amount, together with
accrued interest thereon, if any, to be held for payment in accordance with the
terms of this Section 3.09. On the Purchase Date, the Company shall, to the
extent lawful, (i) accept for payment, pursuant to Section 3.02 hereof, an
aggregate principal amount equal to the Offer Amount of Senior Notes tendered
pursuant to the Asset Sale Offer, or if less than the Offer Amount has been
tendered, all Senior Notes or portions thereof tendered, (ii) deliver or cause
the Paying Agent or depositary, as the case may be, to deliver to the Trustee
Senior Notes so accepted and (iii) deliver to the Trustee an Officers'
Certificate stating that such Senior Notes or portions thereof were accepted for
payment by the Company in accordance with the terms of this Section 3.09. The
Company, the depositary or Paying Agent, as the case may be, shall promptly (but
in any case not later than three Business Days after the Purchase Date) mail or
deliver to each tendering Holder an amount equal to the Purchase Price with
respect to the Senior Notes tendered by such Holder and accepted by the Company
for purchase, and the Company shall promptly issue a new Senior Note, and the
Trustee shall authenticate and mail or deliver such new Senior Note, to such
Holder, equal in principal amount to any unpurchased portion of such Holder's
Senior Notes surrendered. Any Senior Note not accepted in the Asset Sale Offer
shall be promptly mailed or delivered by the Company to the Holder thereof. The
Company shall publicly announce in a newspaper of general circulation or in a
press release provided to a nationally recognized financial wire service the
results of the Asset Sale Offer on the Purchase Date.
28
<PAGE> 34
Other than as specifically provided in this Section 3.09, each purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01, 3.02, 3.05 and 3.06 hereof.
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF SENIOR NOTES.
The Company shall pay or cause to be paid the principal of, premium, if
any, and interest on the Senior Notes on the dates and in the manner provided in
this Indenture and the Senior Notes. Principal, premium, if any, and interest
shall be considered paid on the date due if the Paying Agent, if other than the
Company, holds as of 10:00 a.m. (New York City time) on the due date money
deposited by the Company in immediately available funds and designated for and
sufficient to pay all principal, premium, if any, and interest then due. Such
Paying Agent shall return to the Company, no later than five days following the
date of payment, any money that exceeds such amount of principal, premium, if
any, and interest paid or payable on the Senior Notes.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate equal to
1% per annum in excess of the then applicable interest rate on the Senior Notes
to the extent lawful; it shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue installments of interest
(without regard to any applicable grace period) at the same rate to the extent
lawful.
SECTION 4.02. 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 of the Trustee or an affiliate
of the Trustee, Registrar or co-Registrar) where Senior Notes may be surrendered
for registration of transfer or for exchange and where notices and demands to or
upon the Company in respect of the Senior Notes and this Indenture may be
served. The Company shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.
The Company may also from time to time designate one or more other offices
or agencies where the Senior Notes 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 shall 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.
29
<PAGE> 35
The Company hereby designates the Corporate Trust Office of the Trustee as
one such office or agency of the Company in accordance with Section 2.03 hereof.
SECTION 4.03. REPORTS.
Whether or not required by the rules and regulations of the Commission, the
Company shall file with the Commission and distribute to the Holders of the
Senior Notes copies of the quarterly and annual financial information required
to be filed with the Commission pursuant to the Exchange Act. All such financial
information shall include consolidated financial statements (including
footnotes) prepared in accordance with GAAP. Such annual financial information
shall also include an opinion thereon expressed by an independent accounting
firm of established national reputation. All such consolidated financial
statements shall be accompanied by a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" that describes the financial
condition and results of operations of the Company and its Restricted
Subsidiaries. In addition, whether or not required by the rules and regulations
of the Commission, so long as any Senior Notes are outstanding, the Company
shall file with the Commission (unless the Commission will not accept such a
filing) and furnish to the Holders of Senior Notes (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission 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" that describes the financial condition and results of
operations of the Company and its Restricted Subsidiaries 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 Commission on Form 8-K if the Company were required to file
such reports.
The financial information to be distributed to Holders of Senior Notes
shall be filed with the Trustee and mailed to the Holders at their addresses
appearing in the register of Senior Notes maintained by the Registrar, within
120 days after the end of the Company's fiscal years and within 60 days after
the end of each of the first three quarters of each such fiscal year.
The Company shall provide the Trustee with a sufficient number of copies of
all reports and other documents and information that the Trustee may be required
to deliver to the Holders under this Section 4.03.
SECTION 4.04 COMPLIANCE CERTIFICATE.
(a) The Company shall deliver to the Trustee, within 90 days after the end
of each fiscal year, an Officers' Certificate stating that a review of
the activities of the Company and its Subsidiaries during the
preceding fiscal year has been made under the supervision of the
signing Officers with a view to determining
30
<PAGE> 36
whether each has kept, observed, performed and fulfilled its
obligations under this Indenture (including with respect to any
Restricted Payments made during such year, the basis upon which
the calculations required by Section 4.07 hereof were computed,
which calculations may be based on the Company's latest available
financial statements), and further stating, as to each such
Officer signing such certificate, that to the best of his or her
knowledge, each entity has kept, observed, performed and
fulfilled each and every covenant contained in this Indenture and
is not in default in the performance or observance of any of the
terms, provisions and conditions of this Indenture (or, if a
Default or Event of Default shall have occurred, describing all
such Defaults or Events of Default of which he or she may have
knowledge and what action each is taking or proposes to take with
respect thereto).
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, in
connection with the year-end financial statements delivered
pursuant to Section 4.03 hereof, the Company shall use its best
efforts to deliver a written statement of the Company's
independent public accountants (who shall be a firm of
established national reputation) that in making the examination
necessary for certification of such financial statements, nothing
has come to their attention that would lead them to believe that
the Company has violated any provisions of this Article 4,
Section 5.01 hereof or, if any such violation has occurred,
specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or
indirectly to any Person for any failure to obtain knowledge of
any such violation. In the event that such written statement of
the Company's independent public accountants cannot be obtained,
the Company shall deliver an Officer's Certificate certifying
that it has used its best efforts to obtain such statement but
was unable to do so.
(c) The Company shall, so long as any of the Senior Notes are
outstanding, deliver to the Trustee, forthwith (and in any event
within three Business Days) upon any Officer becoming aware of
any Default or Event of Default, an Officers' Certificate
specifying such Default or Event of Default and what action the
Company is taking or proposes to take with respect thereto.
SECTION 4.05. TAXES.
The Company shall pay, and shall cause each of its Subsidiaries to pay,
prior to delinquency, all material taxes, assessments, and governmental levies
except such as are contested in good faith and by appropriate proceedings and
with respect to which appropriate reserves have been taken in accordance with
GAAP.
31
<PAGE> 37
SECTION 4.06. STAY, EXTENSION AND USURY LAWS.
The Company (to the extent that it may lawfully do so) shall not at any
time insist upon, plead, or in any manner whatsoever claim or take the benefit
or advantage of, any stay, extension or usury law wherever enacted, now or at
any time hereafter in force, that 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 covenants
that it shall not, by resort to any such law, 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 has been enacted.
SECTION 4.07. RESTRICTED PAYMENTS.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make
any other payment or distribution on account of the Company's or any of its
Restricted Subsidiaries' Equity Interests (including, without limitation, any
payment in connection with any merger or consolidation involving the Company) or
to the direct or indirect holders of the Company's or any of its Restricted
Subsidiaries' Equity Interests in their capacity as such (other than dividends
or distributions payable in Equity Interests (other than Disqualified Stock) of
the Company); (ii) purchase, redeem or otherwise acquire or retire for value
(including without limitation, in connection with any merger or consolidation
involving the Company) any Equity Interests of the Company, any Restricted
Subsidiary of the Company or any Affiliate of the Company (other than any such
Equity Interests owned by the Company or any Wholly Owned Restricted Subsidiary
of the Company); (iii) make any payment on or with respect to, or purchase,
redeem, defease or otherwise acquire or retire for value any Indebtedness that
is subordinated to the Senior Notes (other than Senior Notes), except a payment
of interest or principal at Stated Maturity; or (iv) make any Restricted
Investment (all such payments and other actions set forth in clauses (i) through
(iv) above being collectively referred to as "Restricted Payments"), unless, at
the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted
Payment had been made at the beginning of the applicable
four-quarter period, have been permitted to incur at least $1.00
of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of Section 4.14
hereof; and
(c) such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by the Company and its
Restricted Subsidiaries after the date of this Indenture
(excluding Restricted Payments permitted by clause (ii) of the
32
<PAGE> 38
next succeeding paragraph), is less than the sum of (i) 50% of
the Consolidated Net Income of the Company for the period (taken
as one accounting period) from the beginning of the first fiscal
quarter commencing after the date of this Indenture to the end of
the Company's most recently ended fiscal quarter for which
internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such
period is a deficit, less 100% of such deficit), plus (ii) 100%
of the aggregate net cash proceeds received by the Company from
the issue or sale since the date of this Indenture of Equity
Interests of the Company (other than Disqualified Stock) or of
Disqualified Stock or debt securities of the Company that have
been converted into such Equity Interests (other than Equity
Interests (or Disqualified Stock or convertible debt securities)
sold to a Subsidiary of the Company and other than Disqualified
Stock or convertible debt securities that have been converted
into Disqualified Stock), plus (iii) to the extent that any
Restricted Investment that was made after the date of this
Indenture is sold for cash or otherwise liquidated or repaid for
cash, the lesser of (A) the cash return of capital with respect
to such Restricted Investment (less the cost of disposition, if
any) and (B) the initial amount of such Restricted Investment
plus (iv) the amount resulting from redesignations of
Unrestricted Subsidiaries as Restricted Subsidiaries (in each
case, such amount to be valued as provided in the second
succeeding paragraph) not to exceed the amount of Investments
previously made by the Company or any Restricted Subsidiary in
such Unrestricted Subsidiary and which was treated as a
Restricted Payment under this Indenture.
The foregoing provisions shall not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of this
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
in exchange for, or out of the net cash proceeds of the substantially concurrent
sale (other than to a Restricted Subsidiary of the Company) of, other Equity
Interests of the Company (other than any Disqualified Stock); provided that the
amount of any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement, defeasance or other acquisition shall be excluded from
clause (c)(ii) of the preceding paragraph; (iii) the defeasance, redemption,
repurchase or other acquisition of subordinated Indebtedness with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness; (iv) the
payment of any dividend by a Restricted Subsidiary of the Company to the holders
of its common Equity Interests on a pro rata basis; (v) the repurchase,
redemption or other retirement for value of any Equity Interests of the Company
or a Restricted Subsidiary, or dividends or other distributions by the Company
to Holding the proceeds of which are utilized by Holding to repurchase, redeem
or otherwise acquire or retire for value any Equity Interests of Holding, in
each case, held by any member of the management, employees or consultants of the
Company, Restricted Subsidiary or Holding pursuant to any
33
<PAGE> 39
management, employee or consultant equity subscription agreement or stock option
agreement; provided that the aggregate price paid for all such repurchased,
redeemed, acquired or retired Equity Interests shall not exceed $500,000 in any
twelve-month period and no Default or Event of Default shall have occurred and
be continuing immediately after such transaction; (vi) payments or distributions
to dissenting stockholders of the Company in connection with the Merger; (vii)
dividends or other payments to Holdings sufficient to enable Holdings to pay
accounting, legal, corporate reporting and administrative expenses of Holdings
incurred in the ordinary course of business or to pay required fees and expenses
in connection with the Acquisition and the registration under applicable laws
and regulations of its debt or equity securities; and (viii) payments to
Holdings pursuant to the Tax Sharing Agreement.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such designation, all outstanding Investments by the Company
and its Restricted Subsidiaries (except to the extent repaid in cash) in the
Subsidiary so designated shall be deemed to be Restricted Payments at the time
of such designation and shall reduce the amount available for Restricted
Payments under the first paragraph of this Section 4.07. All such outstanding
Investments shall be deemed to constitute Restricted Investments in an amount
equal to the greater of (i) the net book value of such Investments at the time
of such designation and (ii) the fair market value of such Investments at the
time of such designation. Such designation shall only be permitted if such
Restricted Investment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash Restricted Payment shall be determined by the Board
of Directors whose resolution with respect thereto shall be delivered to the
Trustee, such determination to be based upon an opinion or appraisal issued by
an accounting, appraisal or investment banking firm of national standing if such
fair market value exceeds $5.0 million. Not later than the date of making any
Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this Section 4.07 were
computed, together with a copy of any fairness opinion or appraisal required by
this Indenture.
SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (i)(a) pay dividends or make any other distributions to
the Company or any of its Restricted Subsidiaries (1) on its Capital Stock or
(2) with respect to any other interest or participation in, or measured by, its
profits, or (b) pay any Indebtedness owed to the Company or any of its
Restricted Subsidiaries, (ii) make loans or advances to the Company or any of
its Restricted Subsidiaries or (iii) transfer any of its properties or
34
<PAGE> 40
assets to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (a) applicable law,
(b) any instrument governing Indebtedness or Capital Stock of a Person acquired
by the Company or any of its Restricted Subsidiaries as in effect at the time of
such acquisition (except to the extent such Indebtedness was incurred in
connection with or in contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so
acquired, provided that, in the case of Indebtedness, such Indebtedness was
permitted by the terms of this Indenture to be incurred, (c) by reason of
customary non-assignment provisions in leases, licenses, encumbrances, contracts
or similar assets entered into or acquired in the ordinary course of business
and consistent with past practices, (d) purchase money obligations for property
acquired in the ordinary course of business that impose restrictions of the
nature described in clause (iii) above on the property so acquired, (e) existing
by virtue of any transfer of, agreement to transfer, option or right with
respect to, or Lien on, any property or assets of the Company or any Restricted
Subsidiary not otherwise prohibited by this Indenture, (f) with respect to a
Restricted Subsidiary and imposed pursuant to an agreement that has been entered
into for the sale or disposition of all or substantially all of the Capital
Stock of, or property and assets of, such Restricted Subsidiary or (g) Permitted
Refinancing Indebtedness, provided that the restrictions contained in the
agreements governing such Permitted Refinancing Indebtedness are no more
restrictive than those contained in the agreements governing the Indebtedness
being refinanced.
SECTION 4.09 ADDITIONAL SUBSIDIARY GUARANTEES
If the Company or any of its Subsidiaries shall acquire or create another
Subsidiary after the date of this Indenture, then the Company shall cause such
newly acquired or created Subsidiary to execute a Subsidiary Guarantee and
deliver an Opinion of Counsel, in accordance with the terms of this Indenture,
except this Section 4.09 shall not apply to any Subsidiaries that have properly
been designated as Unrestricted Subsidiaries in accordance with this Indenture
for so long as they continue to constitute Unrestricted Subsidiaries.
SECTION 4.10. ASSET SALES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the
Restricted Subsidiary, as the case may be) receives consideration at the time of
such Asset Sale at least equal to the fair market value (evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (ii) at least 75% of the consideration therefor
received by the Company or such Restricted Subsidiary is in the form of cash or
Cash Equivalents; provided however that, the Company and Restricted Subsidiaries
shall be permitted to consummate Asset Sales with respect to assets with a fair
market value of less than $5.0 million in the aggregate since the Issue Date
without complying with clause (ii) above to the extent (A) at least 75% of the
consideration received in connection with such Asset Sale constitutes
Replacement Assets (as defined below) or a combination of Replacement Assets,
cash and Cash Equivalents and (B) any Net Proceeds in the form of cash or Cash
Equivalents received by the Company or any of its
35
<PAGE> 41
Restricted Subsidiaries in connection with any such Asset Sale permitted to be
consummated pursuant to this proviso shall be subject to the provisions of the
immediately following paragraph.
Within 360 days after receipt of any Net Proceeds from an Asset Sale, the
Company may apply the Net Proceeds at its option (a) to permanently reduce
Indebtedness under the Credit Facilities (and correspondingly reduce commitments
thereunder) or (b) to the acquisition of a controlling interest in another
business, the making of a capital expenditure or the acquisition of other
long-term assets, in each case, in the same or a similar line of business as the
Company was engaged in on the date of this Indenture (collectively "Replacement
Assets"). Pending the final application of any such Net Proceeds, the Company
may temporarily reduce revolving credit Indebtedness or otherwise invest such
Net Proceeds in any manner that is not prohibited by this Indenture. Any Net
Proceeds from Asset Sales that are not applied or invested as provided in the
first sentence of this paragraph will be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company
shall be required to make an offer to all Holders of Senior Notes (an "Asset
Sale Offer") to purchase the maximum principal amount of Senior Notes that may
be purchased out of the Excess Proceeds, at an offer price in cash in an amount
equal to 100% of the principal amount thereof plus accrued and unpaid interest
thereon, if any, to the date of purchase, in accordance with the procedures set
forth in Section 3.09 of this Indenture. To the extent that the aggregate amount
of Senior Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company may use any remaining Excess Proceeds for general
corporate purposes. If the aggregate principal amount of Senior Notes
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Senior Notes to be purchased on a pro rata basis. Upon
completion of such offer to purchase, the amount of Excess Proceeds shall be
reset at zero.
An Asset Sale Offer shall be made pursuant to the provisions of Section
3.09 hereof. No later than the date which is five (5) Business Days after the
date on which the aggregate amount of Excess Proceeds exceeds $5.0 million, the
Company shall notify the Trustee of such Asset Sale Offer in accordance with
Section 3.09 hereof and commence or cause to be commenced the Asset Sale Offer
on a date no later than fifteen (15) Business Days after such notice (the
"Commencement Date").
The Asset Sale Offer shall be made by the Company in compliance with all
applicable laws, including, without limitation, Rule 14e-1 under the Exchange
Act and the rules thereunder, to the extent applicable, and all other applicable
federal and state securities laws.
SECTION 4.11. TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless
(i) such Affiliate Transaction is on terms that are no less favorable
36
<PAGE> 42
to the Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee
(a) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $500,000, a Board
Resolution approving such Affiliate Transaction and an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $5.0 million, in addition to the Board
Resolution and Officers' Certificate required by (a) above, an opinion as to the
fairness to the Holders of such Affiliate Transaction from a financial point of
view issued by an accounting, appraisal or investment banking firm of national
standing; provided that (v) any employment agreement entered into by the Company
or any of its Restricted Subsidiaries in the ordinary course of business and
consistent with the past practice of the Company or such Restricted Subsidiary,
(w) transactions between or among the Company and/or its Restricted Subsidiaries
and (x) Restricted Payments (other than Restricted Investments) that are
permitted by the provisions of this Indenture under Section 4.07, (y) investment
banking and management fees in an aggregate amount not greater than $240,000 in
the aggregate in any calendar year (plus reimbursement of expenses) to be paid
by the Company to the Principals or any Related Party and (z) an aggregate cash
fee of $1.7 million payable by the Company to the Principals or any Related
Party on the Issue Date, in each case, shall not be deemed Affiliate
Transactions.
SECTION 4.12. LIENS.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, incur, assume or suffer to exist any Lien on any
property or asset now owned or hereafter acquired, or on any income or profits
therefrom or assign or convey any right to receive income therefrom, except
Permitted Liens.
SECTION 4.13. SALE AND LEASEBACK TRANSACTIONS.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction (other than among
the Company and Wholly Owned Restricted Subsidiaries or among Wholly Owned
Restricted Subsidiaries); provided that the Company may enter into a sale and
leaseback transaction if (i) the Company could have (a) incurred Indebtedness in
an amount equal to the Attributable Debt relating to such sale and leaseback
transaction pursuant to Section 4.14 hereof and (b) incurred a Lien to secure
such Indebtedness pursuant to Section 4.12 hereof, (ii) the gross cash proceeds
of such sale and leaseback transaction are at least equal to the fair market
value (as determined in good faith by the Board of Directors and set forth in an
Officers' Certificate delivered to the Trustee) of the property that is the
subject of such sale and leaseback transaction and (iii) the transfer of assets
in such sale and leaseback transaction is permitted by, and the Company applies
the proceeds of such transaction in compliance with Section 4.10 hereof.
SECTION 4.14. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
37
<PAGE> 43
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt) and that the
Company shall not issue any Disqualified Stock and shall not permit any of its
Subsidiaries to issue any shares of preferred stock; provided, however, that the
Company may incur Indebtedness (including Acquired Debt) or issue shares of
Disqualified Stock if the Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have been at
least 2 to 1, if such incurrence or issuance is on or prior to ___, 1998, or
2.25 to 1, if such incurrence or issuance is after __, 1998, in each case,
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of such
four-quarter period.
The Company shall not incur any Indebtedness that is contractually
subordinated to any other Indebtedness of the Company unless such Indebtedness
is also contractually subordinated to the Senior Notes on substantially
identical terms; provided, however, that no Indebtedness of the Company shall be
deemed to be contractually subordinated to any other Indebtedness of the Company
solely by virtue of being unsecured.
The provisions of the first paragraph of this Section 4.14 shall not apply
to the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company and its Subsidiaries of Indebtedness
(including letters of credit) pursuant to the Credit Facilities (with
letters of credit being deemed to have a principal amount equal to
the maximum potential liability of the Company and its Subsidiaries
thereunder); provided that, after giving pro forma effect to any such
incurrence and the application of the proceeds therefrom, the
aggregate principal amount of all Indebtedness (including letters of
credit) of the Company and its Subsidiaries outstanding under the
Credit Facilities does not exceed the greater of (x) $38.0 million
less the aggregate amount of all Net Proceeds of Asset Sales applied
to permanently repay any such Indebtedness pursuant to Section 4.10
hereof and (y) the amount of the Borrowing Base as of any date of
incurrence;
(ii) the incurrence by the Company of Indebtedness represented by the
Initial Senior Notes and the incurrence by any Subsidiary of the
Company of a Subsidiary Guarantee issued pursuant to Section 4.09
hereof;
(iii) the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case incurred for
the purpose of financing all or any part of the purchase price or
cost of
38
<PAGE> 44
construction or improvement of property, plant or equipment used in
the business of the Company or such Subsidiary, in an aggregate
principal amount not to exceed $10 million at any time outstanding;
(iv) the incurrence by any corporation that becomes a Subsidiary after
the Issue Date of Acquired Debt, which Indebtedness is existing at
the time such corporation becomes a Subsidiary; provided, however,
that (A) immediately after giving effect to such corporation
becoming a Subsidiary the Company could incur at least $1.00 of
additional Indebtedness (other than Permitted Debt) in accordance
with this Indenture, (B) such Indebtedness is without recourse to
the Company or to any Subsidiary or to any of their respective
properties or assets other than Person becoming a Subsidiary or
its properties and assets and (C) such Indebtedness was not
incurred as a result of or in connection with or in contemplation
of such entity becoming a Subsidiary;
(v) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to refund, refinance or replace
Indebtedness that was permitted by this Indenture to be incurred;
(vi) the incurrence of intercompany Indebtedness between or among the
Company and any of its Wholly Owned Restricted Subsidiaries;
provided, however, that (i) if the Company is the obligor on such
Indebtedness, such Indebtedness is expressly subordinated to the
prior payment in full in cash of all Obligations with respect to
the Senior Notes and (ii)(A) any subsequent issuance or transfer
of Equity Interests that results in any such Indebtedness being
held by a Person other than the Company or a Wholly Owned
Restricted Subsidiary and (B) any sale or other transfer of any
such Indebtedness to a Person that is not either the Company or a
Wholly Owned Restricted Subsidiary shall be deemed, in each case,
to constitute an incurrence of such Indebtedness by the Company or
such Subsidiary, as the case may be;
(vii) Indebtedness of an Unrestricted Subsidiary of the Company owed to
and held by the Company or a Restricted Subsidiary of the Company,
provided that the Company or such Restricted Subsidiary is permitted
to make an investment in such Unrestricted Subsidiary under this
Indenture at the time such Indebtedness is incurred in an amount
equal to the principal amount of such Indebtedness;
(viii) the incurrence by the Company of Hedging Obligations that are
incurred for the purpose of fixing or hedging currency risk or
interest rate risk with respect to any floating rate Indebtedness
that is permitted by the terms of this Indenture to be outstanding;
(ix) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness
ceases to be Non-Recourse Debt of an Unrestricted Subsidiary, such
event shall
39
<PAGE> 45
be deemed to constitute an incurrence of Indebtedness by a
Restricted Subsidiary of the Company;
(x) Indebtedness incurred in respect of performance, surety and similar
bonds provided by the Company in the ordinary course of business,
and refinancings thereof;
(xi) Indebtedness for letters of credit relating to workers' compensation
claims and self-insurance or similar requirements in the ordinary
course of business;
(xii) Indebtedness arising from guarantees of Indebtedness of the Company
or any Subsidiary or other agreements of the Company or a Subsidiary
providing for indemnification, adjustment of purchase price or
similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, assets or
Subsidiary, other than guarantees of Indebtedness incurred by any
person acquiring all or any portion of such business, assets or
Subsidiary for the purpose of financing such acquisition, provided
that the maximum aggregate liability in respect of all such
Indebtedness shall at no time exceed the gross proceeds actually
received by the Company and its Subsidiaries in connection with
such disposition;
(xiii) the guarantee by any of the Guaranteeing Subsidiaries of
Indebtedness of the Company or another Guaranteeing Subsidiary that
was permitted to be incurred under this Indenture; and
(xiv) the incurrence by the Company or any of its Subsidiaries of
additional Indebtedness in an aggregate principal amount (or
accreted value, as applicable) at any time outstanding, not to
exceed $10.0 million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xiv) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant and such item of Indebtedness will be
treated as having been incurred pursuant to only one of such clauses or pursuant
to the first paragraph hereof. Accrual of interest and the accretion of accreted
value shall not be deemed to be an incurrence of Indebtedness for purposes of
this covenant.
SECTION 4.15. OFFER TO PURCHASE UPON CHANGE OF CONTROL.
Upon the occurrence of a Change of Control, each Holder shall have the
right to require the Company to repurchase all or any part (equal to $1,000 or
an integral multiple thereof) of such Holder's Senior Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in cash
equal to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase (the "Change of Control Payment").
40
<PAGE> 46
Within fifteen (15) calendar days following any Change of Control, the
Company shall mail a notice to each Holder stating:
(1) that the Change of Control Offer is being made pursuant to this
Section 4.15 and that all Senior Notes properly tendered will be
accepted for payment;
(2) the purchase price and the purchase date, which will be no earlier
than 30 days nor later than 60 days from the date such notice is
mailed (the "Change of Control Payment Date");
(3) that any Senior Note not properly tendered will continue to accrue
interest;
(4) that, unless the Company defaults in the payment of the Change of
Control Payment, all Senior Notes accepted for payment pursuant to the
Change of Control Offer will cease to accrue interest after the Change
of Control Payment Date;
(5) that Holders electing to have any Senior Notes purchased pursuant to a
Change of Control Offer will be required to surrender the Senior
Notes, with the form entitled "Option of Holder to Elect Purchase" on
the reverse of the Senior Notes completed, or transfer by book-entry,
to the Paying Agent at the address specified in the notice prior to
the close of business at least one Business Day preceding the Change
of Control Payment Date;
(6) that Holders will be entitled to withdraw their election if the Paying
Agent receives, not later than one Business Day prior to the close of
business on the Change of Control Payment Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder,
the principal amount of Senior Notes delivered for purchase, and a
statement that such Holder is withdrawing his election to have such
Senior Notes purchased;
(7) that Holders whose Senior Notes are being purchased only in part will
be issued new Senior Notes equal in principal amount to the
unpurchased portion of the Senior Notes surrendered (or transferred by
book-entry), which unpurchased portion must be equal to $1,000 in
principal amount or an integral multiple thereof; and
(8) the circumstances and material facts regarding such Change of Control
(including, but not limited to, information with respect to pro forma
and historical financial information after giving effect to such
Change of Control, and information regarding the Person or Persons
acquiring control).
41
<PAGE> 47
On the Change of Control Payment Date, the Company shall, to the extent
lawful, (1) accept for payment all Senior Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all Senior
Notes or portions thereof so tendered and (3) deliver or cause to be delivered
to the Trustee the Senior Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of the Senior Notes or
portions thereof being purchased by the Company. The Paying Agent shall promptly
mail to each Holder of Senior Notes so tendered the Change of Control Payment
for such Senior Notes, and the Trustee shall promptly authenticate and mail (or
cause to be transferred by book-entry) to each Holder a new Senior Note equal in
principal amount to any unpurchased portion of the Senior Notes surrendered (or
surrendered by book-entry), if any; provided that each such new Senior Note
shall be in a principal amount of $1,000 or an integral multiple thereof. The
Company shall publicly announce in a newspaper of national circulation or in a
press release provided to a nationally recognized financial wire service the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in this Section 4.15 and purchases all Senior Notes validly tendered and not
withdrawn under such Change of Control Offer.
The Company shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Senior Notes as a result of a Change of Control.
SECTION 4.16. CORPORATE EXISTENCE.
Subject to Section 4.15 and Article 5 hereof, as the case may be, the
Company shall do or cause to be done all things necessary to preserve and keep
in full force and effect (i) its corporate existence, and the corporate,
partnership or other existence of each of its Restricted Subsidiaries, in
accordance with the respective organizational documents (as the same may be
amended from time to time) of the Company or any such Restricted Subsidiary, as
the case may be, and (ii) the rights (charter and statutory), licenses and
franchises of the Company and its Restricted Subsidiaries; provided, however,
that the Company shall not be required to preserve any such right, license or
franchise, or the corporate, partnership or other existence of any of its
Restricted Subsidiaries, if the Board of Directors of the Company shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company and its Restricted Subsidiaries, taken as a whole,
and that the loss thereof is not adverse in any material respect to the Holders
of the Senior Notes.
SECTION 4.17 LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY
OWNED RESTRICTED SUBSIDIARIES
42
<PAGE> 48
The Company (i) shall not, and shall not permit any Wholly Owned Restricted
Subsidiary of the Company to, transfer, convey, sell, lease or otherwise dispose
of any Capital Stock of any Wholly Owned Restricted Subsidiary of the Company to
any Person (other than the Company or a Wholly Owned Restricted Subsidiary of
the Company), unless (a) such transfer, conveyance, sale, lease or other
disposition is of all the Capital Stock of such Wholly Owned Restricted
Subsidiary and (b) the cash Net Proceeds from such transfer, conveyance, sale,
lease or other disposition are applied in accordance with Section 4.10 and (ii)
shall not permit any Wholly Owned Restricted Subsidiary of the Company to issue
any of its Equity Interests (other than, if necessary, shares of its Capital
Stock constituting directors' qualifying shares) to any Person other than to the
Company or a Wholly Owned Restricted Subsidiary of the Company.
SECTION 4.18 PAYMENTS FOR CONSENT
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of any Senior Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of this Indenture or the Senior Notes unless such consideration is offered to be
paid or is paid on a pro rata basis to all Holders of the Senior Notes that
consent, waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
ARTICLE 5
SUCCESSORS
SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS.
The Company shall not consolidate or merge with or into (whether or not the
Company is the surviving corporation), or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its properties or assets in
one or more related transactions, to another corporation, Person or entity
unless (i) the Company is the surviving corporation or the entity or the Person
formed by or surviving any such consolidation or merger (if other than the
Company) or to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made is a corporation organized or existing under
the laws of the United States, any state thereof or the District of Columbia;
(ii) the entity or Person formed by or surviving any such consolidation or
merger (if other than the Company) or the entity or Person to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made assumes all the obligations of the Company under the Senior Notes and this
Indenture pursuant to a supplemental indenture in a form reasonably satisfactory
to the Trustee; (iii) immediately after such transaction no Default or Event of
Default exists; (iv) except in the case of a merger of the Company with or into
a Wholly Owned Restricted Subsidiary of the Company, the Company or the entity
or Person formed by or surviving any such consolidation or merger (if other than
the Company), or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made (A) will have Consolidated Net Worth
immediately after the transaction equal to or greater than the Consolidated Net
Worth of the Company immediately preceding the transaction
43
<PAGE> 49
and (B) will, at the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in
Section 4.14 hereof; and (v) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, sale, assignment, transfer, lease, conveyance or other
disposition and such supplemental indenture complies with this Article and that
all conditions precedent herein provided for relating to such transaction have
been complied with.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment, transfer, lease,
conveyance or other disposition of all or substantially all of the assets of the
Company in accordance with Section 5.01 hereof, the successor Person formed by
such consolidation or into or with which the Company is merged or to which such
sale, assignment, transfer, lease, conveyance or other disposition is made shall
succeed to, and be substituted for (so that from and after the date of such
consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to the "Company" shall refer instead to
the successor Person and not to the Company), and may exercise every right and
power of the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein; provided that, solely for
purposes of computing Consolidated Net Income for purposes of clause (b) of the
first paragraph of Section 4.07 hereof, the Consolidated Net Income of any
Person other than the Company and its Restricted Subsidiaries shall only be
included for periods subsequent to the effective time of such merger,
consolidation, combination or transfer of assets; and provided, however, in the
case of any sale, assignment, transfer, lease, conveyance or other disposition
of less than all of the assets of the Company, the Company shall not be released
or discharged from the obligation to pay the principal of or interest on the
Senior Notes.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
An "Event of Default" occurs if:
(a) the Company defaults in the payment when due of interest on the
Senior Notes and such default continues for a period of 30 days;
(b) the Company defaults in the payment when due of principal of or
premium, if any, on the Senior Notes when the same becomes due and
payable at maturity, upon redemption (including in connection with an
offer to purchase) or otherwise;
44
<PAGE> 50
(c) the Company fails to comply with any of the provisions of Section
4.07, 4.10, 4.14 or 4.15 hereof;
(d) the Company fails to observe or perform any other covenant,
representation, warranty or other agreement in this Indenture or the
Senior Notes for 60 days after notice to the Company by the Trustee or
to the Company and the Trustee by the Holders of at least 25% in
aggregate principal amount of the Senior Notes then outstanding;
(e) a default occurs under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company or any of
its Restricted Subsidiaries (or the payment of which is guaranteed by
the Company or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date
hereof, which default (i) is caused by a failure to pay principal of
or premium, if any, or interest on such Indebtedness prior to the
expiration of the grace period provided in such Indebtedness on the
date of such default (a "Payment Default") or (ii) results in the
acceleration of such Indebtedness prior to its express maturity and,
in each case, the principal amount of any such Indebtedness, together
with the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $5.0 million or more;
(f) a final judgment or final judgments for the payment of money are
entered by a court or courts of competent jurisdiction against the
Company or any of its Restricted Subsidiaries and such judgment or
judgments remain undischarged for a period (during which execution
shall not be effectively stayed) of 60 days, provided that the
aggregate of all such undischarged judgments exceeds $5 million;
(g) except as permitted by this Indenture or a Subsidiary Guarantee,
any Subsidiary Guarantee shall be held in any judicial proceeding to
be unenforceable or invalid or shall cease for any reason to be in
full force and effect or any Guaranteeing Subsidiary, or any Person
acting on behalf of any Guaranteeing Subsidiary, shall deny or
disaffirm its obligations under its Subsidiary Guarantee;
(h) the Company or any Restricted Subsidiary that is a Significant
Restricted Subsidiary or group of Restricted Subsidiaries that,
together, would constitute a Significant Restricted Subsidiary,
pursuant to or within the meaning of any Bankruptcy Law:
45
<PAGE> 51
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it in
an involuntary case in which it is the debtor,
(iii) consents to the appointment of a Custodian of it or for all
or substantially all of its property,
(iv) makes a general assignment for the benefit of its creditors,
or
(v) admits in writing its inability generally to pay its debts as
the same become due; or
(i) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(i) is for relief against the Company or any Restricted
Subsidiary that is a Significant Restricted Subsidiary or group
of Restricted Subsidiaries that, together, would constitute a
Significant Restricted Subsidiary of the Company in an
involuntary case in which it is the debtor,
(ii) appoints a Custodian of the Company or any Restricted
Subsidiary that is a Significant Restricted Subsidiary or group
of Restricted Subsidiaries that, together, would constitute a
Significant Restricted Subsidiary of the Company or for all or
substantially all of the property of the Company or any
Restricted Subsidiary that is a Significant Restricted Subsidiary
or group of Restricted Subsidiaries that, together, would
constitute a Significant Restricted Subsidiary of the Company, or
(iii) orders the liquidation of the Company or any Restricted
Subsidiary that is a Significant Restricted Subsidiary or group
of Restricted Subsidiaries that, together, would constitute a
Significant Restricted Subsidiary of the Company,
and the order or decree remains unstayed and in effect for 60
consecutive days.
SECTION 6.02. ACCELERATION.
If an Event of Default (other than an Event of Default with respect to the
Company specified in clauses (h) and (i) of Section 6.01 hereof) occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the then
46
<PAGE> 52
outstanding Senior Notes by written notice to the Company (and the Trustee, if
given by Holders) may declare the unpaid principal of, premium, if any, and
accrued and unpaid interest on all the Senior Notes to be due and payable. Upon
such declaration the principal, premium, if any, and interest on all the Senior
Notes shall be due and payable immediately. If an Event of Default with respect
to the Company specified in clauses (h) or (i) of Section 6.01 hereof occurs,
all outstanding Senior Notes shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holder. The Holders of a majority in principal amount of the then outstanding
Senior Notes by written 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 (except nonpayment of principal or
interest that has become due solely because of the acceleration) have been cured
or waived.
If an Event of Default occurs by reason of any willful action (or inaction)
taken (or not taken) by or on behalf of the Company with the intention of
avoiding payment of the premium that the Company would have had to pay if the
Company then had elected to redeem the Senior Notes pursuant to Section 3.07(a)
hereof then, upon acceleration of the Senior Notes, an equivalent premium shall
also become and be immediately due and payable, to the extent permitted by law,
anything in this Indenture or in the Senior Notes to the contrary
notwithstanding. If an Event of Default occurs prior to __________, 2002 by
reason of any willful action (or inaction) taken (or not taken) by or on behalf
of the Company with the intention of avoiding the prohibition on redemption of
the Senior Notes prior to such date pursuant to Section 3.07(a) hereof, then,
upon acceleration of the Senior Notes, an additional premium shall also become
and be immediately due and payable in an amount, for each of the years as set
forth below expressed as a percentage of the principal amount that would
otherwise be due but for the provisions of this section, plus accrued interest,
if any, to the date of payment:
YEAR PERCENTAGE
1997 .................................................... _____%
1998 .................................................... _____%
1999 .................................................... _____%
2000 .................................................... _____%.
2001 .................................................... _____%
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy to collect the payment of principal, premium, if any, and
interest on the Senior Notes or to enforce the performance of any provision of
the Senior Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Senior Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Senior Note 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. All remedies
are cumulative to the extent permitted by law.
47
<PAGE> 53
SECTION 6.04. WAIVER OF PAST DEFAULTS.
Holders of a majority in aggregate principal amount of the Senior Notes
then outstanding, by notice to the Trustee, may on behalf of the Holders of all
of the Senior Notes waive any existing Default or Event of Default and its
consequences under this Indenture, except a continuing Default or Event of
Default in the payment of the principal of, premium, if any, or interest on, the
Senior Notes. Upon any such waiver, such Default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereon.
SECTION 6.05. CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then outstanding Senior
Notes may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture that the Trustee determines may be unduly
prejudicial to the rights of other Holders or that may involve the Trustee in
personal liability. The Trustee may take any other action which it deems proper
which is not inconsistent with any such direction. Notwithstanding any provision
to the contrary in this Indenture, the Trustee shall not be obligated to take
any action with respect to the provisions of the last paragraph of Section 6.02
hereof unless directed to do so pursuant to this Section 6.05.
SECTION 6.06. LIMITATION ON SUITS.
A Holder of a Senior Note may pursue a remedy with respect to this
Indenture or the Senior Notes if:
(a) the Holder gives to the Trustee written notice of a continuing
Event of Default or the Trustee receives such notice from the
Company;
(b) the Holders of at least 25% in principal amount of the then
outstanding Senior Notes make a written request to the Trustee to
pursue the remedy;
(c) such Holder or Holders offer and, if requested, provide to the
Trustee indemnity satisfactory to the Trustee against any loss,
liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the
provision of indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Senior Notes do not give the
Trustee a direction inconsistent with the request.
48
<PAGE> 54
A Holder of a Senior Note may not use this Indenture to prejudice the rights of
another Holder of a Senior Note or to obtain a preference or priority over
another Holder of a Senior Note.
SECTION 6.07. RIGHTS OF HOLDERS OF SENIOR NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Senior Note to receive payment of principal of, premium, if any, and
interest on the Senior Note, on or after the respective due dates expressed in
the Senior Note (including in connection with an offer to purchase), or to bring
suit for the enforcement of any such payment on or after such respective dates,
shall not be impaired or affected without the consent of such Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a) or (b) hereof occurs
and is continuing, the Trustee is authorized to recover judgment in its own name
and as trustee of an express trust against the Company or any other obligor for
the whole amount of principal of, premium, if any, and interest remaining unpaid
on the Senior Notes and interest on overdue principal and, to the extent lawful,
interest and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel and all other
amounts due the Trustee pursuant to Section 7.07 hereof.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel and all other
amounts due the Trustee pursuant to Section 7.07 hereof) and the Holders allowed
in any judicial proceedings relative to the Company (or any other obligor upon
the Senior Notes), its creditors or its property and shall be entitled and
empowered to collect, receive and distribute any money or other property payable
or deliverable on any such claims and any custodian in any such judicial
proceeding is hereby authorized by each Holder to make such payments to the
Trustee, and in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due to it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.07 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties that the Holders may be
entitled to receive in such proceeding whether in liquidation or under any plan
of reorganization or arrangement or otherwise. Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment or
49
<PAGE> 55
composition affecting the Senior Notes or the rights of any Holder, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article 6, it shall pay
out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due
under Section 7.07 hereof, including payment of all compensation,
expense and liabilities incurred, and all advances made, by the
Trustee and the costs and expenses of collection;
Second: to Holders for amounts due and unpaid on the Senior Notes
for principal, premium, if any, and interest, ratably, without
preference or priority of any kind, according to the amounts due and
payable on the Senior Notes for principal, premium, if any, and
interest, respectively;
Third: without duplication, to Holders for any other Obligations
owing to the Holders under this Indenture or the Senior Notes; and
Fourth: to the Company or to such other party as a court of
competent jurisdiction shall direct.
The Trustee may fix a record date and payment date for any
payment to Holders pursuant to this Section 6.10.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as a
Trustee, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section does
not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07
hereof, or a suit by Holders of more than 10% in principal amount of the then
outstanding Senior Notes.
ARTICLE 7
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it
by this Indenture, and use the same degree of care and skill in
its
50
<PAGE> 56
exercise, as a prudent person would exercise or use under the
circumstances in the conduct of his or her own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture or the TIA and the
Trustee need perform only those duties that are specifically
set forth in this Indenture or the TIA and no others, and no
implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of
this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own
willful misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b)
of this Section 7.01;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is
proved that the Trustee was negligent in ascertaining the
pertinent facts; and
(iii) 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 6.05
hereof.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject
to paragraphs (a), (b), and (c) of this Section 7.01.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. 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 the provisions of this
Indenture, including, without limitation, the provisions of
Section 6.05 hereof, unless such Holders shall have offered to
51
<PAGE> 57
the Trustee reasonable security or indemnity against the costs,
expenses and liabilities that might be incurred by it in
compliance with such request or direction.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with
the Company. 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 not be bound to make any investigation into the
facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture or other paper or
documents, but the Trustee, in its discretion may make such
further inquiry or investigation into such facts or matters as it
may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to examine
the books, records and premises of the Company or any
Guaranteeing Subsidiary, personally or by agent or attorney.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely upon any document believed by
it to be genuine and to have been signed or presented by the
proper Person. The Trustee need not investigate any fact or
matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel or both. The
Trustee shall not be liable for any action it takes or omits to
take in good faith in reliance on such Officers' Certificate or
Opinion of Counsel. The Trustee may consult with counsel and the
written advice of such counsel or any Opinion of Counsel shall be
full and complete authorization and protection from liability in
respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent
appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within
the rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be
sufficient if signed by an Officer of the Company. A permissive
52
<PAGE> 58
right granted to the Trustee hereunder shall not be deemed an
obligation to act.
(f) The Trustee shall not be charged with knowledge of any Default or
Event of Default unless either (i) a Responsible Officer of the
Trustee shall have actual knowledge of such Default or Event of
Default or (ii) written notice of such Default or Event of
Default shall have been given to the Trustee by the Company or
any Holder.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the owner or
pledgee of Senior Notes and may otherwise deal with the Company or any Affiliate
of the Company with the same rights it would have if it were not Trustee.
However, in the event that the Trustee acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue as trustee or resign. Any Agent may do the same with like rights and
duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof.
SECTION 7.04. 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 Senior Notes, it shall not be
accountable for the Company's use of the proceeds from the Senior Notes or any
money paid to the Company or upon the Company's direction under any provision of
this Indenture, it shall not be responsible for the use or application of any
money received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Senior
Notes or any other document in connection with the sale of the Senior Notes or
pursuant to this Indenture other than its certificate of authentication.
SECTION 7.05. 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 the
Holders of the Senior Notes a notice of the Default or Event of Default within
90 days after it occurs. Except in the case of a Default or Event of Default in
payment on any Senior Note pursuant to Section 6.01(a) or (b) hereof, the
Trustee may 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 the Holders.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE SENIOR NOTES.
Within 60 days after each May 1 beginning with the May 1 following the date
of this Indenture, and for so long as Senior Notes remain outstanding, the
Trustee shall mail to the Holders a brief report dated as of such reporting date
that complies with TIA [SECTION] 313(a) (but if no event described in TIA
[SECTION] 313(a) has occurred within the twelve months preceding the reporting
date, no report need be transmitted).
53
<PAGE> 59
The Trustee also shall comply with TIA [SECTION] 313(b). The Trustee shall also
transmit by mail all reports as required by TIA [SECTION] 313(c).
A copy of each report at the time of its mailing to the Holders shall be
mailed to the Company and filed with the Commission and each stock exchange on
which the Senior Notes are listed in accordance with TIA [SECTION] 313(d). The
Company shall promptly notify the Trustee when the Senior Notes are listed on
any stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder as
provided from time to time in agreements between the Company and the Trustee.
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 promptly
upon request for all reasonable disbursements, advances and expenses incurred or
made by it in addition to the compensation for its services. Such expenses shall
include the reasonable compensation, disbursements and expenses of the Trustee's
agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture, including the
costs and expenses of enforcing this Indenture against the Company (including
this Section 7.07), and defending itself against any claim (whether asserted by
the Company or any Holder or any other Person) or liability in connection with
the exercise or performance of any of its powers or duties hereunder, except to
the extent any such loss, liability or expense may be attributable to its
negligence or bad faith. The Trustee shall notify the Company promptly of any
claim for which it may seek indemnity. Failure by the Trustee to so notify the
Company shall not relieve the Company of its obligations hereunder. The Company
shall defend the claim and the Trustee shall cooperate in the defense. The
Trustee may have separate counsel and the Company shall pay the reasonable fees
and expenses of such counsel. The Company need not pay for any settlement made
without its consent, which consent shall not be unreasonably withheld.
The obligations of the Company under this Section 7.07 shall survive the
resignation or removal of the Trustee and the satisfaction and discharge of this
Indenture.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a Lien prior to the Senior Notes on all money or property
held or collected by the Trustee, except that held in trust to pay principal and
interest on particular Senior Notes. Such Lien shall survive the resignation or
removal of the Trustee and the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(h) or (i) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
54
<PAGE> 60
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section 7.08.
The Trustee may resign in writing at any time and be discharged from the
trust hereby created by so notifying the Company. The Holders of a majority in
principal amount of the then outstanding Senior Notes may remove the Trustee by
so notifying the Trustee and the Company in writing. The Company may remove the
Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company shall promptly appoint a successor
Trustee.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of at least 10% in principal amount of the then outstanding Senior
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee, after written request by any Holder fails to comply with
Section 7.10 hereof, any Holder of a Senior Note may petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of
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
Holders. The retiring Trustee shall promptly transfer all property held by it as
Trustee to the successor Trustee, provided all sums owing to the Trustee
hereunder have been paid and subject to the Lien provided for in Section 7.07
hereof. Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligations under Section 7.07 hereof shall continue for the
benefit of the retiring Trustee.
55
<PAGE> 61
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee or any Agent consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to another
corporation, the successor corporation without any further act shall be the
successor Trustee or Agent.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least $50.0
million as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the requirements
of TIA [SECTION] 310(a)(1), (2) and (5). The Trustee is subject to TIA [SECTION]
310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA [SECTION] 311(a), excluding any creditor
relationship listed in TIA [SECTION] 311(b). A Trustee who has resigned or been
removed shall be subject to TIA [SECTION] 311(a) to the extent indicated
therein.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board of Directors evidenced by a
Board Resolution and at any time, elect to have either Section 8.02 or 8.03
hereof be applied to all outstanding Senior Notes upon compliance with the
conditions set forth below in this Article 8.
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be deemed to have been
discharged from its obligations with respect to all outstanding Senior Notes on
the date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company shall be
deemed to have paid and discharged the entire indebtedness represented by the
outstanding Senior Notes, which shall thereafter be deemed to be "outstanding"
only for the purposes of Section 8.05 hereof and the other Sections of this
Indenture referred to in clauses (a) and (b) of this Section 8.02, and to have
satisfied all its other obligations under such Senior Notes and this Indenture
(and the Trustee, on demand of and at the expense of the Company, shall execute
proper instruments acknowledging the same), except for the following provisions
which shall
56
<PAGE> 62
survive until otherwise terminated or discharged hereunder: (a) the rights of
Holders of outstanding Senior Notes to receive payments in respect of the
principal of, premium, if any, and interest on such Senior Notes when such
payments are due, or on the redemption date, as the case may be, (b) the
Company's obligations with respect to such Senior Notes under Sections 2.03,
2.06, 2.07, 2.10 and 4.02 hereof, (c) the rights, powers, trust, duties and
immunities of the Trustee hereunder and the Company's obligations in connection
therewith and (d) this Article 8. Subject to compliance with this Article 8, the
Company may exercise its option under this Section 8.02 notwithstanding the
prior exercise of its option under Section 8.03 hereof.
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be released from its
obligations under the covenants contained in Sections 3.09, 4.03, 4.04, 4.07,
4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.17 and 5.01 hereof with
respect to the outstanding Senior Notes on and after the date the conditions set
forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Senior
Notes shall thereafter be deemed not "outstanding" for the purposes of any
direction, waiver, consent or declaration or act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "outstanding" for all other purposes hereunder (it being
understood that such Senior Notes shall not be deemed outstanding for accounting
purposes). For this purpose, Covenant Defeasance means that, with respect to the
outstanding Senior Notes, the Company may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
covenant, whether directly or indirectly, by reason of any reference elsewhere
herein to any such covenant or by reason of any reference in any such covenant
to any other provision herein or in any other document and such omission to
comply shall not constitute a Default or an Event of Default under Sections 6.01
(a) through (f) hereof, but, except as specified above, the remainder of this
Indenture, such Senior Notes shall be unaffected thereby. In addition, upon the
Company's exercise under Section 8.01 hereof of the option applicable to this
Section 8.03 hereof, subject to the satisfaction of the conditions set forth in
Section 8.04 hereof, Sections 6.01(c) through 6.01(f) hereof shall not
constitute Events of Default.
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of either Section
8.02 or 8.03 hereof to the outstanding Senior Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the
requirements of Section 7.10 who shall agree to comply with the
provisions of this Article 8 applicable to it) as trust funds in
trust for the purpose of making the following payments,
specifically pledged as security for, and dedicated solely to,
the benefit of the
57
<PAGE> 63
Holders of such Senior Notes, (i) cash in Dollars in an amount,
or (ii) non-callable Government Securities which through the
scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than one day
before the due date of any payment, cash in Dollars in an amount,
or (iii) a combination thereof, in such amounts, as will be
sufficient, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay and
discharge and which shall be applied by the Trustee (or other
qualifying trustee) to pay and discharge the principal of,
premium, if any, and interest on the outstanding Senior Notes on
the stated maturity or on the applicable redemption date, as the
case may be, of such principal or installment of principal of,
premium, if any, and interest on the outstanding Senior Notes,
provided that the Trustee shall have been irrevocably instructed
to apply such money or the proceeds of such non-callable
Government Securities to said payments with respect to the
Securities;
(b) in the case of an election under Section 8.02 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the
United States reasonably acceptable to the Trustee confirming
that (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since
the date of this Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect
that, and based thereon such opinion of counsel shall confirm
that, the Holders of the outstanding Senior Notes shall not
recognize income, gain or loss for federal income tax purposes as
a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance
had not occurred;
(c) in the case of an election under Section 8.03 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the
United States reasonably acceptable to the Trustee confirming
that the Holders of the outstanding Senior Notes will not
recognize income, gain or loss for federal income tax purposes as
a result of such Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Covenant
Defeasance had not occurred;
58
<PAGE> 64
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or, insofar as Sections
6.01(h) and 6.01(i) hereof are concerned, at any time in the
period ending on the 91st day after the date of such deposit (it
being understood that this condition shall not be deemed
satisfied until the expiration of such period);
(e) such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under, any
material agreement or instrument (other than this Indenture) to
which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that after the 91st day following the
deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company
with the intent of preferring the Holders over any other
creditors of the Company with the intent of defeating, hindering,
delaying or defrauding creditors of the Company or others; and
(h) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for or relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Senior
Notes shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Senior Notes and this Indenture, to the payment, either
directly or through any Paying Agent (including the Company acting as Paying
Agent) as the Trustee may determine, to the Holders of such Senior Notes of all
sums due and to become due thereon in respect of principal, premium, if any, and
interest, but such money need not be segregated from other funds except to the
extent required by law.
59
<PAGE> 65
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or non-callable Government
Securities deposited pursuant to Section 8.04 hereof or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Senior
Notes.
Anything in this 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 non-callable Government Securities held by it as provided
in Section 8.04 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
8.04(a) hereof), are in excess of the amount thereof that would then be required
to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.
SECTION 8.06. REPAYMENT TO COMPANY.
The Trustee shall promptly pay to the Company, after written request
therefor, any money held at such time in excess of the amounts required to pay
any of the Company's Obligations then owing with respect to the Senior Notes.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of, premium, if any, or
interest, if any, on any Senior Note and remaining unclaimed for one year after
such principal, and premium, if any, or interest, if any, have become due and
payable shall be paid to the Company on its request or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Senior Note
shall thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in The New York Times and The
Wall Street Journal (national edition), notice that such money remains unclaimed
and that, after a date specified therein, which shall not be less than 30 days
from the date of such notification or publication, any unclaimed balance of such
money then remaining will be repaid to the Company.
SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any cash or non-callable
Government Securities in accordance with Section 8.02 or 8.03 hereof, as the
case may be, by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, then
the Company's obligations under this Indenture and the Senior Notes shall be
revived and reinstated as though no deposit had occurred pursuant to Section
8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted
to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the
case may be; provided, however, that, if the Company makes any payment of
principal of, premium, if any, or interest, if any, on any Senior Note following
the reinstatement of its obligations, the Company shall be subrogated to
60
<PAGE> 66
the rights of the Holders of such Senior Notes to receive such payment from the
money held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF SENIOR NOTES.
Notwithstanding Section 9.02 hereof, the Company, the Guaranteeing
Subsidiaries and the Trustee may amend or supplement this Indenture or the
Senior Notes without the consent of any Holder of a Senior Note:
(a) cure any ambiguity, defect or inconsistency,
(b) to provide for uncertificated Senior Notes in addition to or in place
of certificated Senior Notes,
(c) to provide for the assumption of the Company's or a Guaranteeing
Subsidiary's obligations to Holders of Senior Notes in the case of a
merger or consolidation and to provide for the issuance of a
Subsidiary Guarantee of the Company's Obligations under the Senior
Notes by a Subsidiary of the Company in accordance with Section 4.09
hereof,
(d) to provide for the issuance of Additional Senior Notes,
(e) to make any change that would provide any additional rights or
benefits to the Holders of Senior Notes or that does not adversely
affect the legal rights under this Indenture of any such Holder, or
(f) or to comply with requirements of the Commission in order to effect or
maintain the qualification of this Indenture under the TIA.
Upon the request of the Company accompanied by a Board Resolution
authorizing the execution of any such supplemental indenture, and upon receipt
by the Trustee of the documents described in Section 9.06 hereof, the Trustee
shall join with the Company in the execution of any amended or supplemental
indenture authorized or permitted by the terms of this Indenture and to make any
further appropriate agreements and stipulations that may be therein contained,
but the Trustee shall not be obligated to enter into such amended or
supplemental indenture that affects its own rights, duties or immunities under
this Indenture or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS OF SENIOR NOTES.
Except as provided below in this Section 9.02, the Company, the
Guaranteeing Subsidiaries and the Trustee may amend or supplement this
Indenture, the
61
<PAGE> 67
Subsidiary Guarantees or the Senior Notes with the consent of the Holders of at
least a majority in principal amount of the Senior Notes then outstanding
(including consents obtained in connection with a tender offer or exchange offer
for the Senior Notes), and any existing Default or Event of Default (other than
a Default or Event of Default in the payment of the principal of, premium, if
any, or interest on the Senior Notes, except a payment default resulting from an
acceleration that has been rescinded) or compliance with any provision of this
Indenture or the Senior Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Senior Notes (including
consents obtained in connection with a tender offer or exchange offer for the
Senior Notes).
Upon the request of the Company accompanied by a Board Resolution,
authorizing the execution of any such amended or supplemental indenture, and
upon the filing with the Trustee of evidence reasonably satisfactory to the
Trustee of the consent of the Holders of Senior Notes as aforesaid, and upon
receipt by the Trustee of the documents described in Section 9.06 hereof, the
Trustee shall join with the Company in the execution of such amended or
supplemental indenture unless such amended or supplemental indenture affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise, in
which case the Trustee may in its discretion, but shall not be obligated to,
enter into such amended or supplemental indenture.
It shall not be necessary for the consent of the Holders of Senior Notes
under this Section 9.02 to approve the particular form of any proposed amendment
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section 9.02 becomes
effective, the Company shall mail to the Holders of Senior Notes affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such supplemental
indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a
majority in aggregate principal amount of the Senior Notes then outstanding may
waive any existing Default or Event of Default or compliance in a particular
instance by the Company with any provision of this Indenture or the Senior
Notes. Without the consent of each Holder affected, however, an amendment or
waiver may not (with respect to any Senior Note held by a non-consenting
Holder):
(a) reduce the principal amount of Senior Notes whose Holders must consent
to an amendment, supplement or waiver,
(b) reduce the principal of or change the fixed maturity of any Senior
Note or alter the provisions with respect to the redemption of the
Senior Notes (other than provisions relating to Sections 3.09, 4.10 or
4.15),
(c) reduce the rate of or change the time for payment of interest on any
Senior Note,
62
<PAGE> 68
(d) waive a Default or Event of Default in the payment of principal of or
premium, if any, or interest on the Senior Notes (except a rescission
of acceleration of the Senior Notes by the Holders of at least a
majority in aggregate principal amount of the Senior Notes and a
waiver of the payment default that resulted from such acceleration),
(e) make any Senior Note payable in money other than that stated in the
Senior Notes,
(f) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of Holders of Senior Notes to
receive payments of principal of or premium, if any, or interest on
the Senior Notes,
(g) waive a redemption payment with respect to any Senior Note (other than
a payment required by one of the covenants described above under
Sections 3.09, 4.10 or 4.15),
(h) release any Guaranteeing Subsidiary from any of its obligations under
its Subsidiary Guarantee or this Indenture, except in accordance with
the terms of this Indenture, or
(i) make any change in the foregoing amendment and waiver provisions.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment to this Indenture or the Senior Notes shall be set forth in
a supplemental indenture that complies with the TIA as then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a consent to it
by a Holder is a continuing consent by the Holder and every subsequent Holder of
a Senior Note or portion of a Senior Note that evidences the same debt as the
consenting Holder's Senior Note, even if notation of the consent is not made on
any Senior Note. However, any such Holder or subsequent Holder of a Senior Note
may revoke the consent as to its Senior Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
The Company may, but shall not be obligated to, fix a record date for
determining which Holders must consent to such amendment or waiver. If the
Company fixes a record date, the record date shall be fixed at (i) the later of
30 days prior to the first solicitation of such consent or the date of the most
recent list of Holders furnished
63
<PAGE> 69
to the Trustee prior to such solicitation pursuant to Section 2.05 hereof or
(ii) such offer date as the Company shall designate.
SECTION 9.05. NOTATION ON OR EXCHANGE OF SENIOR NOTES.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Senior Note thereafter authenticated. The Company in
exchange for all Senior Notes may issue and the Trustee shall authenticate new
Senior Notes that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Senior Note shall
not affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amendment or supplemental indenture authorized
pursuant to this Article 9 if the amendment does not adversely affect the
rights, duties, liabilities or immunities of the Trustee. The Company may not
sign an amendment or supplemental indenture until the Board of Directors of the
Company approves it. In signing or refusing to sign any amended or supplemental
indenture, the Trustee shall be entitled to receive and (subject to Section 7.01
hereof) shall be fully protected in relying upon, in addition to the documents
required by Section 10.04 hereof, an Officers' Certificate and an Opinion of
Counsel as conclusive evidence that such amendment or supplemental indenture is
authorized or permitted by this Indenture, that it is not inconsistent herewith,
and that it will be valid and binding upon the Company in accordance with its
terms.
ARTICLE 10
MISCELLANEOUS
SECTION 10.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by TIA ss.318(c), the imposed duties shall control.
SECTION 10.02. NOTICES.
Any notice or communication by the Company or the Trustee to the others is
duly given if in writing and delivered in Person or mailed by first class mail
(registered or certified, return receipt requested), telecopier or overnight air
courier guaranteeing next day delivery, to the others' address:
If to the Company or any Guaranteeing Subsidiary:
Central Tractor Farm & Country, Inc.
3915 Delaware Avenue
Des Moines, Iowa 50316-0330
Attention: President
64
<PAGE> 70
Facsimile No.: (515) 266-4229
Copy to:
J.W. Childs Associates, L.P.
One Federal Street, 21st Floor
Boston, MA 02110
Attention: Steven G. Segal
Facsimile No.: (617) 753-1101
With, in the case of a notice of Default, or an Event of Default, a
copy to:
Sullivan & Worcester LLP
One Post Office Square
Boston, Massachusetts 02109
Attention: Christopher C. Cabot, Esq.
If to the Trustee:
Marine Midland Bank
140 Broadway, 12th Floor
New York, NY 10005
Attention: Corporate Trust Administration
Facsimile No.: (212) 658-6425
The Company, any Guaranteeing Subsidiary or the Trustee, by notice to the
others may designate additional or different addresses for subsequent notices or
communications.
Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so mailed to any
Person described in TIA [SECTION] 313(c), to the extent required by the TIA.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above within
the time prescribed, it is duly given, whether or not the addressee receives it.
If the Company mails a notice or communication to Holders, it shall mail a
copy to the Trustee and each Agent at the same time.
SECTION 10.03. COMMUNICATION BY HOLDERS OF SENIOR NOTES WITH OTHER HOLDERS OF
SENIOR NOTES.
Holders may communicate pursuant to TIA [SECTION] 312(b) with other Holders
with respect to their rights under this or the Senior Notes. The Company, the
Trustee, the Registrar and anyone else shall have the protection of TIA
[SECTION] 312(c).
65
<PAGE> 71
SECTION 10.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take any
action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably satisfactory
to the Trustee (which shall include the statements set forth in
Section 10.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably satisfactory to
the Trustee (which shall include the statements set forth in Section
10.05 hereof) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been satisfied.
SECTION 10.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA [SECTION] 314(a)(4)) shall comply with the provisions of TIA
[SECTION] 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she 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 satisfied; and
(d) a statement as to whether or not, in the opinion of such Person, such
condition or covenant has been satisfied.
SECTION 10.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
66
<PAGE> 72
SECTION 10.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS.
No past, present or future director, officer, employee, incorporator or
stockholder of the Company or any Subsidiary, as such, shall have any liability
for any obligations of the Company under the Senior Notes, this Indenture or the
Subsidiary Guarantees or for any claim based on, in respect of, or by reason of,
such obligations or their creation. Each Holder of Senior Notes by accepting a
Senior Note waives and releases all such liability. The waiver and release are
part of the consideration for issuance of the Senior 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.
SECTION 10.08. GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE AND THE SENIOR NOTES.
SECTION 10.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other indenture, loan or
debt agreement of the Company or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 10.10. SUCCESSORS.
All agreements of the Company in this Indenture and the Senior Notes shall
bind its successors. All agreements of the Trustee in this Indenture shall bind
its successors.
SECTION 10.11. SEVERABILITY.
In case any provision in this Indenture or in the Senior Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 10.12. COUNTERPART 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.
SECTION 10.13. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the Articles
and Sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part of this Indenture and shall in no way
modify or restrict any of the terms or provisions hereof.
67
<PAGE> 73
SECTION 10.14. TRUSTEE TO INCLUDE PAYING AGENT.
In case at any time any Paying Agent other than the Trustee shall have been
appointed by the Company and be then acting hereunder, the term "Trustee" as
used in this Article 10 shall in such case (unless the context shall otherwise
require) be construed as extending to and including such Paying Agent within its
meaning as fully and for all intents and purposes as if such Paying Agent were
named in this Article 10 in place of the Trustee.
[Signatures on following page]
68
<PAGE> 74
SIGNATURES
Dated as of __________, 1997 Central Tractor Farm & Country, Inc.
By:
--------------------------------
Name:
Title:
Dated as of __________, 1997 Marine Midland Bank, as Trustee
By:
--------------------------------
Name:
Title:
<PAGE> 75
EXHIBIT A
(Face of Senior Note)
__% SENIOR NOTES DUE 2007
No.
CENTRAL TRACTOR FARM & COUNTRY, INC.
promises to pay to
or registered assigns,
the principal sum of ______________, ($________) on ___________, 2007.
Interest Payment Dates: ___ 1 and _____ 1.
Record Dates: ____ 15 and _______ 15.
Dated: __________, 199_
CENTRAL TRACTOR FARM & COUNTRY, INC
By:__________________________________
Name:
Title:
Trustee's Certificate of Authentication:
This is one of the Senior Notes
referred to in the
within-mentioned Indenture:
MARINE MIDLAND BANK,
as Trustee
By:__________________________________
1
<PAGE> 76
(Back of Security)
__% SENIOR NOTES DUE 2007
of
CENTRAL TRACTOR FARM & COUNTRY, INC.
Capitalized terms used herein have the meanings assigned to them in the
Indenture (referred to below) unless otherwise indicated.
1. INTEREST. Central Tractor Farm & Country, Inc., a Delaware corporation
(the "Company"), promises to pay interest on the principal amount of the __%
Senior Notes due 2007 (the "Senior Notes") of which this Senior Note is a part
at the rate and in the manner specified below.
The Company shall pay interest on the principal amount of this Senior Note
in cash at the rate per annum shown above. The Company will pay interest
semi-annually in arrears on _____ and _____ of each year, commencing on ____ 1,
1997, or if any such day is not a Business Day (as defined in the Indenture), on
the next succeeding Business Day (each an "Interest Payment Date") to Holders of
record on the immediately preceding ______ and ______ .
Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months. Interest shall accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of the
original issuance of the Senior Notes. To the extent lawful, the Company shall
pay interest on overdue principal at the rate of 1.0% per annum in excess of the
then applicable interest rate on the Senior Notes; it shall pay interest on
overdue installments of interest (without regard to any applicable grace
periods) at the same rate to the extent lawful.
2. METHOD OF PAYMENT. The Company will pay interest on the Senior Notes
(except defaulted interest) to the Persons who are registered Holders of Senior
Notes at the close of business on _____ and _____ next preceding the Interest
Payment Date, even if such Senior Notes are cancelled after such record date and
on or before such Interest Payment Date, except as provided in Section 2.12 of
the Indenture with respect to defaulted interest. The Senior Notes will be
payable as to principal, premium, if any, and interest at the office or agency
of the Company maintained in the City of New York; provided however, payment of
interest may be made by check mailed to the Holders at their addresses set forth
in the register of Holders. Such payment shall be in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, the Trustee under the Indenture
will act as Paying Agent and Registrar. The Company may change any Paying Agent,
Registrar or co-registrar without notice to any Holder. The Company may act in
any such capacity.
2
<PAGE> 77
4. INDENTURE. The Company issued the Senior Notes under an Indenture dated
as of ______1997 (the "Indenture") between the Company and Marine Midland Bank,
as Trustee. The terms of the Senior Notes include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act of
1939 (15 U.S. Code [SECTIONS] 77aaa-77bbbb) as in effect on the date of the
Indenture. The Senior Notes are subject to all such terms, and Holders of the
Senior Notes are referred to the Indenture and such act for a statement of such
terms. The terms of the Indenture shall govern any inconsistencies between the
Indenture and the Senior Notes. The Senior Notes are unsecured general
obligations of the Company limited to $150,000,000 in aggregate principal
amount.
5. Optional Redemption.
-------------------
(a) Except as provided in subsections (b) and (c) below, the Senior Notes
will not be redeemable at the Company's option prior to _________, 2002.
Thereafter, the Senior Notes will be subject to redemption at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of the principal
amount) set forth below plus accrued and unpaid interest thereon to the
applicable redemption date, if redeemed during the twelve-month period beginning
on __________ of the years indicated below:
YEAR PERCENTAGE
2002 .................................................... _____%
2003 .................................................... _____%
2004 .................................................... _____%
2005 and thereafter......................................100.00%
(b) Notwithstanding subsection (a), at any time on or before _____, 2000,
the Company may (but shall not have the obligation to) redeem up to 35% of the
aggregate principal amount of the Senior Notes at a redemption price of ___% of
the principal amount thereof, plus accrued and unpaid interest thereon to the
redemption date, with the net cash proceeds of a Public Equity Offering;
provided that at least 65% of the aggregate principal amount of Senior Notes
originally issued remain outstanding immediately after the occurrence of such
redemption; and provided, further, that such redemption shall occur within 60
days of the date of the closing of such Public Equity Offering.
(c) Upon the occurrence of a Change of Control prior to __________, 2002,
the Senior Notes shall be redeemable, in whole or in part, at the option of the
Company, upon not less than 30 nor more than 60 days prior notice to each holder
of Senior Notes to be redeemed, at a redemption price equal to the sum of (i)
the then outstanding amount thereof plus (ii) accrued and unpaid interest, if
any, to the redemption date plus (iii) the Applicable Premium.
6. MANDATORY REDEMPTION. Except as set forth under Sections 3.09, 4.10 and
4.15 of the Indenture, the Company shall not be required to make mandatory
redemption or sinking fund payments with respect to the Senior Notes.
3
<PAGE> 78
7. REPURCHASE AT THE OPTION OF HOLDERS. (a) Upon the occurrence of a Change
of Control, each Holder shall have the right to require the Company to
repurchase all or any part (equal to $1,000 or an integral multiple thereof) of
such Holder's Senior Notes pursuant to the offer described in the Indenture (the
"Change of Control Offer") at an offer price in cash equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest, if any,
thereon to the date of purchase.
(b) When the aggregate amount of Excess Proceeds from Asset Sales exceeds
$5.0 million, the Company shall make an offer to all Holders to purchase the
maximum principal amount of Senior Notes that may be purchased out of the Excess
Proceeds at an offer price in cash equal to 100% of the principal amount thereof
plus accrued and unpaid interest thereon to the date fixed for the closing of
such offer, in accordance with the procedures set forth in the Indenture. If the
aggregate principal amount of Senior Notes surrendered by Holders thereof
exceeds the amount of Excess Proceeds, the Trustee shall select the Senior Notes
to be purchased on a pro rata basis. To the extent that the aggregate amount of
Senior Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company may use such deficiency for general corporate purposes.
(c) Holders that are the subject of an offer to purchase will receive a
Change of Control Offer or Asset Sale Offer from the Company prior to any
related purchase date, and may elect to have such Senior Notes purchased by
completing the form entitled "Option of Holder to Elect Purchase" appearing
below.
8. NOTICE OF REDEMPTION. Notice of redemption shall be mailed at least 30
days but not more than 60 days before the redemption date to each Holder of
Senior Notes to be redeemed at its registered address. Senior Notes may be
redeemed in part but only in whole multiples of $1,000, unless all of the Senior
Notes held by a Holder are to be redeemed. On and after the redemption date,
interest ceases to accrue on Senior Notes or portions thereof called for
redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Senior Notes are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Senior Notes may be registered and Senior Notes may be
exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and to pay any taxes and fees required by law or permitted by
the Indenture. The Registrar need not exchange or register the transfer of any
Senior Note or portion of a Senior Note selected for redemption or purchase,
except for the unredeemed or unpurchased portion of any Senior Note being
redeemed or repurchased in part. Also, it need not exchange or register the
transfer of any Senior Notes for a period of 15 days before a selection of
Senior Notes to be redeemed or repurchased during the period between a record
date and the corresponding interest payment date.
10. PERSONS DEEMED OWNERS. The registered holder of a Senior Note shall be
treated as its owner for all purposes.
11. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the Indenture or
the Senior Notes may be amended with the consent of the Holders of at
4
<PAGE> 79
least a majority in principal amount of the then outstanding Senior Notes
(including consents obtained in connection with a tender offer or exchange offer
for Senior Notes), and any existing Default or Event of Default (other than a
Default or Event of Default in the payment of the principal of, premium, if any,
or interest on the Senior Notes, except a payment default resulting from an
acceleration that has been rescinded) or compliance with any provision of the
Indenture or the Senior Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Senior Notes (including
consents obtained in connection with a tender offer or exchange offer for Senior
Notes). Without the consent of any Holder, the Indenture or the Senior Notes may
be amended to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Senior Notes in addition to or in place of certificated Senior
Notes, to provide for the assumption of the Company's or Guaranteeing
Subsidiary's obligations under the Indenture to Holders in the case of a merger
or consolidation, to provide for the issuance of a Subsidiary Guarantee by a
Subsidiary, to make any change that would provide any additional rights or
benefits to the Holders or that does not adversely affect the legal rights of
any Holder under the Indenture, to provide for the issuance of Additional Senior
Notes in accordance with the limitations set forth in the Indenture on the Issue
Date, or to comply with the requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the TIA or to allow any
Guaranteeing Subsidiary to guarantee the Senior Notes.
12. DEFAULTS AND REMEDIES. Events of Default occur if: (a) the Company
defaults in the payment of interest on the Senior Notes when the same becomes
due and payable and such default continues for a period of thirty (30) days; (b)
the Company defaults in the payment of principal of or premium, if any, on the
Senior Notes when the same becomes due and payable at maturity, upon redemption
or otherwise; (c) the Company fails to comply with the provisions of Sections
4.07, 4.10, 4.14 or 4.15 of the Indenture; (d) the Company fails to comply with
any other agreement or covenant in, or provision of, the Senior Notes or the
Indenture for sixty (60) days after notice from the Trustee or Holders of at
least 25% in principal amount of the then outstanding Senior Notes; (e) a
default occurs under any mortgage, indenture or instrument under which there may
be issued or by which there may be secured or evidenced any Indebtedness for
money borrowed by the Company or any of its Restricted Subsidiaries (or the
payment of which is guaranteed by the Company or any of its Restricted
Subsidiaries) whether such Indebtedness or guarantee now exists, or is created
after the date of the Indenture, which default (i) is caused by a failure to pay
when due principal of or premium, if any, or interest on such Indebtedness prior
to the expiration of the grace period provided in such Indebtedness on the date
of such default (a "Payment Default") or (ii) results in the acceleration of
such Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $5.0 million or more; (f) a final
judgment or final judgments for the payment of money are entered by a court or
courts of competent jurisdiction against the Company or any of its Restricted
Subsidiaries and such judgment or judgments remain undischarged for a period
(during which execution shall not be effectively stayed) of 60 days, provided
that the aggregate of all such undischarged judgments exceeds $5 million; (g)
certain events of bankruptcy or insolvency with respect to the Company or any
Restricted Subsidiary that is a Significant Restricted Subsidiary pursuant to or
within the meaning of any Bankruptcy Law; and (h) the termination of any
Subsidiary Guarantee for any
5
<PAGE> 80
reason not permitted by the Indenture, or the denial by any Person acting on
behalf of any Guaranteeing Subsidiary of its Obligations under any such
Subsidiary Guarantee.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Senior Notes
may declare all the Senior Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to the Company or any
Guaranteeing Subsidiary constituting a Significant Restricted Subsidiary, all
outstanding Senior Notes will become due and payable without further action or
notice. Holders of the Senior Notes may not enforce the Indenture or the Senior
Notes except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Senior Notes
may direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Senior Notes notice of any continuing Default or
Event of Default (except a Default or Event of Default relating to the payment
of principal or interest) if it determines that withholding notice is in their
interest.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company or its Affiliates, and may otherwise deal with the Company or
its Affiliates, as if it were not Trustee.
14. NO RECOURSE AGAINST OTHERS. No past, present or future director,
officer, employee, agent, incorporator or stockholder, as such, of the Company
shall have any liability for any obligations of the Company under the Senior
Notes or the Indenture or for any claim based on, in respect of or by reason of
such obligations or their creation. Each Holder by accepting a Senior Note
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Senior Notes.
15. AUTHENTICATION. This Senior Note shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/T/M/A (= Uniform
Transfers to Minors Act).
17. 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 Senior Notes and has directed the Trustee to
use CUSIP numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed on
the Senior Notes or as contained in any notice of redemption and reliance may be
placed only on the other identification numbers placed thereon.
18. GOVERNING LAW. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN
AND BE USED TO CONSTRUE THE INDENTURE AND THE SENIOR NOTES.
6
<PAGE> 81
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture. Request may be made to:
Central Tractor Farm & Country, Inc.
3915 Delaware Avenue
Des Moines, Iowa 50316-0330
Attention: Chief Financial Officer
Facsimile No.: (514) 266-4229
7
<PAGE> 82
ASSIGNMENT FORM
To assign this Senior Note, fill in the form below: (I) or (we) assign and
transfer this Senior Note to
- -------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint _______________________________________________________
to transfer this Senior Note 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
face of this Senior Note)
Signature Guarantee.
8
<PAGE> 83
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Senior Note purchased by the Company
pursuant to Section 4.10 or 4.15 of this Indenture, check the box below:
| | Section 4.10 | | Section 4.15
If you want to elect to have only part of the Senior Note purchased by the
Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the
amount you elect to have purchased: $
-----------
Date:
-----------------------
Your Signature: ___________________________
(Sign exactly as your name appears on the
face of this Senior Note)
Tax Identification No.: ___________________
Signature Guarantee.
9
<PAGE> 84
EXHIBIT B
FORM OF SUPPLEMENTAL INDENTURE TO BE DELIVERED BY GUARANTEEING SUBSIDIARY
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
________________, between __________________ (the "Guaranteeing Subsidiary"), a
subsidiary of Central Tractor Farm & Country, Inc. (or its permitted successor),
a Delaware corporation (the "Company"), and Marine Midland Bank, 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 (the "Indenture"), dated as of_________, 1997 providing for the
issuance of an aggregate principal amount of up to $150,000,000 of __% Senior
Notes due 2007 (the "Senior Notes");
WHEREAS, the Indenture provides that under certain circumstances the
Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental
indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally
guarantee all of the Company's Obligations under the Senior Notes and the
Indenture on the terms and conditions set forth herein (the "Subsidiary
Guarantee"); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is
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
Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the
equal and ratable benefit of the Holders of the Senior Notes as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without definition
shall have the meanings assigned to them in the Indenture.
2. AGREEMENT TO GUARANTEE. The Guaranteeing Subsidiary hereby agrees as
follows:
(a) The Guaranteeing Subsidiary, jointly and severally with all other
Guaranteeing Subsidiaries, if any, unconditionally guarantees to each
Holder of a Senior Note authenticated and delivered by the Trustee and
to the Trustee and its successors and assigns, regardless of the
validity and enforceability of the Indenture, the Senior Notes or the
Obligations of the Company under the Indenture or the Senior Notes,
that:
(i) the principal of, premium and interest on the Senior Notes will be
promptly paid in full when due, whether at maturity, by acceleration,
redemption or otherwise, and interest on the overdue principal of,
premium and interest on the Senior Notes, to the extent lawful, and
all other Obligations of the
1
<PAGE> 85
Company to the Holders or the Trustee thereunder or under the
Indenture will be promptly paid in full, all in accordance with the
terms thereof; and
(ii) in case of any extension of time for payment or renewal of any Senior
Notes or any of such other Obligations, that the same will be promptly
paid in full when due in accordance with the terms of the extension or
renewal, whether at stated maturity, by acceleration or otherwise.
(b) Notwithstanding the foregoing, in the event that this Subsidiary
Guarantee would constitute or result in a violation of any applicable
fraudulent conveyance or similar law of any relevant jurisdiction, the
liability of the Guaranteeing Subsidiary under this Supplemental
Indenture and its Subsidiary Guarantee shall be reduced to the maximum
amount permissible under such fraudulent conveyance or similar law.
3. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEES.
(a) To evidence its Subsidiary Guarantee set forth in this Supplemental
Indenture, the Guaranteeing Subsidiary hereby agrees that a notation
of such Subsidiary Guarantee substantially in the form of Exhibit C to
the Indenture shall be endorsed by an officer of such Guaranteeing
Subsidiary on each Senior Note authenticated and delivered by the
Trustee after the date hereof.
(b) Notwithstanding the foregoing, the Guaranteeing Subsidiary hereby
agrees that its Subsidiary Guarantee set forth herein shall remain in
full force and effect notwithstanding any failure to endorse on each
Senior Note a notation of such Subsidiary Guarantee.
(c) If an Officer whose signature is on this Supplemental Indenture or on
the Subsidiary Guarantee no longer holds that office at the time the
Trustee authenticates the Senior Note on which a Subsidiary Guarantee
is endorsed, the Subsidiary Guarantee shall be valid nevertheless.
(d) The delivery of any Senior Note by the Trustee, after the
authentication thereof under the Indenture, shall constitute due
delivery of the Subsidiary Guarantee set forth in this Supplemental
Indenture on behalf of the Guaranteeing Subsidiary.
(e) The Guaranteeing Subsidiary hereby agrees that its obligations
hereunder shall be unconditional, regardless of the validity,
regularity or enforceability of the Senior Notes or the Indenture, the
absence of any action to enforce the same, any waiver or consent by
any Holder of the Senior Notes with respect to any provisions hereof
or thereof, the recovery of any judgment against the Company, any
action to enforce the same or any other circumstance which might
otherwise constitute a legal or equitable discharge or defense of a
guarantor.
(f) The Guaranteeing Subsidiary hereby waives diligence, presentment,
demand of payment, filing of claims with a court in the event of
insolvency or bankruptcy of the Company, any right to require a
proceeding first against the
2
<PAGE> 86
Company, protest, notice and all demands whatsoever and covenants that
its Subsidiary Guarantee made pursuant to this Supplemental Indenture
will not be discharged except by complete performance of the
obligations contained in the Senior Notes and the Indenture.
(g) If any Holder or the Trustee is required by any court or otherwise to
return to the Company or the Guaranteeing Subsidiary, or any
Custodian, Trustee, liquidator or other similar official acting in
relation to either the Company or the Guaranteeing Subsidiary, any
amount paid by either to the Trustee or such Holder, the Subsidiary
Guarantee made pursuant to this Supplemental Indenture, to the extent
theretofore discharged, shall be reinstated in full force and effect.
(h) The Guaranteeing Subsidiary agrees that it shall not be entitled to
any right of subrogation in relation to the Holders in respect of any
obligations guaranteed hereby until payment in full of all obligations
guaranteed hereby. The Guaranteeing Subsidiary further agrees that, as
between the Guaranteeing Subsidiary, on the one hand, and the Holders
and the Trustee, on the other hand:
(i) the maturity of the obligations guaranteed hereby may be
accelerated as provided in Article 6 of the Indenture for the
purposes of the Subsidiary Guarantee made pursuant to this
Supplemental Indenture, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect of the
obligations guaranteed hereby; and
(ii) 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 the Guaranteeing Subsidiary for the
purpose of the Subsidiary Guarantee made pursuant to this
Supplemental Indenture.
(i) The Guaranteeing Subsidiary shall have the right to seek contribution
from any other non-paying Guaranteeing Subsidiary so long as the
exercise of such right does not impair the rights of the Holders or
the Trustee under the Subsidiary Guarantee made pursuant to this
Supplemental Indenture.
4. GUARANTEEING SUBSIDIARY MAY CONSOLIDATE, ETC. ON CERTAIN TERMS.
(a) Except as set forth in Articles 4 and 5 of the Indenture, nothing
contained in the Indenture, this Supplemental Indenture or in the
Senior Notes shall prevent any consolidation or merger of the
Guaranteeing Subsidiary with or into the Company or any other
Guaranteeing Subsidiary or shall prevent any transfer, sale or
conveyance of the property of the Guaranteeing Subsidiary as an
entirety or substantially as an entirety, to the Company or any other
Guaranteeing Subsidiary.
(b) Except as set forth in Article 4 of the Indenture, nothing contained
in the Indenture, this Supplemental Indenture or in the Senior Notes
shall prevent any consolidation or merger of the Guaranteeing
Subsidiary with or into a
3
<PAGE> 87
corporation or corporations other than the Company or any other
Guaranteeing Subsidiary (in each case, whether or not affiliated with
the Guaranteeing Subsidiary), or successive consolidations or mergers
in which a Guaranteeing Subsidiary or its successor or successors
shall be a party or parties, or shall prevent any sale or conveyance
of the property of a Guaranteeing Subsidiary as an entirety or
substantially as an entirety, to a corporation other than the Company
or any other Guaranteeing Subsidiary (in each case, whether or not
affiliated with the Guaranteeing Subsidiary) authorized to acquire and
operate the same; provided, however, that the Guaranteeing Subsidiary
hereby covenants and agrees that (i) subject to the Indenture, upon
any such consolidation, merger, sale or conveyance, the due and
punctual performance and observance of all of the covenants and
conditions of the Indenture and this Supplemental Indenture to be
performed by such Guaranteeing Subsidiary, shall be expressly assumed
(in the event that the Guaranteeing Subsidiary is not the surviving
corporation in the merger), by supplemental indenture satisfactory in
form to the Trustee, executed and delivered to the Trustee, by the
corporation formed by such consolidation, or into which the
Guaranteeing Subsidiary shall have been merged, or by the corporation
which shall have acquired such property and (ii) immediately after
giving effect to such consolidation, merger, sale or conveyance no
Default or Event of Default exists.
(c) In case of any such consolidation, merger, sale or conveyance and upon
the assumption by the successor corporation, by supplemental
indenture, executed and delivered to the Trustee and satisfactory in
form to the Trustee, of the Subsidiary Guarantee made pursuant to this
Supplemental Indenture and the due and punctual performance of all of
the covenants and conditions of the Indenture and this Supplemental
Indenture to be performed by the Guaranteeing Subsidiary, such
successor corporation shall succeed to and be substituted for the
Guaranteeing Subsidiary with the same effect as if it had been named
herein as the Guaranteeing Subsidiary; provided that, solely for
purposes of computing Consolidated Net Income for purposes of clause
(b) of the first paragraph of Section 4.07 in the Indenture, the
Consolidated Net Income of any Person other than Central Tractor Farm
& Country, Inc. and its Restricted Subsidiaries shall only be included
for periods subsequent to the effective time of such merger,
consolidation, combination or transfer of assets. Such successor
corporation thereupon may cause to be signed any or all of the
Subsidiary Guarantees to be endorsed upon the Senior Notes issuable
under the Indenture which theretofore shall not have been signed by
the Company and delivered to the Trustee. All the Subsidiary
Guarantees so issued shall in all respects have the same legal rank
and benefit under the Indenture and this Supplemental Indenture as the
Subsidiary Guarantees theretofore and thereafter issued in accordance
with the terms of the Indenture and this Supplemental Indenture as
though all of such Subsidiary Guarantees had been issued at the date
of the execution hereof.
5. RELEASES.
(a) Concurrently with any sale of assets (including, if applicable,
all of the Capital Stock of the Guaranteeing Subsidiary), all Liens,
if any, in favor of the
4
<PAGE> 88
Trustee in the assets sold thereby shall be released; provided that in
the event of an Asset Sale, the Net Proceeds from such sale or other
disposition are treated in accordance with the provisions of Section
4.10 of the Indenture. If the assets sold in such sale or other
disposition include all or substantially all of the assets of the
Guaranteeing Subsidiary or all of the Capital Stock of the
Guaranteeing Subsidiary, then the Guaranteeing Subsidiary (in the
event of a sale or other disposition of all of the Capital Stock of
such Guaranteeing Subsidiary) or the Person acquiring the property (in
the event of a sale or other disposition of all or substantially all
of the assets of such Guaranteeing Subsidiary) shall be released from
and relieved of its obligations under this Supplemental Indenture and
its Subsidiary Guarantee made pursuant hereto; provided that in the
event of an Asset Sale, the Net Proceeds from such sale or other
disposition are treated in accordance with the provisions of Section
4.10 of the Indenture. Upon delivery by the Company to the Trustee of
an Officers' Certificate to the effect that such sale or other
disposition was made by the Company or the Guaranteeing Subsidiary, as
the case may be, in accordance with the provisions of the Indenture
and this Supplemental Indenture, including without limitation, Section
4.10 of the Indenture, the Trustee shall execute any documents
reasonably required in order to evidence the release of the
Guaranteeing Subsidiary from its obligations under this Supplemental
Indenture and its Subsidiary Guarantee made pursuant hereto. If the
Guaranteeing Subsidiary is not released from its obligations under its
Subsidiary Guarantee, it shall remain liable for the full amount of
principal of and interest on the Senior Notes and for the other
obligations of such Guaranteeing Subsidiary under the Indenture as
provided in this Supplemental Indenture.
(b) Upon the designation of a Guaranteeing Subsidiary as an
Unrestricted Subsidiary in accordance with the terms of the
Supplemental Indenture, such Guaranteeing Subsidiary shall be released
and relieved of its obligations under its Subsidiary Guarantee and
this Supplemental Indenture. Upon delivery by the Company to the
Trustee of an Officers' Certificate and an Opinion of Counsel to the
effect that such designation of such Guaranteeing Subsidiary as an
Unrestricted Subsidiary was made by the Company in accordance with the
provisions of this Supplemental Indenture, also including without
limitation Section 4.07 of the Indenture, the Trustee shall execute
any documents reasonably required in order to evidence the release of
such Guaranteeing Subsidiary from its obligations under its Subsidiary
Guarantee. Any Guaranteeing Subsidiary not released from its
obligations under its Subsidiary Guarantee shall remain liable for the
full amount of principal of and interest on the Senior Notes and for
the other obligations of any Guaranteeing Subsidiary under the
Indenture as provided in Article 10.
5
<PAGE> 89
6. NO RECOURSE AGAINST OTHERS. No past, present or future director,
officer, employee, incorporator, stockholder or agent of the Guaranteeing
Subsidiary, as such, shall have any liability for any obligations of the Company
or any Guaranteeing Subsidiary under the Senior Notes, any Subsidiary
Guarantees, the Indenture or this Supplemental Indenture or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each
Holder of the Senior Notes by accepting a Senior Note waives and releases all
such liability. The waiver and release are part of the consideration for
issuance of the Senior 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.
7. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL
GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE.
8. 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.
9. EFFECT OF HEADINGS. The Section headings herein are for convenience only
and shall not affect the construction hereof.
10. THE TRUSTEE. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this Supplemental
Indenture or for or in respect of the recitals contained herein, all of which
recitals are made solely by the Guaranteeing Subsidiary and the Company.
6
<PAGE> 90
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
Dated: ____________ ___, ____ [GUARANTEEING SUBSIDIARY]
By: _______________________________
Name:
Title:
Dated: ____________ ___, ____ MARINE MIDLAND BANK
as Trustee
By: ______________________________
Name:
Title:
7
<PAGE> 91
EXHIBIT C
FORM OF NOTATION ON SENIOR NOTE RELATING TO SUBSIDIARY GUARANTEE
Each Guaranteeing Subsidiary (as defined in the Indenture (the "Indenture")
referred to in the Senior Note upon which this notation is endorsed), (i) has
jointly and severally unconditionally guaranteed (a) the due and punctual
payment of the principal of, premium and interest on the Senior Notes, whether
at maturity or an interest payment date, by acceleration, call for redemption or
otherwise, (b) the due and punctual payment of interest on the overdue principal
and premium of, and interest on the Senior Notes, and (c) in case of any
extension of time of payment or renewal of any Senior Notes or any of such other
obligations, the same will be promptly paid in full when due in accordance with
the terms of the extension or renewal, whether at stated maturity, by
acceleration or otherwise and (ii) has agreed 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 Subsidiary Guarantee.
Notwithstanding the foregoing, in the event that the Subsidiary Guarantee
of any Guaranteeing Subsidiary would constitute or result in a violation of any
applicable fraudulent conveyance or similar law of any relevant jurisdiction,
the liability of such Guaranteeing Subsidiary under its Subsidiary Guarantee
shall be reduced to the maximum amount permissible under such fraudulent
conveyance or similar law.
No past, present or future director, officer, employee, agent,
incorporator, stockholder or agent of any Guaranteeing Subsidiary, as such,
shall have any liability for any obligations of the Company or any Guaranteeing
Subsidiary under the Senior Notes, any Subsidiary Guarantee, Indenture, any
supplemental indenture delivered pursuant to the Indenture by such Guaranteeing
Subsidiary or any Subsidiary Guarantees, or for any claim based on, in respect
of or by reason of such obligations or their creation. Each Holder by accepting
a Senior Note waives and releases all such liability.
This Subsidiary Guarantee shall be binding upon each Guaranteeing
Subsidiary and its successors and assigns and shall inure 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 herein conferred upon that party shall automatically extend to and be
vested in such transferee or assignee, all subject to the terms and conditions
hereof.
This Subsidiary Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication on the Senior Note upon which this
Subsidiary Guarantee is noted have been executed by the Trustee under the
Indenture by the manual signature of one of its authorized officers. Capitalized
terms used herein have the meaning assigned to them in the Indenture.
[GUARANTEEING SUBSIDIARY]
By:_______________________
Name:
___________________________
Title
1
<PAGE> 1
SULLIVAN & WORCESTER LLP
ONE POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109
(617) 338-2800
FAX NO. 617-338-2880
IN WASHINGTON, D.C. IN NEW YORK CITY
1025 CONNECTICUT AVENUE, N.W. 767 THIRD AVENUE
WASHINGTON, D.C. 20036 NEW YORK, NEW YORK 10017
(202) 775-8190 (212) 486-8200
FAX NO. 202-293-2275 FAX NO. 212-758-2151
March 18, 1997
Central Tractor Farm & Country, Inc.
3915 Delaware Avenue
Des Moines, Iowa 50316-0330
Gentlemen:
In connection with the registration by Central Tractor Farm & Country,
Inc., a Delaware corporation (the "Company"), of $100,000,000 aggregate
principal amount of Senior Notes Due 2007 of the Company (the "Notes"), the
following opinion is furnished to you to be filed with the Securities and
Exchange Commission as Exhibit 5 to the Company's Registration Statement on Form
S-1, File No. 333-19613 (the "Registration Statement") under the Securities Act
of 1933, as amended (the "Act"). Capitalized terms used herein without
definition are used as defined in the Registration Statement.
We have acted as counsel for the Company in connection with preparation of
the Registration Statement and we have examined originals or copies, certified
or otherwise identified to our satisfaction, of the Registration Statement, the
draft underwriting agreement among the Company and NationsBanc Capital Markets,
Inc. to be filed as Exhibit 1 to the Registration Statement (the "Underwriting
Agreement"), the form of indenture between the Company and Marine Midland Bank,
as trustee (the "Trustee"), to be filed as Exhibit 4.4 to the Registration
Statement (the "Indenture"), corporate records, certificates and statements of
officers and accountants of the Company and of public officials, and such other
documents as we have considered necessary in order to furnish the opinion set
forth below. We have further assumed that the annual interest rate and
Underwriter's discount will be determined by the designated members of the Board
of Directors (the "Pricing Committee") in accordance with the parameters
established by the Board of Directors.
We are members of the bar of The Commonwealth of Massachusetts.
Accordingly, we do not purport to be experts on or generally familiar with, and
except as to the General Corporation Law of the State of Delaware, we express no
opinion with respect to the laws of any state other than The Commonwealth of
Massachusetts.
<PAGE> 2
Central Tractor Farm & Country, Inc.
March 18, 1997
Page 2
To the extent that the obligations of the Company under the Indenture may
be dependent upon such matters, we have assumed for purposes of this opinion
that the Trustee is duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization, and is duly qualified to engage in
the activities contemplated by, and has the requisite organizational and legal
power and authority to perform its obligations under, the Indenture, that the
Trustee will be in compliance, generally with respect to acting as a trustee
under the Indenture, with all applicable laws and regulations, and that the
Indenture will be the valid and binding agreement the Trustee, enforceable
against its in accordance with its terms.
Our opinions set forth below with respect to the validity or binding effect
of any security or obligation are subject to (i) limitations arising under
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other similar laws affecting the enforcement generally of the
rights and remedies of creditors and secured parties or the obligations of
debtors, (ii) general principles of equity (regardless of whether considered in
a proceeding at law or in equity), including, without limitation, the discretion
of any court of competent jurisdiction in granting specific performance or
injunctive or other equitable relief, (iii) redemption and default premiums and
higher post-default interest may not be enforceable if they were determined to
constitute a penalty, and (iv) an implied duty on the part of the party seeking
to enforce rights or remedies to take action and make determinations on a
reasonable basis and in good faith to the extent required by applicable law.
Based on and subject to the foregoing, we are of the opinion that the Notes
will be validly issued and binding obligations of the Company and will be
entitled to the benefits of the Indenture in accordance with its terms when (i)
the Registration Statement shall have become effective under the Act, (ii) the
Indenture shall have been qualified under the Trust Indenture Act of 1939, as
amended, and (iii) the Notes have been duly executed by the Company and
authenticated by the Trustee as provided in the Indenture and shall have been
duly delivered to the Underwriter against payment of the agreed consideration
therefor, as provided in the Registration Statement, the Prospectus and the
Underwriting Agreement.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm in the Prospectus
forming a part of the Registration Statement. In giving such consent, we do not
hereby admit that we come within the category of persons whose consent is
required under Section 7 of the Act or under the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
Very truly yours,
/s/ Sullivan & Worcester LLP
----------------------------
SULLIVAN & WORCESTER LLP
<PAGE> 1
<TABLE>
Exhibit 11
Central Tractor Farm & Country, Inc.
Statement Regarding Computation of Per Share Earnings
(In thousands, except per share data)
<CAPTION>
Fiscal Year Thirteen Weeks Ended
------------------------------------------------ ---------------------------------------
January 27, February 1, Pro Forma
Pro Forma 1996 1997 1997
1994 1995 1996 1996 (unaudited) (unaudited) (unaudited)
-------- -------- -------- --------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Primary:
Weighted average shares
outstanding 7,276 10,576 10,586 10,586 10,576 10,617 10,617
Net effect of dilutive stock
options and stock warrant
based on treasury stock
method 515 443 400 400 393 358 358
------ ------- ------- ------- ------- ------- -------
Total 7,791 11,019 10,986 10,986 10,969 10,975 10,975
====== ======= ======= ======= ======= ======= =======
Income from continuing
operations $5,181 $ 8,185 $ 8,744 $ 1,171 $ 1,280 $ 1,141 $ (837)
Per share amount 0.66 0.74 0.80 0.11 0.12 0.10 (0.08)
Net Income 1,326 5,542 8,744 1,171 1,280 1,141 (837)
Per share amount 0.17 0.50 0.80 0.11 0.12 0.10 (0.08)
Fully diluted:
Weighted average shares
outstanding 7,276 10,576 10,586 10,586 10,576 10,617 10,617
Net effect of dilutive stock
options and stock warrant -
based on treasury stock
method 515 443 400 400 393 358 358
Assumed conversion of
7% convertible notes 34 826 826 -- 826 454 --
------ ------- ------- ------- ------- ------- -------
Total 7,825 11,845 11,812 10,986 11,795 11,429 10,975
====== ======= ======= ======= ======= ======= =======
Income from continuing
operations $5,181 $ 8,185 $ 8,744 $ 1,171 $ 1,280 $ 1,141 $ (837)
Add 7% convertible note
interest, net of income tax
effect 28 672 672 -- 168 92 --
------ ------- ------- ------- ------- ------- -------
$5,209 $ 8,857 $ 9,416 $ 1,171 $ 1,448 $ 1,233 $ (837)
====== ======= ======= ======= ======= ======= =======
Per share amount $ 0.66(A) $ 0.75(A) $ 0.80(A) $ 0.11 $ 0.12(A) $ 0.11(A) $ (0.08)
<FN>
(A) Fully diluted earnings per share are not presented as the affect of the assumed conversion of the 7% convertible note is
antidilutive or less than 3% dilutive.
</TABLE>
<PAGE> 1
<TABLE>
Exhibit 12
Central Tractor Farm & Country, Inc.
Schedule Regarding Computation
of Ratio of Earnings to Fixed Charges
(In thousands of dollars)
<CAPTION>
Fiscal Year Thirteen Weeks Ended
--------------------------------------------------------- ----------------------------------------
Pro January 27, February 1, Pro Forma
Forma 1996 1997 1997
1992 1993 1994 1995 1996 1996 (unaudited) (unaudited) (unaudited)
------ ------- ------- ------- ------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed charges:
Interest expense $5,140 $ 4,842 $ 4,774 $ 1,302 $ 1,663 $12,739 $ 360 $ 525 $ 3,290
Portion of rent expense
representing interest 1,621 1,284 1,345 1,567 1,859 1,932 445 521 521
------ ------- ------- ------- ------- ------- ------ ------ -------
$6,761 $ 6,126 $ 6,119 $ 2,869 $ 3,522 $14,671 $ 805 $1,046 $ 3,811
====== ======= ======= ======= ======= ======= ====== ====== =======
Earnings:
Income from continuing
operations before
income taxes $2,738 $ 6,205 $ 9,378 $13,905 $14,994 $ 3,134 $2,220 $2,013 $(1,095)
Fixed charges per above 6,761 6,126 6,119 2,869 3,522 14,671 805 1,046 3,811
------ ------- ------- ------- ------- ------- ------ ------ -------
$9,499 $12,331 $15,497 $16,774 $18,516 $17,805 $3,025 $3,059 $ 2,716
====== ======= ======= ======= ======= ======= ====== ====== =======
Ratio of earnings to fixed
charges 1.4 to 1 2.0 to 1 2.5 to 1 5.8 to 1 5.3 to 1 1.2 to 1 3.8 to 1 2.9 to 1 0.7 to 1
======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
<PAGE> 1
Ernst & Young LLP / / Suite 3400 / / Phone: 515 243 2727
801 Grand Avenue
Des Moines, Iowa 50390-2764
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated December 6, 1996, in Amendment No. 3 to the
Registration Statement (Form S-1 No. 333-19613) and related Prospectus of
Central Tractor Farm & Country, Inc. for the registration of $100,000,000 of
Senior Notes Due 2007.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Des Moines, Iowa
March 18, 1997
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
<PAGE> 1
CONSENT OF DIRECTOR DESIGNATE
I hereby consent to the reference to me as a Director Designate of
Central Tractor Farm & Country, Inc. in its Registration Statement on Form S-1
relating to the offering of Senior Notes due 2007.
/s/ Habib Y. Gorgi
--------------------
Name: Habib Y. Gorgi
1
<PAGE> 1
Exhibit 25
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)
-----------
MARINE MIDLAND BANK
(Exact name of trustee as specified in its charter)
New York 16-1057879
(Jurisdiction of incorporation (I.R.S. Employer
or organization if not a U.S. Identification No.)
national bank)
140 Broadway, New York, N.Y. 10005-1180
(212) 658-1000 (Zip Code)
(Address of principal executive offices)
Warren Tischler
Senior Vice President
Marine Midland Bank
140 Broadway
New York, New York 10005-1180
Tel: (212) 658-6560
(Name, address and telephone number of agent for service)
CENTRAL TRACTOR FARM & COUNTRY, INC.
(Exact name of obligor as specified in its charter)
Delaware 42-1425562
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3915 Delaware Avenue
Des Moines, Iowa 50316-0330
(515) 266-3101 (Zip Code)
(Address of principal executive offices)
SENIOR NOTES
(Title of Indenture Securities)
<PAGE> 2
General
Item 1. General Information.
-------------------
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory authority to which it
is subject.
State of New York Banking Department.
Federal Deposit Insurance Corporation, Washington, D.C.
Board of Governors of the Federal Reserve System,
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with Obligor.
-------------------------
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
<PAGE> 3
Item 16. List of Exhibits.
----------------
Exhibit
T1A(i) * - Copy of the Organization Certificate of
Marine Midland Bank.
T1A(ii) * - Certificate of the State of New York
Banking Department dated December
31, 1993 as to the authority of Marine
Midland Bank to commence business.
T1A(iii) - Not applicable.
T1A(iv) * - Copy of the existing By-Laws of Marine
Midland Bank as adopted on January
20, 1994.
T1A(v) - Not applicable.
T1A(vi) * - Consent of Marine Midland Bank
required by Section 321(b) of the Trust
Indenture Act of 1939.
T1A(vii) - Copy of the latest report of condition of
the trustee (December 31, 1996),
published pursuant to law or the
requirement of its supervisory or
examining authority.
T1A(viii) - Not applicable.
T1A(ix) - Not applicable.
* Exhibits previously filed with the Securities and Exchange Commission
with Registration No. 33-53693 and incorporated herein by reference
thereto.
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
Marine Midland Bank, a banking corporation and trust company organized under the
laws of the State of New York, has duly caused this statement of eligibility to
be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of New York and State of New York on the 6th day of March, 1997.
MARINE MIDLAND BANK
By: /s/ Frank J. Godino
-------------------
Frank J. Godino
Assistant Vice President
<PAGE> 5
<TABLE>
<S> <C>
EXHIBIT T1A (VII)
Board of Governors of the Federal Reserve System
OMB Number: 7100-0036
Federal Deposit Insurance Corporation
OMB Number: 3064-0052
Office of the Comptroller of the Currency
OMB Number: 1557-0081
FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL Expires March 31, 1999
- ------------------------------------------------------------------------------------------------------------------------
| 1 |
THIS FINANCIAL INFORMATION HAS NOT BEEN REVIEWED, OR CONFIRMED
FOR ACCURACY OR RELEVANCE, BY THE FEDERAL RESERVE SYSTEM. Please refer to page i,
Table of Contents, for
the required disclosure
of estimated burden.
- -------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR A BANK WITH DOMESTIC AND
FOREIGN OFFICES--FFIEC 031
REPORT AT THE CLOSE OF BUSINESS DECEMBER 31, (950630)
1996 -----------
(RCRI 9999)
This report is required by law; 12 U.S.C. [SECTION]324 (State member This report form is to be filed by banks with branches
banks); 12 U.S.C. [SECTION] 1817 (State nonmember banks); and 12 and consolidated subsidiaries in U.S. territories and
U.S.C. [SECTION]161 (National banks). possessions, Edge or Agreement subsidiaries, foreign
branches, consolidated foreign subsidiaries, or
International Banking Facilities.
- -------------------------------------------------------------------------------------------------------------------------
NOTE: The Reports of Condition and Income must be signed The Reports of Condition and Income are to be prepared in
by an authorized officer and the Report of Condition must be accordance with Federal regulatory authority instructions.
attested to by not less than two directors (trustees) for State NOTE: These instructions may in some cases differ from
nonmember banks and three directors for State member and generally accepted accounting principles.
National Banks.
I, Gerald A. Ronning, Executive VP & Controller We, the undersigned directors (trustees), attest to the
---------------------------------------------------------------- correctness of this Report of Condition (including the
Name and Title of Officer Authorized to Sign Report supporting schedules) and declare that it has been examined
of the named bank do hereby declare that these Reports of by us and to the best of our knowledge and belief has been
Condition and Income (including the supporting schedules) prepared in conformance with the instructions issued by the
have been prepared in conformance with the instructions appropriate Federal regulatory authority and is true and
issued by the appropriate Federal regulatory authority and are correct.
true to the best of my knowledge and believe.
/s/ Bernard J. Kennedy
-------------------------------------------------
Director (Trustee)
/s/ Gerald A. Ronning /s/ Northrup R. Knox
- ----------------------------------------------------------- -------------------------------------------------
Signature of Officer Authorized to Sign Report Director (Trustee)
1/27/97 /s/ Henry J. Nowak
- ----------------------------------------------------------- -------------------------------------------------
Date of Signature Director (Trustee)
- -------------------------------------------------------------------------------------------------------------------------
FOR BANKS SUBMITTING HARD COPY REPORT FORMS:
STATE MEMBER BANK: Return the original and one copy to the NATIONAL BANKS: Return the original only in the special return
appropriate Federal Reserve District Bank. address envelope provided. If express mail is used in lieu of
the special return address envelope, return the original only
STATE NONMEMBER BANKS: Return the original only in the to the FDIC, c/o Quality Data Systems, 2127 Espey Court, Suite
special return address envelope provided. If express mail is 204, Crofton, MD 21114.
used in lieu of the special return address envelope, return the
original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD 21114.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
FDIC Certificate Number | 0 | 0 | 5 | 8 | 9 |
---------------------
(RCRI 9030)
<PAGE> 6
NOTICE
This form is intended to assist institutions with state publication
requirements. It has not been approved by any state banking authorities. Refer
to your appropriate state banking authorities for your state publication
requirements.
REPORT OF CONDITION
Consolidating domestic and foreign subsidiaries of the
Marine Midland Bank of Buffalo
Name of Bank City
in the state of New York, at the close of business
December 31, 1996
<TABLE>
ASSETS
<CAPTION>
Thousands
of dollars
<S> <C> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances
currency and coin ................................... $ 967,072
Interest-bearing balances ........................... 1,867,936
Held-to-maturity securities ......................... 0
Available-for-sale securities ....................... 2,841,138
Federal Funds sold and securities purchased
under agreements to resell in domestic
offices of the bank and of its Edge and
Agreement subsidiaries, and in IBFs:
Federal funds sold .................................. 1,606,822
Securities purchased under
agreements to resell ................................ 235,041
Loans and lease financing receivables:
Loans and leases net of unearned
income .............................................. 14,555,533
LESS: Allowance for loan and lease
losses .............................................. 415,451
LESS: Allocated transfer risk reserve ............... 0
Loans and lease, net of unearned
income, allowance, and reserve ...................... 14,140,082
Trading assets ...................................... 891,546
Premises and fixed assets (including
capitalized leases) ................................. 189,690
Other real estate owned ................................ 1,144
Investments in unconsolidated
subsidiaries and associated companies .................. 0
Customers' liability to this bank on
acceptances outstanding ................................ 17,549
Intangible assets ...................................... 187,259
Other assets ........................................... 399,875
Total assets ........................................... 23,345,154
</TABLE>
<PAGE> 7
<TABLE>
<S> <C> <C>
LIABILITIES
Deposits:
In domestic offices ........................... 15,864,140
Noninterest-bearing ........................... 4,242,927
Interest-bearing .............................. 11,621,213
In foreign offices, Edge, and Agreement
subsidiaries, and IBFs ........................... 3,036,069
Noninterest-bearing ........................... 0
Interest-bearing .............................. 3,036,069
Federal funds purchased and securities sold
under agreements to repurchase in domestic
offices of the bank and its Edge and
Agreement subsidiaries, and in IBFs:
Federal funds purchased ....................... 1,225,738
Securities sold under agreements to
repurchase .................................... 58,491
Demand notes issued to the U.S. Treasury ......... 181,786
Trading Liabilities .............................. 234,555
Other borrowed money:
With original maturity of one year
or less ....................................... 26,912
With original maturity of more than
one year ...................................... 0
Mortgage indebtedness and obligations
under capitalized leases ......................... 33,120
Bank's liability on acceptances
executed and outstanding ......................... 17,549
Subordinated notes and debentures ................ 397,522
Other liabilities ................................ 386,942
Total liabilities ................................ 21,462,824
Limited-life preferred stock and
related surplus .................................. 0
EQUITY CAPITAL
Perpetual preferred stock and related
surplus .......................................... 0
Common Stock ..................................... 185,000
Surplus .......................................... 1,633,431
Undivided profits and capital reserves ........... 54,753
Net unrealized holding gains (losses)
on available-for-sale securities ................. 9,146
Cumulative foreign currency translation
adjustments ...................................... 0
Total equity capital ............................. 1,882,330
Total liabilities, limited-life
preferred stock, and equity capital .............. 23,345,154
</TABLE>
