<PAGE> 1
As Filed with the Securities and Exchange Commission on July 31, 1998
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------------
<TABLE>
<S> <C> <C>
AMERICAN COIN MERCHANDISING, INC. DELAWARE 84-1093721
D/B/A SUGARLOAF CREATIONS, INC.
AMERICAN COIN MERCHANDISING TRUST I DELAWARE TO BE APPLIED FOR
AMERICAN COIN MERCHANDISING TRUST II DELAWARE TO BE APPLIED FOR
AMERICAN COIN MERCHANDISING TRUST III DELAWARE TO BE APPLIED FOR
AMERICAN COIN MERCHANDISING TRUST IV DELAWARE TO BE APPLIED FOR
(Exact name of registrant as specified in its charter) (State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or
organization)
</TABLE>
--------------------
<TABLE>
<S> <C>
5660 CENTRAL AVENUE JEROME M. LAPIN
BOULDER, COLORADO 80301 CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
(303) 444-2559 AMERICAN COIN MERCHANDISING, INC.
(Address, including zip code, and telephone number, including 5660 CENTRAL AVENUE
area code, of each registrant's principal executive offices) BOULDER, COLORADO 80301
(303) 444-2559
(Name, address, including zip code, and telephone number,
including area code, of agent for service for each registrant)
</TABLE>
--------------------
COPIES TO:
<TABLE>
<S> <C> <C>
JAMES H. CARROLL, ESQ. JAMES L. CARPENTER, JR., ESQ. KENNETH M. DORAN, ESQ.
COOLEY GODWARD LLP HUTCHINSON BLACK & COOK LLC GIBSON, DUNN & CRUTCHER LLP
2595 CANYON BOULEVARD, SUITE 250 1215 SPRUCE STREET, SUITE 100 333 SOUTH GRAND AVENUE
BOULDER, COLORADO 80302 BOULDER, COLORADO 80302 LOS ANGELES, CALIFORNIA 90071
(303) 546-4000 (303) 442-6514 (213) 229-7000
FAX: (303) 546-4099 FAX: (303) 442-6593 Fax: (213) 229-7520
</TABLE>
--------------------
Approximate date of commencement of proposed sale to the public: From time to
time after the Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
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, other than securities offered only in connection with dividend or
interest reinvestment plans, please check the following box. [X]
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. [ ]
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===============================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE
AGGREGATE PRICE OFFERING AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO BE PER UNIT PRICE REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED (1) (1)(2)(3) (1)(2)(3) FEE(1)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
JUNIOR SUBORDINATED DEBENTURES OF AMERICAN COIN MERCHANDISING, INC ... $100,000,000 100% $100,000,000 $29,500
AMERICAN COIN MERCHANDISING TRUST I TRUST PREFERRED SECURITIES
AMERICAN COIN MERCHANDISING TRUST II TRUST PREFERRED SECURITIES
AMERICAN COIN MERCHANDISING TRUST III TRUST PREFERRED SECURITIES
AMERICAN COIN MERCHANDISING TRUST IV TRUST PREFERRED SECURITIES
GUARANTEES OF TRUST PREFERRED SECURITIES OF AMERICAN COIN
===============================================================================================================================
</TABLE>
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
(Footnotes to table on previous page)
(1) Such indeterminate number of Trust Preferred Securities of American Coin
Merchandising Trust I, American Coin Merchandising Trust II, American Coin
Merchandising Trust III and American Coin Merchandising Trust IV and such
indeterminate principal amount of Junior Subordinated Debentures of
American Coin Merchandising, Inc. as may from time to time be issued at
indeterminate prices. Junior Subordinated Debentures may be issued and
sold to American Coin Merchandising Trust I, American Coin Merchandising
Trust II, American Coin Merchandising Trust III and American Coin
Merchandising Trust IV. Such Junior Subordinated Debentures may later be
distributed to the holders of the Trust Preferred Securities upon a
termination of American Coin Merchandising Trust I, American Coin
Merchandising Trust II, American Coin Merchandising Trust III and American
Coin Merchandising Trust IV.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457. The aggregate public offering price of the Trust
Preferred Securities of American Coin Merchandising Trust I, American Coin
Merchandising Trust II, American Coin Merchandising Trust III and American
Coin Merchandising Trust IV and the Junior Subordinated Debentures of
American Coin Merchandising, Inc. registered hereby will not exceed
$100,000,000.
(3) Exclusive of accrued interest and distributions, if any.
(4) No separate consideration will be received for any Guarantees.
<PAGE> 3
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED JULY 31, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JULY 31, 1998)
5,000,000 TRUST PREFERRED SECURITIES
AMERICAN COIN MERCHANDISING TRUST I
% CUMULATIVE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $10.00 PER TRUST PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
[ACMI LOGO]
-----------
The % Cumulative Trust Preferred Securities (the "Trust Preferred
Securities") offered hereby represent undivided beneficial preferred interests
in the assets of American Coin Merchandising Trust I, a statutory business
trust created under the laws of the State of Delaware (the "Trust"). American
Coin Merchandising, Inc., a Delaware corporation (the "Company"), will be the
owner of all the...(continued on page 3)
-----------
An application will be filed to list the Trust Preferred Securities on the
American Stock Exchange, Inc. If such application is approved, trading of the
Trust Preferred Securities on the American Stock Exchange is expected to
commence within a 30-day period after the initial delivery of the Preferred
Securities. See "Underwriting."
SEE "RISK FACTORS" BEGINNING ON PAGE S-13 OF THIS PROSPECTUS SUPPLEMENT FOR
CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
SECURITIES OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=============================================================================================================
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
THE PUBLIC AND COMMISSIONS(1) THE TRUST (2)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Trust Preferred Security . . . . . . . $10.00 (2) $10.00
- -------------------------------------------------------------------------------------------------------------
Total (3) . . . . . . . . . . . . . . . . . $50,000,000 (2) $50,000,000
=============================================================================================================
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters by the Trust and the Company and other matters.
(2) In view of the fact that all of the proceeds of the sale of the Trust
Preferred Securities will be used to purchase the Junior Subordinated
Debentures, the Company has agreed to pay the Underwriters as compensation
for arranging the investment therein of such proceeds, $0.40 per Trust
Preferred Security or $2,000,000 in the aggregate. See "Underwriting." The
Company also has agreed to pay the expenses of the Offering estimated to be
$550,000.
(3) The Trust has granted to the Underwriters a 30-day option to purchase up to
an additional $7,500,000 aggregate liquidation amount of Trust Preferred
Securities on the same terms as set forth above, solely to cover over-
allotments, if any. If such option is exercised in full, the total Price
to the Public and Proceeds to the Trust will be $57,500,000 and
$57,500,000, respectively, and the total compensation to be paid by the
Company to the Underwriters will be $2,300,000. See "Underwriting."
-----------
The Trust Preferred Securities are being offered by the Underwriters named
herein, subject to prior sale, when, as and if issued by the Trust and
delivered to and accepted by the Underwriters and subject to certain prior
conditions, including the right of the Underwriters to reject any order in
whole or in part. It is expected that delivery of the Trust Preferred
Securities will be made in New York, New York in book-entry form only through
the facilities of The Depository Trust Company on or about ____________, 1998.
EVEREN SECURITIES, INC.
The date of this Prospectus Supplement is July 31, 1998
<PAGE> 4
American Coin Merchandising, Inc. logo over the caption "American Coin
Merchandising, Inc." over a photograph of one of the Company's SugarLoaf Toy
Shoppes filled with various plush toys. Under the SugarLoaf Toy Shoppe is the
caption "Toy Shoppe The Company's Most Popular Skill-Crane."
Beneath the picture is a reproduction of the chart contained on p. S-40 listing
certain of the Company's Retail Accounts.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS, ON
THE AMERICAN STOCK EXCHANGE OR OTHERWISE, WHICH STABILIZE, MAINTAIN OR
OTHERWISE AFFECT THE MARKET PRICE OF THE TRUST PREFERRED SECURITIES.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE TRUST PREFERRED SECURITIES IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
Sugarloaf(R), Toy Shoppe(R), Fun Shoppe(R), Treasure Shoppe(R) and A Test of
Skill(R) are all trademarks of the Company.
<PAGE> 5
Gatefold containing the Company's logo, a picture of one of the Company's
SugarLoaf Beanie Bag Shoppes over the caption "Beanie Bag Shoppe" and a picture
of one of the Company's SugarLoaf Treasure Shoppes over the caption "Treasure
Shoppe."
<PAGE> 6
Gatefold containing a map of the United States (including Alaska and Hawaii)
and Canada indicating the locations of the Company's headquarters,
Company-owned offices and franchisees' offices. Under the map is a graph in a
box with two lines, one of which shows the number of Company-owned and
franchisee owned Shoppes and the other one which shows the number of
Company-owned Shoppes from 1993 through March 31, 1998. Under the chart is the
caption "The Company's owned and operated skill-cranes have grown at an average
69.5% compounded annual growth rate between 1993 and 1997.
<PAGE> 7
(Continued from cover page)
beneficial interests represented by common securities of the Trust (the "Common
Securities" and, collectively with the Trust Preferred Securities, the "Trust
Securities"). The Trust exists for the sole purpose of issuing the Trust
Securities and investing the proceeds thereof in an equivalent amount of _____%
Junior Subordinated Deferrable Interest Debentures (the "Junior Subordinated
Debentures") to be issued by the Company. The Junior Subordinated Debentures
will mature on ____________, 2028, which date may be shortened (such date, as
it may be shortened, the "Stated Maturity") to a date not earlier than
____________, 2003. The Trust Preferred Securities will have a preference
under certain circumstances with respect to cash distributions and amounts
payable on liquidation, redemption or otherwise over the Common Securities,
which will be held by the Company. See "Description of the Trust Preferred
Securities--Subordination of Common Securities of the Trust Held by the
Company."
Holders of the Trust Preferred Securities will be entitled to receive
preferential cumulative cash distributions accruing from the date of original
issuance and payable quarterly in arrears on each January 15, April 15, July 15
and October 15 (subject to possible deferral as described below), commencing
October 15, 1998, at the annual rate of _____% of the Liquidation Amount (as
defined herein) of $10.00 per Trust Preferred Security ("Distributions"). The
amount of each Distribution due with respect to the Trust Preferred Securities
will include amounts accrued through the date such Distribution payment is due
(each, a "Distribution Date"). The Company will have the right, so long as no
Debenture Event of Default (as defined herein) has occurred and is continuing,
to defer payments of interest on the Junior Subordinated Debentures at any time
or from time to time for a period not exceeding 20 consecutive quarters with
respect to each deferral period (each, an "Extension Period"), provided that no
Extension Period may extend beyond the Stated Maturity of the Junior
Subordinated Debentures. Upon the termination of any such Extension Period and
the payment of all amounts then due, the Company may elect to begin a new
Extension Period subject to the requirements set forth herein. If interest
payments on the Junior Subordinated Debentures are so deferred, Distributions
on the Trust Preferred Securities will also be deferred and the Company will
not be permitted, subject to certain exceptions described herein, to declare or
pay any cash distributions with respect to its capital stock or to make any
payment with respect to its debt securities that rank pari passu with or junior
to the Junior Subordinated Debentures. During an Extension Period, interest on
the Junior Subordinated Debentures will continue to accrue (and the amount of
Distributions to which holders of the Trust Preferred Securities are entitled
will accumulate) at the rate of _____% per annum, compounded quarterly, and
holders of the Trust Preferred Securities will be required to accrue income and
will be required to pay United States federal income tax on the accrued income.
See "Description of Junior Subordinated Debentures--Option to Defer Interest
Payment Period" and "Material Federal Income Tax Consequences--Interest Income
and Original Issue Discount."
The Company has, through the Guarantee Agreement, the Trust Agreement, the
Junior Subordinated Debentures, the Indenture and the Expense Agreement (each
as defined herein), taken together, fully, irrevocably and unconditionally
guaranteed all of the Trust's obligations under the Trust Preferred Securities.
See "Relationship Among the Trust Preferred Securities, the Junior Subordinated
Debentures and the Guarantee--Full and Unconditional Guarantee." Under the
Guarantee (as defined herein), the Company guarantees the payment of
Distributions by the Trust and payments on liquidation of or redemption of the
Trust Preferred Securities (subordinate to the right to payment of Senior Debt
and Subordinated Debt of the Company, each as defined herein) to the extent of
funds held by the Trust. See "Description of Guarantee." If the Company does
not make required payments on the Junior Subordinated Debentures held by the
Trust, the Trust will have insufficient funds to pay Distributions on the Trust
Preferred Securities. The Guarantee does not cover payment of Distributions
when the Trust does not have sufficient funds to pay such Distributions. In
such event, a holder of the Trust Preferred Securities may institute a legal
proceeding directly against the Company pursuant to the terms of the Indenture
to enforce payment of the Junior Subordinated Debentures to the Trust. See
"Description of Junior Subordinated Debentures--Enforcement of Certain Rights
by Holders of Trust Preferred Securities." The obligations of the Company under
the Guarantee and the Junior Subordinated Debentures are subordinate and junior
in right of payment to all Senior Debt and Subordinated Debt of the Company.
"See Description of Junior Subordinated Debentures--Subordination."
The Trust Preferred Securities are subject to mandatory redemption, in whole
or in part, upon repayment of the Junior Subordinated Debentures at the Stated
Maturity or their earlier redemption, in each case at a redemption price
S-2
<PAGE> 8
equal to the aggregate liquidation preference ("Liquidation Amount") of the
Trust Preferred Securities plus any accumulated and unpaid Distributions
thereon to the date of redemption. The Junior Subordinated Debentures are
redeemable prior to maturity at the option of the Company (i) on or after
____________, 2003, in whole at any time or in part from time to time, or (ii)
at any time, in whole (but not in part), within 90 days following the
occurrence of a Tax Event or an Investment Company Event (each as defined
herein), in each case at a redemption price equal to the accrued and unpaid
interest on the Junior Subordinated Debentures to the date fixed for
redemption, plus 100% of the principal amount thereof. See "Description of the
Trust Preferred Securities--Redemption."
The Company will have the right at any time, subject to certain limitations,
to dissolve the Trust and, after satisfaction of liabilities to creditors of
the Trust as provided by applicable law, cause a Like Amount (as defined
herein) of the Junior Subordinated Debentures to be distributed to the holders
of the Trust Securities in liquidation of the Trust. See "Description of the
Trust Preferred Securities--Liquidation Distribution Upon Dissolution."
In the event of the dissolution of the Trust, after satisfaction of
liabilities to creditors of the Trust as required by applicable law, the
holders of Trust Preferred Securities will be entitled to receive a Liquidation
Amount of $10.00 per Trust Preferred Security plus accumulated and unpaid
Distributions thereon to the date of payment, which may be in the form of a
Distribution of such Like Amount of Junior Subordinated Debentures, subject to
certain exceptions. See "Description of the Trust Preferred
Securities--Liquidation Distribution Upon Dissolution."
The Junior Subordinated Debentures and the Guarantee are unsecured and
subordinated to all Senior Debt and Subordinated Debt. The terms of the Junior
Subordinated Debentures and the Guarantee place no limitation on the amount of
Senior Debt and Subordinated Debt that the Company can issue. Currently, the
Company has a $50 million reducing revolving loan agreement (the "Credit
Facility") which will increase to $60 million upon the completion of this
Offering. The Company will apply a portion of the net proceeds of this Offering
to pay off the outstanding balance under the Credit Facility, which was
approximately $41.8 million as of June 30, 1998. The Company may cause
additional trust preferred securities to be issued by trusts similar to the
Trust in the future, and there is no limit on the amount of such securities that
may be issued. In that event, the Company's obligations under the junior
subordinated debentures to be issued by such other trusts and the Company's
guarantees of the payments by such trusts will be pari passu with the Company's
obligations under the Junior Subordinated Debentures and the Guarantee,
respectively.
Each of the Trust Preferred Securities and, if the Junior Subordinated
Debentures are distributed to holders of Trust Preferred Securities, the Junior
Subordinated Debentures, will be represented by one or more global certificates
registered in the name of The Depository Trust Company (the "Depositary") or
its nominee. Beneficial interests in the Trust Preferred Securities and, in
such event, the Junior Subordinated Debentures, will be shown on, and transfers
thereof will be effected only through, records maintained by participants in
the Depositary. The Depositary and the Paying Agent (as defined herein) will
be responsible for interest and dividend payments to holders of the Trust
Preferred Securities and the Junior Subordinated Debentures. Except as
described herein, the Trust Preferred Securities in certificated form will not
be issued in exchange for global certificates. See "Book-Entry Issuance."
As used herein, (i) the "Indenture" means the Junior Subordinated Indenture,
as amended and supplemented from time to time, between the Company and
Wilmington Trust Company, as Trustee (the "Indenture Trustee"), under which the
Junior Subordinated Debentures will be issued, (ii) the "Trust Agreement" means
the Amended and Restated Trust Agreement relating to the Trust among the
Company, as depositor, Wilmington Trust Company, as Property Trustee (the
"Property Trustee"), Wilmington Trust Company, as Delaware Trustee (the
"Delaware Trustee"), the Administrative Trustees named therein (collectively,
with the Property Trustee and Delaware Trustee, the "Issuer Trustees") and the
holders, from time to time, of the trust securities, (iii) the "Guarantee
Agreement" means the Guarantee Agreement relating to the guarantee between the
Company and Wilmington Trust Company, as Guarantee Trustee (the "Guarantee
Trustee"), and (iv) the "Expense Agreement" means the Agreement as to Expenses
and Liabilities between the Company and the Trust.
S-3
<PAGE> 9
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements and
related notes thereto appearing elsewhere or incorporated by reference in this
Prospectus Supplement and the accompanying Prospectus. Information contained
in this Prospectus Supplement and the accompanying Prospectus includes
"forward-looking statements" (as such term is defined in the Private Securities
Litigation Reform Act of 1995) which can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should," "plans" or "anticipates" or variations thereon or comparable
terminology or by a discussion of strategy. Because such statements include
risks and uncertainties, actual results could differ materially from those
expressed or implied by such forward-looking statements. This Prospectus
Supplement and the accompanying Prospectus also contain important cautionary
statements identifying factors which may affect such future results. See "Risk
Factors" for a discussion of certain of these factors and risks associated with
an investment in the securities offered hereby. Except as noted otherwise, all
information in this Prospectus Supplement assumes that the Underwriters'
over-allotment option is not exercised. Unless the context otherwise requires,
the term "Company" refers to American Coin Merchandising, Inc., a Delaware
corporation, or prior to August 31, 1995, American Coin Merchandising, Inc.
and affiliates.
THE COMPANY
The Company is the leading owner, operator and franchisor in the United
States of coin-operated skill-crane machines ("Shoppes") that dispense stuffed
animals, plush toys, watches, jewelry and other items through a national network
of more than 11,000 machines operated by the Company and its franchisees. For
up to 50c. a play, customers maneuver the skill-crane into position and attempt
to retrieve the desired item in the machine's enclosed display area before play
is ended. The Shoppes are located, in order of prevalence, in supermarkets,
mass merchandisers, restaurants, bowling centers, bingo halls, bars and similar
locations ("Retail Accounts") to take advantage of the regular customer traffic
at these locations. Shoppes are currently located in Wal-Mart, Kmart,
Safeway/Vons, Kroger, AMF Bowling Centers, Fred Meyer Stores, franchised Denny's
and many other well-known Retail Accounts. The Company utilizes displays of
quality merchandise, new product introductions, including Company-designed
products, licensed products and seasonal items, and other merchandising
techniques to attract new and repeat customers. The Company has recently begun
to place complementary vending machines at existing Shoppe locations, including
kiddie rides, bulk vending (candy, gum, novelty items, etc.) and video games.
The number of Company-owned and operated Shoppes has risen from 743 to 6,166
from 1993 to 1997, representing a compound annual growth rate of 69.7%. During
the same period, operating earnings as a percentage of total revenues increased
from 5.2% to 12.4%. In 1997, the Company had record revenue and operating
earnings of $59.1 million and $7.3 million, respectively.
The Company operates four types of Shoppes: (i) the Toy Shoppe which
primarily dispenses plush toys and other toys, (ii) the Treasure Shoppe which
dispenses items such as jewelry and watches, (iii) the Beanie Bag Shoppe which
dispenses beanie-bag type stuffed toys and (iv) the Fun Shoppe which dispenses
small toys, novelty items and candy. At June 30, 1998, over 60% of the
Company's Shoppe placements have been Toy Shoppes, which the Company purchases
new for an average price of $3,600. In 1997, a Toy Shoppe averaged $12,100 in
revenue and over $4,200 in cash profit contribution (revenue minus cost of
vended products, location commissions and direct service cost).
The skill-crane industry has been in existence for over 75 years and is
highly fragmented. Based on analysis of certain industry publications, the
Company believes that there are approximately 50,000 units of prize-dispensing
equipment in operation nationwide, of which skill-cranes are the most prevalent
type, with the average skill-crane business operating 16 machines.
BUSINESS STRATEGY
The Company plans to increase the number of Shoppes it owns and operates by
an average of at least 1,400 for 1999 and 2000 through a combination of
acquisitions and new Shoppe placements. The Company believes that the Shoppes'
potential economic return, visual appeal, product quality and the Company's
high operational standards
S-4
<PAGE> 10
are important factors in gaining acceptance of the Company's Shoppes by Retail
Accounts. The Company's business strategy is to differentiate itself from
traditional skill-crane operators by (i) offering products of higher quality
than the carnival-type products that have been associated with skill-crane and
other prize-dispensing equipment; (ii) utilizing appealing merchandise
displays, frequent new product introductions, including Company-designed
products, licensed products and seasonal items, and other merchandising
techniques designed to attract customers; (iii) controlling product cost by
purchasing products in large quantities directly from manufacturers; (iv)
closely monitoring Shoppe revenue per product dispensed (the "Vend Ratio") to
maintain customer satisfaction and optimize Shoppe revenue and profitability;
(v) concentrating the placement of its Shoppes in Retail Accounts; (vi)
providing major Retail Accounts with the timely installation and operation of
an integrated system of Shoppes that can exceed 1,000 machines on a national
basis; and (vii) providing comprehensive training for the Company's field
office personnel and franchisees to assure the achievement of the Company's
business objectives. The Company intends to focus on owning and operating
Shoppes and does not currently intend to grant any additional franchises.
GROWTH STRATEGY
As of June 30, 1998, the Company owned and operated over 9,200 Shoppes from
a national network that consisted of 40 offices with operations in 40 states,
which management believes makes the Company the largest national owner and
operator of skill-crane machines. The Company believes this network is well
positioned to serve the skill-crane operations of supermarkets, mass
merchandisers, restaurants, bowling centers, bingo halls, bars, and similar
locations, which the Company estimates represent over 100,000 potential crane
locations in the United States. The Company believes that owners and operators
of these locations are becoming increasingly aware of the economic benefits of
amusement and vending machines, such as the Company's Shoppes, which can
provide retailers greater revenue and profits per square foot than alternative
uses of available floor space, with minimal expense. The Company's growth
strategy includes the following:
o Increase penetration of existing Retail Accounts. The Company and its
franchisees are designated skill-crane operators for many regional and
national Retail Accounts including Wal-Mart, Safeway/Vons, Kroger, AMF
Bowling Centers, Fred Meyer Stores and franchised Denny's. The Company
believes opportunities exist to increase penetration within its existing
Retail Accounts.
o Target marketing efforts towards new large Retail Accounts. The Company
believes the attractive economic returns its Shoppes offer and its
demonstrated success with installing and operating a significant number
of Shoppes in Retail Accounts such as Wal-Mart, Safeway/Vons, AMF
Bowling Centers and Fred Meyer Stores will allow it to successfully
target new national and regional Retail Accounts.
o Capitalize on relationships with existing Retail Accounts. The Company
believes it can capitalize on its existing relationships with Retail
Accounts to expand the number and type of amusement and vending machines
it offers at each location. The Company has introduced multiple Shoppes
at individual locations. In addition, the Company has begun to place
complementary vending machines, including kiddie rides, bulk vending and
video games at existing locations.
o Acquire franchisees and other complementary vending businesses. The
Company has completed 13 acquisitions since January 1, 1996, including
eight acquisitions since October 1, 1997, acquiring over 2,300 Shoppes,
significant franchised territories and bulk vending and kiddie ride
businesses. (See "--Recent Acquisitions".) The Company plans to pursue
acquisition opportunities in order to increase the number of
Company-owned machines, to acquire franchised territories and to add
other complementary businesses to the Company's product lines.
S-5
<PAGE> 11
RECENT ACQUISITIONS
Since October 1, 1997, as part of the Company's growth strategy it has
completed the eight acquisitions described below:
o Three Rivers Toy Company. The Company's former franchisee for portions
of Pennsylvania, including 83 Shoppes, was purchased in October 1997 for
approximately $0.2 million
o Quality Amusements Corp. and Quality Entertainment Corp. A bulk vending
and kiddie ride company with operations in Illinois, Indiana, Wisconsin,
Missouri and Iowa was purchased in November 1997 for approximately $2.0
million.
o Creative Coin of Arizona, Inc. The Company's former franchisee for
Arizona, including 146 Shoppes, was purchased in December 1997 for
approximately $1.5 million.
o Tejas Toy Corporation. The Company's former franchisee for portions of
Texas, including 250 Shoppes, was purchased in January 1998 for
approximately $2.4 million.
o McCathren Vending Co. A bulk vending company operating 4,800 pieces of
bulk vending equipment throughout Colorado, Utah and Wyoming was
purchased in March 1998 for approximately $1.2 million.
o American Coin Company of Minneapolis. A skill-crane company in
Minnesota, including 90 shoppes, was purchased in May 1998 for
approximately $0.3 million.
o Chilton Vending Co. An owner and operator of simulator and traditional
video games, skill-cranes and redemption equipment located in portions
of Kansas and Missouri was purchased in June 1998 for approximately $4.0
million.
o Suncoast Toys, Inc., NW Toys Co. and Oregon Coin Company (the "Suncoast
Acquisition"). The Company's franchisees for portions of Washington,
Oregon and Florida, including 1,388 Shoppes, were purchased in June 1998
for approximately $30.0 million.
RECENT DEVELOPMENTS
o Plush 4 Play Acquisition. In July 1998, the Company entered into a
definitive agreement (the "Plush 4 Play Agreement") to acquire Plush 4
Play, Inc. ("Plush 4 Play") for a base purchase price of $6.8 million
and a contingent earn-out of up to $2.7 million, subject to certain
adjustments. Plush 4 Play has skill-crane placement agreements with
several national Retail Accounts, including Shoney's, Inc. and
Friendly's Ice Cream Corporation. Presently, 614 skill-cranes are
operated at such Retail Accounts pursuant to agreements between Plush 4
Play and independent third party operators. Plush 4 Play is a party to
placement agreements which cover an aggregate of 178 additional Retail
Account locations which do not currently have an installed skill-crane.
Plush 4 Play also sells pre-packaged plush toys and animals to the
skill-crane industry. The Plush 4 Play Agreement contains certain
closing conditions which must be satisfied by Plush 4 Play and the
Company before the acquisition can occur. While the Company believes
the Plush 4 Play acquisition will close in September 1998, there can be
no assurance that the acquisition will close by such date, if at all.
Pursuant to the terms of the Plush 4 Play Agreement, the Company will
(i) operate certain skill-crane machines in certain Retail Accounts
under the terms of agreements between Plush 4 Play and such Retail
Accounts prior to the closing of the Plush 4 Play acquisition, and (ii)
be assigned the rights to place skill-crane machines in certain Retail
Accounts if the Plush 4 Play acquisition does not close.
o Increased Credit Facility. Upon the completion of this Offering, and
the application of the proceeds therefrom, the Company's Credit Facility
will increase from $50 million to up to $60 million, and the Company
will have up to approximately $57.0 million of unused availability under
the Credit Facility, based upon certain financial ratios. See "Use of
Proceeds."
S-6
<PAGE> 12
o Shelf Registration of Trust Preferred Securities. In addition to the
Offering contemplated hereby, the Company has filed with the Securities
and Exchange Commission a shelf registration statement which registers up
to an aggregate of $100 million of trust preferred securities (including
the Trust Preferred Securities offered hereby). Such additional trust
preferred securities may be offered by the Company at any time.
GENERAL
The Company was incorporated in Colorado in July 1988 and was reincorporated
in Delaware in July 1995. The Company's principal executive offices are located
at 5660 Central Avenue, Boulder, Colorado 80301 and its telephone number is
(303) 444-2559.
AMERICAN COIN MERCHANDISING TRUST I
The Trust is a statutory business trust created under Delaware law pursuant
to (i) the trust agreement of the Trust among the Company, as depositor, the
Delaware Trustee and an Administrative Trustee and (ii) the filing of a
Certificate of Trust with the Delaware Secretary of State on July 22, 1998.
The Trust's business and affairs are conducted by the Property Trustee, the
Delaware Trustee and two individual Administrative Trustees who are officers of
the Company. The Trust exists for the exclusive purposes of (i) issuing and
selling the Trust Securities, (ii) using the proceeds from the sale of the
Trust Securities to acquire the Junior Subordinated Debentures issued by the
Company and (iii) engaging in only those other activities necessary, advisable
or incidental thereto. The Junior Subordinated Debentures will be the sole
assets of the Trust and payments by the Company under the Junior Subordinate
Debentures and the Expense Agreement will be the sole revenues of the Trust.
All of the Common Securities will be owned by the Company. The Common
Securities will rank pari passu, and payments will be made thereon pro rata,
with the Trust Preferred Securities, except that upon the occurrence and during
the continuance of an event of default under the Trust Agreement resulting from
an event of default under the Indenture, the rights of the Company as holder of
the Common Securities to payment in respect of Distributions and payments upon
liquidation, redemption or otherwise will be subordinated to the rights of the
holders of the Trust Preferred Securities. See "Description of the Trust
Preferred Securities--Subordination of Common Securities of the Trust Held by
the Company." The Company will acquire Common Securities in an aggregate
liquidation amount equal to approximately 3% of the total capital of the Trust.
The Trust has a perpetual existence, but may be terminated as provided in the
Trust Agreement.
The Trust's principal offices are located at 5660 Central Avenue, Boulder,
Colorado 80301 and its telephone number is (303) 444-2559.
S-7
<PAGE> 13
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA
The summary financial data set forth below with respect to the Company's
statements of earnings for each of the years in the three-year period ended
December 31, 1997 and balance sheets at December 31, 1996 and 1997, have been
derived from the financial statements of the Company included elsewhere in this
Prospectus Supplement, that have been audited by KPMG Peat Marwick LLP,
independent auditors, as indicated in their report included elsewhere in this
Prospectus Supplement. The financial data for the three months ended March 31,
1997 and 1998 have been derived from unaudited financial statements included
elsewhere in this Prospectus Supplement. The unaudited financial statements
include all adjustments, consisting only of normal recurring adjustments, that
the Company considers necessary for a fair presentation of financial position
and results of operations for these periods. Operating results for the three
months ended March 31, 1998 are not necessarily indicative of the results that
may be expected for the entire year ending December 31, 1998. The unaudited pro
forma data set forth below have been derived from the Company's financial
statements. The unaudited pro forma financial data gives effect to the Suncoast
Acquisition, accounted for as a purchase, as if it had occurred (i) on January
1, 1997 for statement of earnings data and (ii) on March 31, 1998 for balance
sheet data. The summary pro forma data is not necessarily indicative of the
results that would have been achieved had such transactions been consummated on
such dates and should not be construed as representative of future operations.
Such pro forma data is subject to the assumptions set forth in the notes to the
unaudited pro forma financial statements appearing elsewhere in this Prospectus
Supplement. The information presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical and pro forma financial statements, and the notes
thereto, set forth elsewhere in this Prospectus Supplement.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA(1) HISTORICAL PRO FORMA(1)
------------------------------------ ------------ --------------------- -----------
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------------------- --------------------------------
1995 1996 1997 1997 1997 1998 1998
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES, RATIOS, PER SHARE DATA AND NUMBER OF SHOPPES)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Total revenue .......................... $ 25,714 $ 38,267 $ 59,084 $ 78,966 $ 12,357 $ 18,761 $ 24,112
Gross profit ........................... 7,959 11,325 17,611 24,468 3,806 5,467 7,249
General and administrative expense ..... 4,565 7,053 10,314 14,129 2,296 3,526 4,370
Operating earnings ..................... 3,394 4,272 7,297 10,339 1,510 1,941 2,879
Net earnings ........................... 2,575(2) 2,586 4,429 4,975 881 1,185 1,453
Basic earnings per share ............... (3) 0.51 0.80 0.89 0.17 0.18 0.23
Diluted earnings per share ............. (3) 0.48 0.78 0.87 0.16 0.18 0.22
Basic weighted average common shares ... (3) 5,092 5,565 5,565 5,251 6,457 6,457
Diluted weighted average common ........ (3) 5,417 5,694 5,694 5,425 6,649 6,649
shares .................................
NUMBER OF SHOPPES:
Company operations ..................... 2,057 3,967 6,166 7,553 4,327 6,870 8,201
Franchise operations ................... 3,455 3,981 3,952 2,565 3,746 3,659 2,328
-------- -------- -------- -------- -------- -------- --------
Total .............................. 5,512 7,948 10,118 10,118 8,073 10,529 10,529
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
EBITDA (4) ............................. 4,324 6,163 10,589 2,133 3,223
Interest expense, net .................. 383 375 612 111 118
Depreciation and amortization .......... 930 1,891 3,292 623 1,282
Net cash provided by operating ......... 2,862 4,216 8,351 2,968 3,005
activities ...........................
Net cash (used in) investing ........... (5,508) (7,448) (16,079) (3,022) (6,380)
activities .............................
Net cash provided by (used in)
financing activities ................. 3,879 2,413 8,886 (104) 3,697
GROWTH RATES:
Revenue growth ......................... 46.0% 48.8% 54.4% * 51.8%
EBITDA growth (4) ...................... 107.0 42.5 71.8 * 51.1
Operating earnings growth .............. 142.3 25.9 70.8 * 28.5
MARGINS:
EBITDA margin (4)(5) ................... 16.8% 16.1% 17.9% 17.3% 17.2%
Operating earnings margin (6) .......... 13.2 11.2 12.4 12.2 10.3
Net earnings margin (7) ................ 10.0 6.8 7.5 7.1 6.3
RATIOS:
EBITDA to interest expense, net (4) .... 11.3x 16.4x 17.3x 19.2x 27.3x
Earnings to fixed charges (8) .......... 7.6x 9.3x 9.6x 10.2x 11.6x
Pro forma ratio of earnings to fixed
charges (8)(9) ...................... 1.3x 1.4x
</TABLE>
S-8
<PAGE> 14
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA (1) ADJUSTED (1)(10)
------------ ------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital ................................................................. $ 3,686 $ 5,229 $ 18,765
Total assets .................................................................... 44,225 74,268 87,804
Total short-term debt and current portion of long-term debt ..................... 1,614 1,614 1,614
Total long-term debt, excluding current portion ................................. 6,602 36,645 2,731
Company obligated mandatorily redeemable preferred securities
of subsidiary trust holding solely junior subordinated debentures (11) ....... -- -- $ 50,000
Total stockholders' equity ...................................................... 30,874 30,874 30,874
</TABLE>
- ----------
(1) Pro forma data give effect to the Suncoast Acquisition, accounted for as a
purchase, as if it had occurred (i) on
January 1, 1997 for statement of earnings data and (ii) on March 31, 1998
for balance sheet data. See "Recent Acquisitions."
(2) During the years 1993 through August 1995, the Company and each of the
Chicago Toy Company, the Georgia Toy Company, Inland Merchandising, Inc.,
Lehigh Valley Toy Company, Performance Merchandising, Inc., Southwest Coin
Company, Sugarloaf, Ltd. and Sugarloaf Marketing Inc. (the "Affiliated
Entities") were organized as either S corporations or a partnership and
the taxable income of the Company and the Affiliated Entities was
attributable directly to their respective stockholders or partners during
such periods. Accordingly, net earnings for 1995 have been adjusted to
reflect federal and state income taxes as if such taxes had been incurred
for such period at an estimated effective rate of 38%. See Note 1 of
Notes to the Company's Financial Statements included herein.
(3) Net earnings per share and weighted average common shares are not
presented for 1995 because the Company and each of the Affiliated Entities
were organized as S corporations or a partnership. On a pro forma basis,
basic and diluted net earnings per share would have been $0.59 and $0.55
and basic and diluted weighted average common shares would have been
4,299,000 and 4,669,000, respectively for 1995. See Note 14 of Notes to
the Company's Financial Statements included herein.
(4) EBITDA represents earnings before interest expense, income taxes and
depreciation and amortization. EBITDA is not intended to represent cash
flow from operations as defined by generally accepted accounting principles
and should not be considered as an alternative to cash flow or as a measure
of liquidity or as an alternative to net earnings as indicative of
operating performance. The Company's reported EBITDA may not be comparable
to similarly titled measures of other companies. EBITDA, EBITDA growth,
EBITDA margin and the ratio of EBITDA to interest expense, net are included
herein because management believes they are useful for measuring the
Company's ability to service its debt.
(5) EBITDA margin represents EBITDA divided by total revenue.
(6) Operating earnings margin represents operating earnings divided by total
revenue.
(7) Net earnings margin represents net earnings divided by total revenue.
(8) For purposes of calculating the ratio and pro forma ratio of earnings to
fixed charges, earnings consist of income before income taxes, plus fixed
charges. Fixed charges consist of the interest expense on all
indebtedness and the estimated representative interest factor of rental
expense.
(9) The average outstanding debt balances for the year ended December 31, 1997
and the three-month period ended March 31, 1998 were approximately $7.6
million and $6.2 million, respectively, and gross interest expense was
approximately $.6 million and $.1 million, respectively. The pro forma
ratios assume the refinancing of this indebtedness with a corresponding
amount of Junior Subordinated Debentures on January 1, 1997.
(10) As adjusted to give effect to the issuance by the Trust of the 5,000,000
Trust Preferred Securities offered hereby and the receipt by the Company
of the proceeds, net of estimated underwriting compensation and other
estimated offering expenses, from the corresponding sale of the Junior
Subordinated Debentures to the Trust, and the application of the net
proceeds therefrom as described under "Use of Proceeds."
(11) The assets of the Trust consist solely of an aggregate principal amount of
$51,546,500 of Junior Subordinated Debentures.
* Numbers are omitted as prior period has not been presented herein.
S-9
<PAGE> 15
THE OFFERING
ISSUER OF TRUST PREFERRED
SECURITIES . . . . . . . . . . . . . . . American Coin Merchandising Trust
I (the "Trust")
SECURITIES OFFERED . . . . . . . . . . . 5,000,000 Trust Preferred
Securities having a Liquidation
Amount of $10.00 per Trust
Preferred Security. The Trust
Preferred Securities represent
preferred undivided beneficial
interests in the Trust's assets,
which will consist solely of the
Junior Subordinated Debentures and
payments thereunder.
DISTRIBUTIONS . . . . . . . . . . . . . . The Distributions payable on each
Trust Preferred Security will be
fixed at a rate per annum of ____%
of the Liquidation Amount of
$10.00 per Trust Preferred
Security, will be cumulative, will
accrue from the date of issuance
of the Trust Preferred Securities,
and will be payable quarterly in
arrears on each January 15, April
15, July 15 and October 15,
commencing October 15, 1998
(subject to possible deferral as
described below). The amount of
each Distribution due with respect
to the Trust Preferred Securities
will include amounts accrued
through each Distribution Date.
See "Description of the Trust
Preferred Securities."
EXTENSION PERIODS . . . . . . . . . . . . So long as no Debenture Event of
Default (as defined herein) has
occurred and is continuing, the
Company will have the right, at
any time, to defer payments of
interest on the Junior
Subordinated Debentures by
extending the interest payment
period thereon for a period not
exceeding 20 consecutive quarters
with respect to each deferral
period (each an "Extension
Period"), provided that no
Extension Period may extend beyond
the Stated Maturity of the Junior
Subordinated Debentures. If
interest payments are so deferred,
Distributions on the Trust
Preferred Securities will also be
deferred and the Company will not
be permitted, subject to certain
exceptions described herein, to
declare or pay any cash
distributions with respect to the
Company's capital stock or future
debt securities that rank pari
passu with or junior to the Junior
Subordinated Debentures. During
an Extension Period, Distributions
will continue to accumulate at the
rate of ____% compounded
quarterly. Because interest would
continue to accrue and compound
on the Junior Subordinated
Debentures, to the extent
permitted by applicable law,
holders of the Trust Preferred
Securities will be required to
accrue income for United States
federal income tax purposes and to
pay federal income tax thereon.
See "Description of Junior
Subordinated Debentures--Option to
Defer Interest Payment Period" and
"Material Federal Income Tax
Consequences--Interest Income and
Original Issue Discount."
MATURITY . . . . . . . . . . . . . . . . The Junior Subordinated Debentures
will mature on ____________, 2028
which date may be shortened (such
date, as it may be shortened, the
"Stated Maturity") to a date not
earlier than ____________, 2003.
The Company might, for example,
exercise its right to shorten the
maturity of the Junior
Subordinated Debentures under the
circumstances where a Tax Event,
Investment Company Event or other
undesirable event could be
avoided simply by shortening the
maturity of the Junior
Subordinated Debentures. See
"Description of Junior
Subordinated Debentures--General."
REDEMPTION . . . . . . . . . . . . . . . The Trust Securities are subject
to mandatory redemption upon
repayment of the Junior
Subordinated Debentures at their
Stated Maturity or their earlier
redemption at a redemption price
equal to the aggregate Liquidation
Amount of the Trust Securities
plus accumulated and unpaid
Distributions thereon to the date
of redemption. The Junior
Subordinated Debentures are
redeemable prior to Stated
Maturity at the option of the
Company (i) on or after
____________, 2003 in whole at any
time or in part from time to time,
or (ii) at any time, in whole (but
not in part), within 90 days
following the occurrence of a Tax
Event or an Investment Company
Event, in each case at a
redemption price equal to 100% of
the principal amount of the Junior
S-10
<PAGE> 16
Subordinated Debentures so redeemed,
together with any accrued but unpaid
interest to the date fixed for
redemption. See "Description of the
Trust Preferred
Securities--Redemption" and
"Description of Junior Subordinated
Debentures--Redemption."
DISTRIBUTION OF JUNIOR
SUBORDINATED DEBENTURES . . . . . . . . . The Company has the right, subject
to certain limitations, at any
time to dissolve the Trust, and,
after satisfaction of creditors of
the Trust as required by
applicable law, to cause the
Junior Subordinated Debentures to
be distributed to holders of Trust
Preferred Securities in
liquidation of the Trust. See
"Description of the Trust
Preferred Securities--Distribution
of Junior Subordinated
Debentures."
GUARANTEE . . . . . . . . . . . . . . . . Taken together, the Company's
obligations under the various
documents described herein,
including the Guarantee Agreement,
provide a full and unconditional
guarantee (the "Guarantee") of
payments by the Trust of
Distributions and other amounts
due on the Trust Preferred
Securities. Under the Guarantee
Agreement, the Company guarantees
the payment of Distributions by
the Trust and payments on
liquidation or redemption of the
Trust Preferred Securities
(subordinate to the right to
payment of Senior Debt and
Subordinated Debt of the Company)
to the extent of funds held by the
Trust. If the Trust has
insufficient funds to pay
Distributions on the Trust
Preferred Securities (i.e., if the
Company has failed to make
required payments under the Junior
Subordinated Debentures), a holder
of the Trust Preferred Securities
would have the right to institute
a legal proceeding directly
against the Company to enforce
payment on the Junior Subordinated
Debentures. See "Description of
Junior Subordinated
Debentures--Enforcement of Certain
Rights by Holders of Trust
Preferred Securities," and
"--Debenture Events of Default"
and "Description of Guarantee."
RANKING . . . . . . . . . . . . . . . . . The Trust Preferred Securities will
rank pari passu, and payments
thereon will be made pro rata, with
the Common Securities of the Trust
held by the Company, except as
described under "Description of the
Trust Preferred
Securities--Subordination of Common
Securities of the Trust Held by the
Company." The obligations of the
Company under the Guarantee, the
Junior Subordinated Debentures and
other documents described herein are
unsecured and rank subordinate and
junior in right of payment to all
current and future Senior Debt and
Subordinated Debt of the Company,
the amount of which is unlimited.
The Company will apply a portion of
the net proceeds of this Offering to
pay off the outstanding balance
under the Credit Facility, which was
approximately $41.8 million as of
June 30, 1998. The Company may
cause additional trust preferred
securities to be issued by trusts
similar to the Trust in the future,
and there is no limit on the amount
of such securities that may be
issued. The Company has filed with
the Securities and Exchange
Commission a shelf registration
statement which registers up to an
aggregate of $100 million of trust
preferred securities, including the
Trust Preferred Securities offered
hereby. Such additional trust
preferred securities may be offered
by the Company at any time. In that
event, the Company's obligations
under the junior subordinated
debentures to be issued to such
other trusts and the Company's
guarantees of the payments by such
trusts will rank pari passu with the
Company's obligations under the
Junior Subordinated Debentures and
the Guarantee, respectively.
VOTING RIGHTS . . . . . . . . . . . . . . The holders of the Trust Preferred
Securities will have no voting
rights except in limited
circumstances. Except as provided
below, the affirmative consent of
the holders of at least a majority
of the outstanding Trust Preferred
Securities will be required by the
Trust for amendments to the Trust
Agreement that would affect
adversely the rights or privileges
of the holders of the Trust
Preferred Securities. The
Property Trustee, the
Administrative Trustees and the
Company may amend the Trust
Agreement
S-11
<PAGE> 17
without the consent of holders of
the Trust Preferred Securities to
ensure that the Trust will be
classified for United States
federal income tax purposes as a
grantor trust or to ensure that the
Trust will not be required to
register as an "investment company"
under the Investment Company Act,
even if such action adversely
affects the interests of such
holders. See "Description of the
Trust Preferred Securities--Voting
Rights; Amendment of the Trust
Agreement."
ERISA CONSIDERATIONS . . . . . . . . . . Prospective purchasers should
carefully consider the information
set forth under the caption "ERISA
Considerations."
PROPOSED AMEX SYMBOL . . . . . . . . . . ACM.Pr.A
USE OF PROCEEDS . . . . . . . . . . . . . The proceeds to the Trust from the
sale of the Trust Preferred
Securities offered hereby will be
invested by the Trust in the Junior
Subordinated Debentures of the
Company. The Company will use a
portion of the approximate $47.5
million net proceeds of the
Offering to pay off the
indebtedness outstanding under the
Credit Facility. The Company will
use the remaining net proceeds for
general corporate purposes. See
"Use of Proceeds."
S-12
<PAGE> 18
RISK FACTORS
The following risk factors should be considered carefully in addition to the
other information contained in this Prospectus before purchasing the Trust
Preferred Securities offered hereby.
RISK FACTORS RELATING TO THE OFFERING
RANKING OF THE COMPANY'S OBLIGATIONS UNDER THE JUNIOR SUBORDINATED DEBENTURES
AND THE GUARANTEE
All obligations of the Company under the Guarantee, the Junior Subordinated
Debentures and other documents described herein are unsecured and rank
subordinate and junior in right of payment to all current and future Senior
Debt and Subordinated Debt of the Company, the amount of which is unlimited.
None of the Indenture, the Guarantee, the Guarantee Agreement or the Trust
Agreement places any limitation on the amount of secured or unsecured debt,
including Senior Debt and Subordinated Debt, that may be incurred by the
Company. Further, there is no limitation on the Company's ability to issue
additional junior subordinated debentures in connection with any further
offerings of trust preferred securities, and such additional debentures would
rank pari passu with the Junior Subordinated Debentures. See "Description of
Junior Subordinated Debentures--Subordination" and "Description of
Guarantee--Status of the Guarantee."
OPTION TO DEFER INTEREST PAYMENT PERIOD
So long as no Debenture Event of Default (as defined herein) has occurred
and is continuing, the Company has the right under the Indenture to defer
payment of interest on the Junior Subordinated Debentures at any time or from
time to time for a period not exceeding 20 consecutive quarters with respect to
each Extension Period, provided that no Extension Period may extend beyond the
Stated Maturity of the Junior Subordinated Debentures. As a consequence of any
such deferral, quarterly Distributions on the Trust Preferred Securities by the
Trust will be deferred (and the amount of Distributions to which holders of the
Trust Preferred Securities are entitled will accumulate additional amounts
thereon at the rate of _____% per annum, compounded quarterly, from the
relevant payment date for such Distributions) during any such Extension Period.
During any such Extension Period, the Company will be prohibited from making
certain payments or distributions with respect to the Company's capital stock
(including dividends on or redemptions of common or preferred stock) and from
making certain payments with respect to any future debt securities of the
Company that rank pari passu with or junior in interest to the Junior
Subordinated Debentures; however, the Company will not be restricted from (a)
paying dividends or distributions in capital stock of the Company, (b)
redeeming rights or taking certain other actions under a stockholders rights
plan, (c) making payments under the Guarantee or (d) making purchases of common
stock related to the issuance of common stock or rights under any of the
Company's benefit plans for its directors, officers, employees or consultants.
Further, during an Extension Period, the Company would have the ability to
continue to make payments on its Senior Debt and Subordinated Debt, if any.
Prior to the termination of any Extension Period, the Company may further
extend such Extension Period provided that such extension does not cause such
Extension Period to exceed 20 consecutive quarters or to extend beyond the
Stated Maturity. Upon the termination of any Extension Period and the payment
of all interest then accrued and unpaid (together with interest thereon at the
annual rate of _____%, compounded quarterly), the Company may elect to begin a
new Extension Period subject to the above requirements. There is no limitation
on the number of times that the Company may elect to begin an Extension Period.
As a consequence of the Company's deferral of interest payments, holders of the
Trust Preferred Securities will not receive cash distributions during such
deferral periods (although the Distributions to which holders of the Trust
Preferred Securities are entitled will continue to accumulate until payment in
full), and the market price of the Trust Preferred Securities is likely to be
adversely affected by such deferral. A holder that disposes of such holder's
Trust Preferred Securities during an Extension Period, therefore, might not
receive the same return on such holder's investment as a holder that continues
to hold Trust Preferred Securities. See "Description of the Trust Preferred
Securities--Distributions," "Description of Junior Subordinated
Debentures--Option to Defer Interest Payment Period," and "Description of
Junior Subordinated Debentures--Debenture Events of Default."
S-13
<PAGE> 19
TAX CONSEQUENCES OF OPTION TO DEFER INTEREST PAYMENT PERIOD AND OF A DEFERRAL
OF INTEREST PAYMENT
Because the Company has no current plan to exercise its option to defer
payments of interest and considers the likelihood of exercising the option to
be a remote contingency as of the issue date of the Junior Subordinated
Debentures, it is the Company's position that the Junior Subordinated
Debentures will be treated as issued without "original issue discount" for
United States federal income tax purposes. As a result, holders of Trust
Preferred Securities will include interest in taxable income under their own
methods of accounting (i.e., cash or accrual). However, if the Internal
Revenue Service were to successfully challenge the Company's position, or if
the Company exercises its right to defer payments of interest, the holders of
Trust Preferred Securities will be required to include their pro rata share of
original issue discount in gross income as it accrues for United States federal
income tax purposes in advance of the receipt of cash. If the tax authorities
successfully asserted that, as of the issue date of the Junior Subordinated
Debentures, exercise of the deferment option is not a remote or incidental
contingency, interest would be reportable under the contingent payment debt
rules of the Treasury Regulations as of the issue date. See "Material Federal
Income Tax Consequences--Interest Income and Original Issue Discount." Should
the Company elect to exercise its right to defer payments of interest in the
future, the market price of the Trust Preferred Securities is likely to be
adversely affected. A holder that disposes of such holder's Trust Preferred
Securities during an Extension Period, therefore, might not receive the same
return on such holder's investment as a holder that continues to hold Trust
Preferred Securities. See "Description of Junior Subordinated
Debentures--Option to Defer Interest Payment Period."
POSSIBLE TAX LAW CHANGES AFFECTING THE TRUST PREFERRED SECURITIES
There can be no assurance that future legislation will not affect the ability
of the Company to deduct interest on the Junior Subordinated Debentures. Such a
change could give rise to a Tax Event (as defined below), which may permit the
Company to cause a redemption of the Trust Preferred Securities. In addition,
the Internal Revenue Service (the "Service") recently asserted that interest
payable on a security with characteristics and issued in circumstances similar
to the characteristics and issuance of the Junior Subordinated Debentures was
not deductible for United States federal income tax purposes. The taxpayer in
that case has filed a petition in the United States Tax Court challenging the
Service's position on this matter. If this matter is litigated and the Tax Court
sustains the Service's position, such judicial decision could give rise to a Tax
Event which could, in certain circumstances, require the dissolution of the
Trust or permit the Company to redeem the Junior Subordinated Debentures. See
"Description of the Trust Preferred Securities--Redemption--Tax Event
Redemption, Investment Company Event Redemption or Distribution of Junior
Subordinated Debentures" and "Description of Junior Subordinated
Debentures--Redemption."
S-14
<PAGE> 20
REDEMPTION PRIOR TO STATED MATURITY
The Company may, at its option, on or after ____________, 2003, redeem the
Junior Subordinated Debentures in whole at any time or in part from time to
time at 100% of the principal amount together with accrued but unpaid interest
to the date fixed for redemption and therefore cause a mandatory redemption of
the Trust Securities.
In addition, upon the occurrence and during the continuation of a Tax Event
or an Investment Company Event (whether occurring before or after ____________,
2003), the Company has the right, if certain conditions are met, to redeem the
Junior Subordinated Debentures in whole (but not in part) at 100% of the
principal amount together with accrued but unpaid interest to the date fixed
for redemption within 90 days following the occurrence of such Tax Event or
Investment Company Event and therefore cause a mandatory redemption of Trust
Securities. See "Description of the Trust Preferred Securities--Redemption."
A "Tax Event" means the receipt by the Company and the Trust of an opinion
of counsel experienced in such matters to the effect that, as a result of any
amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
such prospective change, pronouncement or decision is announced on or after the
original issuance of the Trust Preferred Securities, there is more than an
insubstantial risk that (i) the Trust is, or will be within 90 days of the date
of such opinion, subject to United States federal income tax with respect to
income received or accrued on the Junior Subordinated Debentures, (ii) interest
payable by the Company on the Junior Subordinated Debentures is not, or within
90 days of such opinion, will not be, deductible by the Company, in whole or in
part, for United States federal income tax purposes or (iii) the Trust is, or
will be within 90 days of the date of the opinion, subject to more than a de
minimis amount of other taxes, duties or other governmental charges.
An "Investment Company Event" means the receipt by the Company and the Trust
of an opinion of counsel experienced in such matters to the effect that, as a
result of any change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, the Trust is or will be considered an
"investment company" that is required to be registered under the Investment
Company Act of 1940, as amended (the "Investment Company Act"), which change
becomes effective on or after the original issuance of the Trust Preferred
Securities.
If less than all of the Trust Securities issued by the Trust are to be
redeemed on a Redemption Date, then the aggregate Redemption Price for such
Trust Securities to be redeemed shall be allocated pro rata to the Trust
Preferred Securities and the Common Securities based upon the relative
Liquidation Amounts of such classes. The particular Trust Preferred Securities
to be redeemed shall be selected by the Property Trustee from the outstanding
Trust Preferred Securities not previously called for redemption, by such method
as the Property Trustee shall deem fair and appropriate and which may provide
for the selection for redemption of portions (equal to $10 or an integral
multiple thereof) of the Liquidation Amount of Trust Preferred Securities.
POSSIBLE DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF TRUST
PREFERRED SECURITIES; RISK OF TAXATION UPON A DISTRIBUTION
The Company will have the right at any time, subject to certain limitations,
to dissolve the Trust and, after satisfaction of liabilities to creditors of the
Trust as required by applicable law, cause the Junior Subordinated Debentures to
be distributed to the holders of the Trust Preferred Securities in liquidation
of the Trust. Because holders of the Trust Preferred Securities may receive
Junior Subordinated Debentures in liquidation of the Trust and because
Distributions are otherwise limited to payments on the Junior Subordinated
Debentures, prospective purchasers of the Trust Preferred Securities are also
making an investment decision with regard to the Junior Subordinated Debentures
and should carefully review all the information regarding the Junior
Subordinated Debentures contained herein. See "Description of the Trust
Preferred Securities--Liquidation Distribution Upon Dissolution" and
"Description of Junior Subordinated Debentures." If a Tax Event were to occur
which would cause the Trust to be subject to United States federal income tax
with respect to income received or accrued on the Junior Subordinated
Debentures, a distribution of the Junior Subordinated Debentures by the Trust
could be a taxable event to the Trust and the holders of the Trust Preferred
Securities. See "Material Federal Income Tax Consequences--Distribution of
Junior Subordinated Debentures to Holders of Trust Preferred Securities."
S-15
<PAGE> 21
SHORTENING OF STATED MATURITY OF JUNIOR SUBORDINATED DEBENTURES
The Company will have the right at any time to shorten the maturity of the
Junior Subordinated Debentures to a date not earlier than five years from the
date of issuance and thereby cause the Trust Preferred Securities to be
redeemed on such earlier date. See "Description of Junior Subordinated
Debentures--Redemption."
LIMITATIONS ON DIRECT ACTIONS AGAINST THE COMPANY AND ON RIGHTS UNDER THE
GUARANTEE
The Guarantee guarantees to the holders of the Trust Preferred Securities
the following payments, to the extent not paid by the Trust: (i) any
accumulated and unpaid Distributions required to be paid on the Trust Preferred
Securities, to the extent that the Trust has funds on hand available therefor
at such time, (ii) the redemption price with respect to any Trust Preferred
Securities called for redemption, to the extent that the Trust has funds on
hand available therefor at such time, and (iii) upon a voluntary or involuntary
dissolution, winding-up or liquidation of the Trust (unless the Junior
Subordinated Debentures are distributed to holders of the Trust Preferred
Securities), the lesser of (a) the aggregate of the Liquidation Amount and all
accumulated and unpaid Distributions to the date of payment to the extent that
the Trust has funds on hand available therefor at such time (the "Liquidation
Distribution") and (b) the amount of assets of the Trust remaining available
for distribution to holders of the Trust Preferred Securities after
satisfaction of liabilities to creditors of the Trust as required by applicable
law. The holders of not less than a majority in aggregate Liquidation Amount
of the Trust Preferred Securities have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Guarantee
Trustee in respect of the Guarantee or to direct the exercise of any trust
power conferred upon the Guarantee Trustee under the Guarantee Agreement. Any
holder of the Trust Preferred Securities may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Trust, the Guarantee Trustee
or any other person or entity. If the Company were to default on its
obligation to pay amounts payable under the Junior Subordinated Debentures, the
Trust would lack funds for the payment of Distributions or amounts payable on
redemption of the Trust Preferred Securities or otherwise, and, in such event,
holders of the Trust Preferred Securities would not be able to rely upon the
Guarantee for payment of such amounts. Instead, in the event a debenture
Event of default shall have occurred and be continuing and such event is
attributable to the failure of the Company to pay interest on or principal of
the Junior Subordinated Debentures on the date on which such payment is due and
payable, then a holder of trust preferred securities may institute a legal
proceeding directly against the Company for enforcement of payment to such
holder of the principal of or interest on such junior subordinated debentures
having a principal amount equal to the aggregate liquidation amount of the
trust preferred securities of such holder (a "Direct Action"). In connection
with such Direct Action, the Company will have a right of set-off under the
Indenture to the extent of any payment made by the Company to such holder of
Trust Preferred Securities in the Direct Action. Except as described herein,
holders of Trust Preferred Securities will not be able to exercise directly any
other remedy available to the holders of the Junior Subordinated Debentures or
assert directly any other rights in respect of the Junior Subordinated
Debentures. See "Description of Junior Subordinated Debentures--Enforcement of
Certain Rights by Holders of Trust Preferred Securities" and "Description of
Guarantee." The Trust Agreement provides that each holder of Trust Preferred
Securities by acceptance thereof agrees to the provisions of the Guarantee
Agreement and the Indenture.
ABILITY TO MAKE PAYMENTS ON THE TRUST PREFERRED SECURITIES AND JUNIOR
SUBORDINATED DEBENTURES
The ability of the Trust to pay amounts due on the Trust Preferred
Securities is solely dependent upon the Company making payments on the Junior
Subordinated Debentures as and when required. The Company will have
significant interest expense under the Junior Subordinated Debentures. As of
June 30, 1998, after giving effect to the Offering and the application of net
proceeds therefrom, the Company would have had no indebtedness outstanding
under the Credit Facility. In addition, the Indenture does not prohibit the
Company from incurring additional indebtedness including indebtedness secured
by its assets or properties. While the Company expects that its operating cash
flow will be sufficient to cover its expenses including interest costs, there
can be no assurance with respect thereto. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
S-16
<PAGE> 22
LIMITED COVENANTS; ABSENCE OF SINKING FUND
The covenants in the Indenture are limited. The Company is not required
under the Indenture to meet any financial tests that measure the Company's
working capital, interest coverage or net worth in order to comply with the
terms of the Indenture. There are no covenants relating to the Company in the
Trust Agreement. As a result, neither the Indenture nor the Trust Agreement
protects holders of Junior Subordinated Debentures, or Trust Preferred
Securities, respectively, in the event of a material adverse change in the
Company's financial condition or results of operations, or limits the ability
of the Company to incur additional indebtedness. Therefore, the provisions of
these governing instruments should not be considered a significant factor in
evaluating whether the Company will be able to comply with its obligations
under the Junior Subordinated Debentures or the Guarantee. Further, the Junior
Subordinated Debentures do not have the benefit of any sinking fund payments by
the Company.
LIMITED VOTING RIGHTS
The holders of the Trust Preferred Securities will have no voting rights
except in limited circumstances relating only to the modification of the Trust
Preferred Securities and the exercise of the rights of the Trust as holder of
the Junior Subordinated Debentures and the Guarantee. Except as provided
below, the affirmative consent of the holders of at least a majority of the
outstanding Trust Preferred Securities will be required by the Trust for
amendments to the Trust Agreement that would affect adversely the rights or
privileges of the holders of the Trust Preferred Securities. Holders of Trust
Preferred Securities will not be entitled to vote to appoint, remove or replace
the Property Trustee or the Delaware Trustee, and such voting rights are vested
exclusively in the holder of the Common Securities except upon the occurrence
of certain events described herein. In no event will the holders of the Trust
Preferred Securities have the right to vote to appoint, remove or replace the
Administrative Trustees; such voting rights are vested exclusively in the
holder of the Common Securities. The Property Trustee, the Administrative
Trustees and the Company may amend the Trust Agreement without the consent of
holders of the Trust Preferred Securities to cure any ambiguity or make other
provisions not inconsistent with the Trust Agreement or to ensure that the
Trust will be classified for United States federal income tax purposes as a
grantor trust or to ensure that the Trust will not be required to register as
an "investment company" under the Investment Company Act, even if such action
adversely affects the interests of such holders. See "Description of the Trust
Preferred Securities--Voting Rights; Amendment of the Trust Agreement" and
"--Removal of Trustees."
ABSENCE OF EXISTING PUBLIC MARKET; MARKET PRICES
There is no existing market for the Trust Preferred Securities. The Company
will apply to list the Trust Preferred Securities on the American Stock
Exchange. There can be no assurance, however, that an active and liquid
trading market for the Trust Preferred Securities will develop or that
continued listing of the Trust Preferred Securities will be available on the
American Stock Exchange. Although the representatives of the Underwriters have
informed the Trust and the Company that the Underwriters intend to make a
market in the Trust Preferred Securities offered hereby, the Underwriters are
not obligated to do so and any such market making activity may be terminated at
any time without notice to the holders of the Trust Preferred Securities.
Future trading prices of the Trust Preferred Securities will depend on many
factors including, among other things, prevailing interest rates, the operating
results and financial condition of the Company, and the market for similar
securities. As a result of the existence of the Company's right to defer
interest payments on or shorten the Stated Maturity of the Junior Subordinated
Debentures, the market price of the Trust Preferred Securities may be more
volatile than the market prices of debt securities that are not subject to such
optional deferrals or reduction in maturity. There can be no assurance as to
the market prices for the Trust Preferred Securities or the listing, or market
prices for, the Junior Subordinated Debentures that may be distributed in
exchange for the Trust Preferred Securities if the Company exercises its right
to dissolve and liquidate the Trust. Accordingly, the Trust Preferred
Securities that an investor may purchase, or the Junior Subordinated Debentures
that a holder of the Trust Preferred Securities may receive in liquidation of
the Trust, may trade at a discount from the price that the investor paid to
purchase the Trust Preferred Securities offered hereby.
S-17
<PAGE> 23
RISK FACTORS RELATING TO THE COMPANY
GROWTH AND MANAGEMENT OF GROWTH
The Company has recently experienced substantial growth, however, there can
be no assurance that the Company will continue to grow at historical rates or
at all. The Company has completed 13 acquisitions since January 1, 1996,
including eight acquisitions since October 1, 1997. The Company's ability to
generate increased revenue and achieve higher levels of profitability will
depend upon its ability and the ability of its franchisees to place additional
Shoppes in Retail Accounts as well as to maintain or increase the average
financial performance of the Shoppes. The Company's ability to place
additional Shoppes depends on a number of factors beyond the Company's control,
including general business and economic conditions. Installation of additional
Shoppes will also depend, in part, upon the Company's ability to secure
additional national and regional Retail Accounts and to obtain approval to
place additional Shoppes in individual locations of such accounts. The
Company, its franchisees and their suppliers also may be unable to place and
adequately service additional Shoppes, which could have a material adverse
effect on the Company's business, financial condition and results of
operations.
In addition, the Company has limited experience with product offerings
beyond skill-cranes and new product offerings (including kiddie rides, bulk
vending, redemption equipment and video games) may involve risks and
operational requirements different from those of the Shoppes. Accordingly,
there can be no assurance that any additional Company product offerings will
meet with success or generate significant additional revenue.
There can be no assurance that the Company will be able to manage its
expanding operations effectively or that it will be able to maintain or
accelerate its growth. The Company's growth has placed, and is expected to
continue to place, significant demands on all aspects of the Company's
business, including Shoppe servicing, merchandising, financial and
administrative personnel and systems. The Company's future operating results
are substantially dependent upon the ability of the Company's officers and key
personnel to manage anticipated growth and increased demand effectively; to
attract, train and retain additional qualified personnel; and to implement and
improve technical, service, administrative, financial control and reporting
systems. Either a deterioration in Shoppe performance or the Company's failure
to manage growth effectively could adversely and materially affect the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Business Strategy" and "--Growth Strategy."
SUBSTANTIAL INDEBTEDNESS; EFFECT OF FINANCIAL LEVERAGE
The Company intends to use a portion of the proceeds of this Offering to
repay the outstanding balance on its Credit Facility, which will result in the
Company having approximately $57.0 million available under the Credit Facility,
assuming the expected increase in the Credit Facility to $60 million. See "Use
of Proceeds." The Company intends to use funds available under the Credit
Facility for a number of purposes, including future acquisitions. The use of
funds from the Credit Facility could result in the Company incurring
indebtedness that is substantial in relation to its stockholders' equity and
cash flow. If the Company incurs substantial indebtedness, fixed charges could
exceed earnings for the foreseeable future. Substantial leverage poses the risk
that the Company may not be able to generate sufficient cash flow to service its
indebtedness, or to adequately fund its operations. There can be no assurance
that the Company will be able to increase its revenue and leverage the
acquisitions it has made to achieve sufficient cash flow to meet its potential
debt service obligations. In particular, there can be no assurance that the
Company's operating cash flow will be sufficient to meet its debt service
obligations under the Credit Facility, if drawn upon. The Company's leverage
also could limit its ability to effect future financings or may otherwise
restrict the Company's operations and growth.
INTEGRATION OF ACQUISITIONS
The Company has recently completed a number of acquisitions and intends to
continue to acquire other businesses in the future. Acquisitions have placed,
and are likely to continue to place, a significant strain on the Company's
managerial, operating, financial and other resources. The Company's future
performance will depend, in
S-18
<PAGE> 24
part, upon its ability to integrate its acquisitions effectively, which will
require that the Company implement additional management information systems
capabilities, further develop its operating, administrative and financial and
accounting systems and controls, improve coordination among accounting,
finance, marketing and operations, and hire and train additional personnel.
Failure by the Company to develop adequate operational and control systems or
to attract and retain additional qualified management, financial, sales and
marketing and customer care personnel could materially adversely affect the
Company's ability to integrate the businesses it has acquired and continues to
acquire. While the Company anticipates that it will recognize various
economies and efficiencies of scale as a result of its acquisitions and the
integration of the businesses it has acquired, the process of consolidating the
businesses and implementing integrations, even if successful, may take a
significant period of time, will place a significant strain on the Company's
resources and could subject the Company to additional expenses during the
integration process. Furthermore, the Company's performance will depend on the
internal growth generated through acquired operations. As a result, there can
be no assurance that the Company will be able to integrate the businesses it
has acquired successfully or in a timely manner in accordance with its
strategic objectives. Failure to effectively and efficiently integrate
acquired businesses could have a material adverse effect on the Company's
business, financial condition and results of operations.
TRADE RELATIONS AND DEPENDENCE ON MAJOR ACCOUNTS
The Company's largest account, Wal-Mart, accounted for approximately 33.5%
of total revenue in 1997. Although the Company has entered into a contract
with Wal-Mart (which expires on January 1, 2000), national and regional Retail
Accounts generally do not enter into long-term contracts with vendors. In
individual-location accounts, the Company and its franchisees generally place
Shoppes pursuant to oral agreements with location managers. The arrangements
of the Company and its franchisees with most of these accounts may be
terminated at any time. In addition, Wal-Mart may terminate its contract with
the Company under certain limited circumstances. The loss of the Wal-Mart
account, or the loss of a significant number of other major accounts, or a
significant reduction in the number of Shoppes placed at such accounts, for any
reason, could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Operations."
COMPETITION
The Company competes with a number of regional and local operators of
skill-crane machines. Many of these competitors are engaged in aggressive
expansion programs, and the Company has experienced and expects to continue to
experience intense competition for new locations and acquisition candidates.
There can be no assurance that the Company will be able to compete effectively
with these companies in the future. The Company's Shoppes also compete with
other vending machines and coin-operated amusement devices and seasonal and
bulk merchandise for sites within retail locations. There can be no assurance
that the Company will be able to maintain its current sites in the retail
locations or that it will be able to obtain sites in the future on attractive
terms or at all. There also are few barriers to entry in the Company's
business, and it would be possible for well-financed vending machine
manufacturers or other vending machine operators with existing relationships
with Retail Accounts targeted by the Company to compete readily with the
Company in certain markets.
DEPENDENCE ON SUPPLIERS AND FOREIGN SOURCING
Substantially all of the plush toys and other products dispensed from the
Shoppes are produced by foreign manufacturers. A majority are purchased
directly by the Company from manufacturers in China. The Company purchases its
other products indirectly from vendors who obtain a significant percentage of
such products from foreign manufacturers. As a result, the Company is subject
to changes in governmental policies, the imposition of tariffs, import and
export controls, transportation delays and interruptions, political and
economic disruptions and labor strikes which could disrupt the supply of
products from such manufacturers. Among other things, the loss of China's
"most favored nation" status under U.S. tariff laws could result in a
substantial increase in the import duty of certain products manufactured in
China, which could result in substantially increased costs for certain products
purchased by the Company which could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Operations" and "--Suppliers."
S-19
<PAGE> 25
The Company also could be affected by labor strikes in the sea shipping,
trucking and railroad industries, all of which the Company utilizes to varying
degrees. Although the Company believes that alternative means of
transportation would be available for its products in the event of a labor
strike affecting a particular mode of transportation, such a disruption could
increase the Company's transportation costs and thereby reduce its profit
margins in a particular period.
The Company does not have a long-term supply agreement with any of its crane
suppliers. While the Company believes that it will continue to be able to
purchase skill-crane machines from existing or alternative suppliers, no
assurance can be given that skill-cranes will be available on a cost-efficient
basis or that shortages or other disruptions in the Company's sources of supply
for skill-crane machines and components would not have a material and adverse
effect on the Company's business, financial condition and results of
operations. See "Business--Suppliers" and "--Growth Strategy."
SEASONALITY AND VARIABILITY OF RESULTS
The financial performance of the Shoppes is substantially dependent on the
level of retail traffic at such Shoppes' particular location. Accordingly, the
business, financial condition and results of operations of the Company can be
materially and adversely affected by factors which reduce retail traffic at
Shoppe locations. These include numerous factors beyond the Company's control
such as weather, labor strikes and other disruptions of the business at Retail
Accounts and local and national business and economic conditions. The
Company's results are also linked to seasonal increases in foot-traffic at
Retail Accounts, and disruptions of past trends, including traditional
increases during holiday seasons, could decrease the Company's revenue. As a
result, the Company's operating results may vary significantly over time.
Accordingly, period-to-period comparisons of its results of operations are not
necessarily meaningful and the Company's past results should not be relied upon
as an indication of future performance.
CHANGING CONSUMER TRENDS; TECHNOLOGICAL INNOVATIONS
Consumer preferences are constantly changing and difficult to predict, and
consumer interest in the Company's Shoppes or the products dispensed could
decline suddenly or other prize-dispensing equipment or amusement devices could
replace the Shoppes in consumer preference. The Company's success will depend
in part on its ability to offer new and appealing products and on the
continuing appeal of its Shoppes' skill-crane format in both existing markets
and in new markets into which the Company may expand. There can be no
assurance that the use of skill-crane machines and the Company's operating
results will not be adversely affected by changing consumer trends.
The Company's business also is susceptible to advances in the design and
manufacture of skill-crane machines and other vending technology. The
Company's failure to anticipate or respond adequately to such technological
changes could adversely affect the Company's business and results of
operations.
GOVERNMENT REGULATION
The Company's business is subject to federal, state, provincial and local
regulations relating to product labeling and safety, coin-operated games and
franchising. The Federal Hazardous Substances Act, as amended by the Child
Protection Act of 1966, the Child Protection and Toy Safety Act of 1969, the
Toy Safety Act of 1984 and the Child Safety Protection Act of 1994 require the
labeling of articles which bear or contain a hazardous substance as defined in
such statutes. In addition, the Consumer Product Safety Commission may, under
such statutes, ban from the market toys or other articles intended for use by
children which contain hazardous substances or present a public health or
safety hazard, and require the repurchase and reimbursement of certain expenses
by the manufacturer of such banned toys or articles. If plush toys or watches
dispensed by the Company's Shoppes were to be banned, permanently or
temporarily, the Company's business, financial condition and results of
operations could be adversely affected.
S-20
<PAGE> 26
The distribution and operation of skill-crane machines may be subject to
federal, state, provincial and local regulations, including gaming regulations,
which vary from jurisdiction to jurisdiction. Certain jurisdictions may
require companies and their key personnel to hold licenses, permits and
approvals in connection with the distribution or operation of skill-crane
machines. Currently, the Company has obtained all governmental licenses,
permits and approvals that it believes are necessary for the distribution and
operation of its skill-crane machines. However, no assurance can be given that
such licenses, permits or approvals will be given or renewed in the future.
The Company's franchisees are responsible for their own regulatory compliance.
The rejection or termination of the Company's or any of its franchisees'
licenses, permits or approvals may adversely affect the Company's business,
financial condition and results of operations.
Many states and local jurisdictions lack specific laws and regulations
relating to skill-crane machines, and there can be no assurance that existing
state or local laws and regulations, including gaming laws and regulations,
will not be construed or enforced in the future to prohibit the operation of
Shoppes in these jurisdictions or subject the Company and its franchisees to
additional regulations or licensing requirements. Also, there can be no
assurance that new laws and regulations that prevent or restrict the operation
of Shoppes in particular states or local jurisdictions will not be adopted.
Any such actions on the part of states or local jurisdictions could have a
material adverse effect on the Company's business, financial condition and
results of operations, and on its expansion plans.
As a franchisor, the Company is subject to various federal and state
franchise and business opportunity laws and regulations. Although the Company
does not currently intend to grant any additional franchises and it believes it
is in material compliance with such laws in the states in which the Company has
offered and sold franchises, the promulgation of new franchising laws and
regulations could adversely affect the Company's business, financial condition
and results of operations.
PRODUCT LIABILITY AND INSURANCE
The Company carries property, liability, workers' compensation and directors
and officers liability insurance policies, which it believes are customary for
businesses of its size and type. However, there can be no assurance that the
Company's insurance coverage will be adequate or that insurance will continue to
be available to the Company at reasonable rates. The Company may be subject to
claims for personal injuries resulting from the use of its Shoppes or from
products and other merchandise dispensed from the Shoppes. To date, the Company
has not experienced any material product liability claims or costs, and it
currently maintains product liability insurance which it believes to be
adequate. The Company's product liability insurance coverage is limited,
however, and there can be no assurance that such insurance would adequately
cover future product liability costs or claims.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company has no patents or patent applications pending and relies
primarily on a combination of trademark and unfair competition laws, trade
secrets, confidentiality procedures and agreements to protect its proprietary
rights. The Company owns a number of trademarks that have been registered with
the United States Patent and Trademark Office and in Canada, including
"SugarLoaf," "Toy Shoppe," "Treasure Shoppe" and "Fun Shoppe" and has four
trademark applications pending. In addition, the Company claims common law
trademark protection for the mark "A Test of Skill." The Company considers its
operations manual, training videos, and other related materials and portions of
its licensed methods to be proprietary and confidential, and the terms of the
Company's franchise agreements require franchisees to maintain the
confidentiality of such information and procedures and to adopt reasonable
precautions to prevent unauthorized disclosure of these secrets and
information. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's Shoppes and
products or to obtain and use information that the Company regards as
proprietary. The
S-21
<PAGE> 27
Company also may be involved from time to time in litigation to determine the
enforceability, scope and validity of proprietary rights. See
"Business--Intellectual Property."
DEPENDENCE ON KEY EMPLOYEES
The Company's success to date has been dependent in part upon the efforts
and abilities of Jerome M. Lapin (its President, Chief Executive Officer and
Chairman), W. John Cash (its Vice President, Chief Financial Officer and
Treasurer), Randall J. Fagundo (its Vice President of Operations and
Secretary), Abbe M. Stutsman (its Vice President of Purchasing and Product
Development) and certain other key personnel. The Company's continued success
will depend upon its ability to retain a number of its current key employees
and to attract, train and retain new key management and operational personnel.
There can be no assurance that the Company will be able to retain its existing
key employees or attract and retain qualified employees in the future. The
Company does not maintain any "key man" insurance. In addition, executives or
other employees with knowledge of the Company's operations and policies may
leave the Company and establish competitive businesses. There can be no
assurance that the Company would be able to effectively enforce non-compete
provisions against these individuals. See "Business--Employees" and
"Management."
EFFECT OF ANTI-TAKEOVER PROVISIONS
The Company's Board of Directors has the authority to issue up to 500,000
shares of Preferred Stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by the
stockholders. Such issuance, while providing flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company. In addition, the Company is subject
to the anti-takeover provisions of Section 203 of the Delaware General
Corporation Law, which prohibit the Company from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed
manner. The application of Section 203 also could have the effect of delaying
or preventing change of control of the Company. Furthermore, certain
provisions of the Company's Certificate of Incorporation may have the effect of
delaying or preventing changes in control or management of the Company.
S-22
<PAGE> 28
USE OF PROCEEDS
All of the proceeds to the Trust from the sale of the Trust Preferred
Securities offered by it hereby will be invested by the Trust in the Junior
Subordinated Debentures. The net proceeds to the Company from the sale of the
Junior Subordinated Debentures are estimated to be approximately $47.5 million
(approximately $54.7 million if the Underwriters' over-allotment option is
exercised in full) after deducting the estimated underwriting compensation and
offering expenses payable by the Company.
The net proceeds from the Offering will be used to repay the outstanding
principal amount of the Company's Credit Facility and for general corporate
purposes. The Credit Facility bears interest at the bank's prime interest rate,
or at the Company's option, an interest rate based on the current LIBOR rate,
and has a final maturity of July 13, 2001. At June 30, 1998, the amount
outstanding under the Credit Facility was approximately $41.8 million. Upon the
completion of the Offering contemplated hereby and the application of the net
proceeds therefrom, the Company will have up to approximately $57.0 million of
unused availability based on certain financial ratios pursuant to the Credit
Facility. Such unused availability, together with the Company's other available
cash resources, will be used to (i) purchase additional skill-crane, bulk
vending, kiddie ride and video game equipment and (ii) fund complementary
acquisitions of other companies, technology or products. The Company presently
has no present commitments or agreements with respect to any such acquisitions,
other than the proposed acquisition of Plush 4 Play, Inc. See "Business--Recent
Developments." The amounts and timing of such expenditures will depend upon the
availability and terms of acquisitions and any related financing and other
factors, many of which are beyond the Company's control.
ACCOUNTING TREATMENT
For financial reporting purposes, the Trust will be treated as a subsidiary
of the Company and, accordingly, the accounts of the Trust will be included in
the consolidated financial statements of the Company. The Trust Preferred
Securities will be presented as a separate line item in the consolidated
balance sheet of the Company under the caption "Company Obligated Mandatorily
Redeemable Preferred Securities of Subsidiary Trust Holding Solely Junior
Subordinated Debentures," and appropriate disclosures about the Trust Preferred
Securities, the Guarantee and the Junior Subordinated Debentures will be
included in the notes to consolidated financial statements. Estimated
underwriting compensation and other estimated offering expenses will be
capitalized as a deferred financing cost and amortized over the life of the
Junior Subordinated Debentures. For financial reporting purposes, the Company
will record Distributions payable on the Trust Preferred Securities and
amortization of deferred financing costs as interest expense in the
consolidated statements of operations.
Future reports of the Company filed under the Exchange Act will include a
footnote to the financial statements stating that (i) the Trust is wholly
owned, (ii) the sole assets of the Trust are the Junior Subordinated Debentures
(specifying the principal amount, interest rate and maturity date of such
Junior Subordinated Debentures) and (iii) the back up obligations, in the
aggregate, constitute a full and unconditional guarantee by the Company of the
obligations of the Trust under the Trust Preferred Securities. The Trust will
not provide separate reports under the Exchange Act.
S-23
<PAGE> 29
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1998 (a) on a historical basis as reported, (b) on a pro forma basis to
reflect the Suncoast Acquisition and (c) on an as adjusted basis to give effect
to (i) the issuance by the Trust of the 5,000,000 Trust Preferred Securities
offered hereby, (ii) the receipt by the Company of the proceeds, net of
estimated underwriting compensation and other estimated offering expenses, from
the corresponding sale of the Junior Subordinated Debentures to the Trust, and
(iii) the application by the Company of the net proceeds therefrom as described
under "Use of Proceeds." The pro forma capitalization is based on, and is
subject to, the assumptions set forth in the notes to the unaudited pro forma
financial statements appearing elsewhere in this Prospectus. The information
presented should be read in conjunction with such pro forma financial
statements and the notes thereto.
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
------------ ------------ ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Short-term debt and current portion of long-term debt .......................... $ 1,614 $ 1,614 $ 1,614
Long-term debt, excluding current portion ...................................... 6,602 36,645 2,731
Company obligated mandatorily redeemable preferred securities of
subsidiary trust holding solely junior subordinated debentures (1) ........... -- -- 50,000
Stockholders' equity:
Preferred Stock, $.10 par value; 500,000 shares authorized,
none issued actual, pro forma and pro forma as adjusted .................. -- -- --
Common Stock, $.01 par value, 20,000,000 shares authorized; issued and
outstanding 6,467,903, actual, pro forma and pro forma as adjusted (2) .... 65 65 65
Additional paid-in capital ................................................... 21,943 21,943 21,943
Unearned stock option compensation ........................................... (15) (15) (15)
Retained earnings ............................................................ 8,881 8,881 8,881
------------ ------------ ------------
Total stockholders' equity .............................................. 30,874 30,874 30,874
------------ ------------ ------------
Total capitalization .................................................... $ 37,476 $ 67,519 $ 83,605
============ ============ ============
</TABLE>
- ----------
(1) The subsidiary trust is the Trust, which will hold an aggregate principal
amount of approximately $51.5 million of the Junior Subordinated Debentures
as its sole asset. The Trust Preferred Securities are issued by the Trust.
The Junior Subordinated Debentures will bear interest at the rate of ____%
per annum and will mature on ____________, 2028, which date may be
shortened to a date not earlier than ____________, 2003 if certain
conditions are met. The Junior Subordinated Debentures are redeemable
prior to maturity at the option of the Company (i) on or after
____________, 2003, in whole at any time or in part from time to time, or
(ii) at any time, in whole (but not in part), within 90 days following the
occurrence and continuation of a Tax Event or an Investment Company Event.
See "Description of Junior Subordinated Debentures--Redemption." The
Company owns all of the Common Securities of the Trust.
(2) Excludes (i) 297,501 shares of Common Stock issuable upon exercise of stock
options at a weighted average exercise price of $8.73 per share outstanding
as of March 31, 1998 and (ii) 55,000 shares of Common Stock issuable upon
exercise of certain warrants which have an exercise price of $8.40 per
share.
S-24
<PAGE> 30
SELECTED FINANCIAL AND OPERATING DATA
The selected financial data set forth below with respect to the Company's
statements of earnings for each of the years in the three-year period ended
December 31, 1997 and balance sheets at December 31, 1996 and 1997, have been
derived from the financial statements of the Company included elsewhere in this
Prospectus Supplement, that have been audited by KPMG Peat Marwick LLP,
independent auditors, as indicated in their report included elsewhere in this
Prospectus Supplement. The statement of earnings data for the years ended
December 31, 1993 and 1994 and the balance sheet data as of December 31, 1993,
1994 and 1995, have been derived from the financial statements audited by KPMG
Peat Marwick LLP, which are not included in this Prospectus Supplement. The
financial data for the three months ended March 31, 1997 and 1998 are unaudited
and have been derived from unaudited financial statements included elsewhere in
this Prospectus Supplement. The unaudited financial statements include all
adjustments, consisting only of normal recurring adjustments, that the Company
considers necessary for a fair presentation of financial position and results of
operations for these periods. Operating results for the three months ended
March 31, 1998 are not necessarily indicative of the results that may be
expected for the entire year ending December 31, 1998. The data set forth below
should be read in conjunction with the financial statements, including notes
thereto, included elsewhere in this Prospectus Supplement and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus Supplement.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------------------------------- -----------------------
1993 1994 1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Revenue:
Vending .............................. $ 6,258 $ 11,651 $ 17,031 $ 30,439 $ 52,866 $ 10,756 $ 17,615
Franchise and other .................. 4,250 5,963 8,683 7,828 6,218 1,601 1,146
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenue ...................... 10,508 17,614 25,714 38,267 59,084 12,357 18,761
---------- ---------- ---------- ---------- ---------- ---------- ----------
Cost of revenue:
Vending .............................. 4,368 8,399 11,701 21,283 37,506 7,599 12,614
Franchise and other .................. 2,737 4,207 6,054 5,659 3,967 952 680
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total cost of revenue .............. 7,105 12,606 17,755 26,942 41,473 8,551 13,294
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit ....................... 3,403 5,008 7,959 11,325 17,611 3,806 5,467
General and administrative expense ..... 2,854 3,607 4,565 7,053 10,314 2,296 3,526
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating earnings ................. 549 1,401 3,394 4,272 7,297 1,510 1,941
Interest expense ....................... 115 228 383 375 612 111 118
Minority interest ...................... 89 62 80 -- -- -- --
Share of (income) loss of equity
affiliate ............................ 24 29 27 -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings before income taxes ....... 321 1,082 2,904 3,897 6,685 1,399 1,823
Income tax expense ..................... -- -- 329 1,311 2,256 518 638
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings ....................... 321 1,082 2,575 2,586 4,429 881 1,185
========== ========== ========== ========== ========== ========== ==========
Basic earnings per share(1) ............ $ 0.51 $ 0.80 $ 0.17 $ 0.18
Diluted earnings per share (1).......... 0.48 0.78 0.16 0.18
Basic weighted average
common shares (1) .................... 5,092 5,565 5,251 6,457
Diluted weighted average
common shares (1) .................... 5,417 5,694 5,425 6,649
Pro forma information:
Historical net earnings before
income taxes ..................... $ 321 $ 1,082 $ 2,904
Pro forma adjustments to earnings
before taxes ....................... 1,207
----------
Pro forma earnings before taxes ...... 4,111
Pro forma income tax expense ......... 122 411 1,562
---------- ---------- ----------
Pro forma net earnings(1)(2) ......... $ 199 $ 671 $ 2,549
========== ========== ==========
NUMBER OF SHOPPES (3):
Company operations ..................... 743 1,019 2,057 3,967 6,166 4,327 6,870
Franchise operations ................... 2,148 3,008 3,455 3,981 3,952 3,746 3,659
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total .............................. 2,891 4,027 5,512 7,948 10,118 8,073 10,529
========== ========== ========== ========== ========== ========== ==========
</TABLE>
S-25
<PAGE> 31
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------------------- ----------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PERCENTAGES AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA (4) .............................. $ 878 $ 2,089 $ 4,324 $ 6,163 $ 10,589 $ 2,133 $ 3,223
Interest expense, net ................... 115 228 383 375 612 111 118
Depreciation and amortization ........... 329 688 930 1,891 3,292 623 1,282
Net cash provided by
operating activities .................. 774 1,772 2,862 4,216 8,351 2,968 3,005
Net cash (used in) investing activities . (1,145) (1,468) (5,508) (7,448) (16,079) (3,022) (6,380)
Net cash provided by (used in) financing
activities ............................ 531 (256) 3,879 2,413 8,886 (104) 3,697
GROWTH RATES:
Revenue growth .......................... 35.0% 67.6% 46.0% 48.8% 54.4% * 51.8%
EBITDA growth (4) ....................... 34.9 137.9 107.0 42.5 71.8 * 51.1
Operating earnings growth ............... 19.6 155.2 142.3 25.9 70.8 * 28.5
MARGINS:
EBITDA margin (4)(5) .................... 8.4% 11.9% 16.8% 16.1% 17.9% 17.3% 17.2%
Operating earnings margin (6) ........... 5.2 8.0 13.2 11.2 12.4 12.2 10.3
Net earnings margin (7) ................. 3.1 6.1 10.0 6.8 7.5 7.1 6.3
RATIOS:
EBITDA to interest expense, net (4) ..... 7.6x 9.2x 11.3x 16.4x 17.3x 19.2x 27.3x
Earnings to fixed charges (8) ........... 3.5x 5.1x 7.6x 9.3x 9.6x 10.2x 11.6x
Pro forma ratio of earnings to fixed
charges (8) ........................... 1.3x 1.4x
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital ........................ $ 350 $ 220 $ 2,896 $ 2,914 $ 3,626 $ 3,686
Total assets ........................... 3,750 5,539 13,702 19,758 37,077 44,225
Total short-term debt and current
portion of long-term debt ............ 1,157 1,380 557 1,109 1,619 1,614
Total long-term debt, excluding
current portion ...................... 1,078 1,640 1,632 5,059 1,292 6,602
Total stockholders' equity ............. 833 1,214 9,007 11,676 30,092 30,874
</TABLE>
- ----------
(1) Net earnings per share and weighted average common shares are not presented
for 1995 because the Company and each of the Affiliated Entities were
organized as S corporations or a partnership. On a pro forma basis, basic
and diluted net earnings per share would have been $0.59 and $0.55 and
basic and diluted weighted average common shares would have been 4,299,000
and 4,669,000, respectively, for 1995. See Note 14 of Notes to the
Company's Financial Statements included herein.
(2) During the years 1993 through August 1995, the Company and the Affiliated
Entities were organized as either S corporations or a partnership and the
taxable income of the Company and the Affiliated Entities was attributable
directly to their respective stockholders or partners during such periods.
Accordingly, net income has been adjusted to reflect federal and state
income taxes as if such taxes had been incurred for such period at an
estimated effective rate of 38%. See Note 1 of Notes to the Company's
Financial Statements included herein.
(3) Shoppes previously owned and operated by the Affiliated Entities, other
than Sugarloaf Marketing, are included in Company operations. Shoppes
previously owned and operated by Sugarloaf Marketing are included in
franchise operations on a historical basis. The number of Shoppes is as of
the end of the indicated period.
(4) EBITDA represents earnings before interest expense, income taxes and
depreciation and amortization. EBITDA is not intended to represent cash
flow from operations as defined by generally accepted accounting principles
and should not be considered as an alternative to cash flow or as a measure
of liquidity or as an alternative to net earnings as indicative of
operating performance. The Company's reported EBITDA may not be comparable
to similarly titled measures of other companies. EBITDA, EBITDA growth,
EBITDA margin and EBITDA to interest expense, net are included herein
because management believes they are useful for measuring the Company's
ability to service its debt.
S-26
<PAGE> 32
(5) EBITDA margin represents EBITDA divided by total revenue.
(6) Operating earnings margin represents earnings from operations divided by
total revenue.
(7) Net earnings margin represents net earnings divided by total revenue.
(8) For purposes of calculating the ratio and pro forma ratio of earnings to
fixed charges, earnings consist of income before income taxes, plus fixes
charges. Fixed charges consist of the interest expense on all indebtedness
and the estimated representative interest factor of rental expense.
* Numbers are omitted as prior period has not been presented herein.
S-27
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward- looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors including those set forth under "Risk Factors" and elsewhere in
this Prospectus Supplement. The information presented below should be read in
conjunction with the financial statements, including notes thereto, included
elsewhere in this Prospectus Supplement.
GENERAL
The Company and its franchisees own and operate Shoppes that dispense
stuffed animals, plush toys, watches, jewelry and other items. The Company's
Shoppes are placed in Retail Accounts and similar high traffic locations and
the Company typically pays 20-30% of gross revenue to the location owner as a
location commission. At March 31, 1998, the Company was operating in 40 states
with a national network of 34 offices and there were Company franchisees
operating in 20 territories. The Company sells both machines and products
vended in the machines to its franchisees and collects continuing royalties
ranging from 2% to 5% of its franchisees' gross machine revenue.
For the year ended December 31, 1997, over 85% of the Company's revenue and
gross profit were derived from Company-owned Shoppes. The Company's revenue
and gross profit in a particular period is directly related to the number of
Shoppes in operation during the period. Management believes that the Company's
business is somewhat seasonal, with average revenue per machine per week
greater during the Easter and Christmas periods. Vending revenue represents
cash receipts from customers using vending machines and is recognized when
collected. The cost of vending revenue is comprised of the cost of vended
products, location commissions, depreciation and direct service cost.
Franchise and other revenue represents the Company's percentage of gross
vending revenue generated by Shoppes owned and operated by franchisees, as well
as product sold to the franchisees. Initial franchise fees have not been
material, and the Company currently does not plan to expand its franchise
network. Product sold to the franchisees consists of goods to vend in Shoppes.
Equipment sales to the franchisees have been done on a pass-through basis from
the Company's main suppliers. The Company anticipates that franchise and other
revenue will continue to decline in the future as a result of the Company's
acquisition of franchises.
In 1995, the Company terminated its S corporation status. In conjunction
with its initial public offering in October 1995, the Company reorganized by
acquiring substantially all of the inventory, property and equipment and
assuming certain facilities leases and contracts of the Affiliated Entities
(the "Reorganization"). All of the Affiliated Entities previously were
franchisees of the Company and all except Sugarloaf Marketing were controlled
by one or more of Greg Theisen, Abbe Stutsman, Richard Jones and Randall
Fagundo and their respective spouses (the "Founders").
The number of Company-owned and operated Shoppes has risen from 743 to 6,166
from 1993 to 1997, representing a compound annual growth rate of 69.7%. In
1997, the Company had revenue and operating earnings of $59.1 million and $7.3
million, respectively. The Company has experienced 54.0% and 90.9% compound
annual growth rates in total revenue and operating earnings, respectively,
between 1993 and 1997.
S-28
<PAGE> 34
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 VS. THREE MONTHS ENDED MARCH 31, 1997
Revenue
Total revenue for the first three months of 1998 increased 51.8% to $18.8
million from $12.4 million for the same period in 1997.
Vending revenue increased $6.9 million or 63.8% for the first three months
of 1998 to $17.6 million from $10.8 million for the comparable period in 1997
primarily as a result of a 57.2% increase in the average number of Shoppes in
place during the first three months of 1998 compared to the average number in
place during the same period in 1997.
Franchise and other revenue decreased $455,000 or 28.4% to $1.1 million for
the first three months of 1998 as compared to the same period in 1997 due to
the acquisition of franchises by the Company and a reduction in the number of
machines sold to franchisees.
Cost of Revenue and Gross Profit
The cost of vending operations for the first three months of 1998 increased
$5.0 million or 66.0% to $12.6 million from $7.6 million for the comparable
period in 1997. The vending operations' contribution to gross profit for the
first three months of 1998 increased to $5.0 million, which represents a 58.4%
increase over gross profit from vending operations realized in the same period
in 1997. Vending gross profit realized during the first quarter of 1998 was
$5.0 million or 28.4% of vending revenue as compared to $3.2 million or 29.4%
for the first quarter of 1997. The decline in vending margin resulted
primarily from a higher average commission rate paid to locations.
For the first quarter of 1998, gross profit on franchise and other revenue
decreased to $466,000 or 40.7% of franchise and other revenue, as compared to
$649,000 or 40.5% of franchise and other revenue for the first quarter of 1997.
The increase in gross margin as a percentage of franchise and other revenue
resulted primarily from lower 1998 equipment sales to franchisees that are at
lower margins.
Operating Expense
General and administrative expense for the first three months of 1998
increased $1.2 million to $3.5 million or 18.8% of total revenue, as compared
to $2.3 million or 18.6% of total revenue for the comparable period in 1997.
The increase in general and administrative expense results primarily from the
additional operating and satellite offices opened, including offices acquired
through acquisition, by the Company during the past year and additional costs
related to adding corporate staff.
Operating Earnings
Operating earnings for the first three months of 1998 increased 28.5% to
$1.9 million, or 10.3% of total revenue, as compared to $1.5 million, or 12.2%
of total revenue for the comparable period in 1997. The increase in operating
earnings results primarily from the 57.2% increase in the average number of
Shoppes in place during the first three months of 1998 compared to the average
number in place for the comparable period in 1997.
Non Operating Income (Expense)
Interest expense for the first three months of 1998 increased $7,000 to
$118,000 as compared to the same period in 1997. The Company's interest
expense is directly related to its level of borrowings and changes in the
underlying interest rates.
S-29
<PAGE> 35
Net Earnings and Net Earnings Per Share
Net earnings for the first three months of 1998 increased 34.5% to $1.2
million, or 6.3% of total revenue, as compared to net earnings of $881,000, or
7.1% of total revenue, for the comparable period in 1997. Diluted earnings per
share for the first three months of 1998 increased 12.5% to $0.18, as compared
to $0.16 for the first three months of 1997. Diluted weighted average common
shares for the first three months of 1998 increased 22.6% to 6,649,240, as
compared to 5,424,595 for the comparable period in 1997.
YEAR ENDED DECEMBER 31, 1997 VS. YEAR ENDED DECEMBER 31, 1996
Revenue
The Company's total revenue increased 54.4% from $38.3 million in 1996 to
$59.1 million in 1997. Vending revenue increased $22.4 million or 73.7% in
1997 to $52.9 million, primarily as a result of a 68.2% increase in the average
number of Shoppes in use during 1997 over the average number in use during
1996.
Franchise and other revenue decreased $1.6 million or 20.6% in 1997 as
compared to 1996 due primarily to the acquisition of Company franchises.
Cost of Revenue and Gross Profit
The cost of vending operations increased $16.2 million in 1997 to $37.5
million. The vending operations' contribution to 1997 gross profit increased
to $15.4 million, which represents a 67.8% increase over gross profit from
vending operations realized in 1996. The vending gross profit achieved in 1997
was 29.1% of vending revenue, which represents a decrease from the 30.1% of
vending revenue achieved in 1996. The decline in vending margin in 1997
results primarily from a higher commission rate paid to locations in 1997.
Gross profit on franchise and other revenue in 1997 increased to $2.3
million, or 36.2% of franchise and other revenue, which is 8.5 percentage
points higher than the gross margin achieved in 1996. The increase in gross
margin as a percentage of franchise and other revenue resulted primarily from
lower 1997 equipment sales to franchisees that are at lower margins.
Operating Expense
General and administrative expense as a percentage of revenue decreased to
17.5%, as compared to 18.4% of revenue in 1996. The $3.3 million increase in
general and administrative expense results primarily from the additional
operating and satellite offices opened by the Company during the past year.
Operating Earnings
Operating earnings in 1997 increased 70.8% to $7.3 million or 12.4% of total
revenue, which are, as a percentage of total revenue, 1.2 percentage points
higher than the operating earnings achieved in 1996. The increase in operating
earnings results primarily from the 68.2% increase in the average number of
Shoppes in place during 1997 compared to average number in place in 1996. The
effect of the increase in Shoppes is offset by the 46.2% increase in general
and administrative expense experienced in 1997 compared to 1996.
Non Operating Income (Expense)
Interest expense increased $237,000 to $612,000 in 1997 as compared to 1996.
The Company's interest expense is directly related to its level of borrowings
and changes in the underlying interest rates.
S-30
<PAGE> 36
Net Earnings and Earnings Per Share
Net earnings for the year ended December 31, 1997 were $4.4 million, or 7.5%
of total revenue, as compared to net earnings of $2.6 million during 1996.
Diluted earnings per share for 1997 increased 62.5% to $0.78, as compared to
$0.48 per share in 1996.
YEAR ENDED DECEMBER 31, 1996 VS. YEAR ENDED DECEMBER 31, 1995
Revenue
The Company's total revenue increased 48.8% from $25.7 million in 1995 to
$38.3 million in 1996. Vending revenue increased $13.4 million or 78.7% in
1996 to $30.4 million as a result of a 95.8% increase in the average number of
Shoppes in use during 1996 over the average number in use during 1995.
Franchise and other revenue decreased $855,000 or 9.8% in 1996 as compared to
1995 due primarily to the acquisition of Company franchises.
Cost of Revenue and Gross Profit
The cost of vending operations increased $9.6 million in 1996 to $21.3
million. The vending operations' contribution to 1996 gross profit increased
to $9.2 million, which represents a 71.8% increase over gross profit from
vending operations realized in 1995. The vending gross profit achieved in 1996
was 30.1% of vending revenue, which represents a decrease from the 31.3% of
vending revenue achieved in 1995. The decrease in vending margin in 1996
results primarily from a higher commission rate paid to locations. Gross
profit on franchise and other revenue in 1996 decreased to $2.2 million, or
27.7% of franchise and other revenue, which is 2.6 percentage points lower than
the gross margin achieved in 1995. The decrease in gross margin resulted
primarily from lower margins realized on equipment sales to franchisees.
Operating Expense
General and administrative expense increased $2.5 million in 1996 to $7.1
million or 18.4% of revenue, as compared to $4.6 million or 17.8% of revenue in
1995. The increase in general and administrative expense results primarily
from the acquisition of SugarLoaf Marketing and other franchisees, additional
operating and satellite offices opened during 1996, the accelerated placement
of machines during 1996 and the additional payroll and other costs associated
with being a public company. In 1995, general and administrative expense
includes $232,000 of commissions paid to two of the Company's founders.
Operating Earnings
Operating earnings in 1996 increased to $4.3 million or 11.2% of total
revenue, which are, as a percentage of total revenue, 2 percentage points lower
than the operating earnings achieved in 1995. The decrease in operating
earnings results primarily from the additional operating and satellite offices
opened during 1996, the accelerated placement of machines during 1996 and the
additional payroll and other costs associated with being a public company.
Non Operating Income (Expense)
Interest expense decreased $8,000 to $375,000 in 1996 as compared to 1995.
The Company's interest expense is directly related to its level of borrowings
and changes in the underlying interest rates.
Net Earnings and Earnings Per Share
Net earnings for the year ended December 31, 1996 were $2.6 million, or 6.8%
of total revenue. Diluted earnings per share for the year ended December 31,
1996 were $0.48. Prior to October 13, 1995, the Company had elected tax
treatment as an S corporation, while the Affiliated Entities were each
organized as S corporations, except for Southwest Coin Company which was
organized as a partnership. Accordingly, through October 12, 1995, no
S-31
<PAGE> 37
provisions were made for income taxes since all income, deductions, gains,
losses and credits were reported on the tax returns of the owners.
QUARTERLY DATA AND SEASONAL VARIATION
The Company believes that its revenue tends to be somewhat seasonal, with
revenue per machine being higher during the Christmas and Easter holiday
seasons due to higher levels of foot traffic at Shoppe locations during those
periods. However, the following table does not necessarily reflect seasonal
machine-revenue fluctuations because of the number of Shoppes added by the
Company during the periods. The following table contains selected unaudited
quarterly financial data for 1996, 1997 and the first three months of 1998.
The unaudited information has been prepared on the same basis as the audited
financial statements appearing elsewhere in this Prospectus Supplement and
includes all normal recurring adjustments necessary to present fairly, in all
material respects, the information set forth herein.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------------------
JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31
1996 1996 1996 1997 1997 1997 1997 1998
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue ..................... $ 8,403 $ 9,634 $ 12,216 $ 12,357 $ 13,790 $ 14,676 $ 18,261 $ 18,761
Total cost of revenue ............. 6,085 6,743 8,489 8,551 9,800 10,342 12,780 13,294
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit .................... 2,318 2,891 3,727 3,806 3,990 4,334 5,481 5,467
General and administrative
expenses ........................ 1,671 1,827 2,023 2,296 2,429 2,523 3,066 3,526
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating earnings .............. 647 1,064 1,704 1,510 1,561 1,811 2,415 1,941
Interest expense .................. 45 136 148 111 156 217 128 118
Earnings before income
taxes ......................... 602 928 1,556 1,399 1,405 1,594 2,287 1,823
Provision for income
taxes ........................... 229 352 422 518 521 588 627 638
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings .................... $ 373 $ 576 $ 1,134 $ 881 $ 884 $ 1,006 $ 1,658 $ 1,185
========== ========== ========== ========== ========== ========== ========== ==========
Basic earnings per share .......... $ 0.07 $ 0.11 $ 0.22 $ 0.17 $ 0.16 $ 0.18 $ 0.27 $ 0.18
Diluted earnings per share ........ 0.07 0.11 0.21 0.16 0.16 0.18 0.26 0.18
Basic weighted average common
shares .......................... 5,082 5,094 5,123 5,251 5,394 5,450 6,158 6,457
Diluted weighted average common
shares .......................... 5,449 5,459 5,449 5,425 5,452 5,633 6,388 6,649
</TABLE>
- ----------
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity and capital resources
historically have been cash flows from operations, borrowings under the
Company's bank credit facilities and issuances of its Common Stock. These
sources of cash flows have been offset by cash used for acquisitions,
investment in skill-crane machines and payment of long-term borrowings.
Net cash provided by operating activities was $8.4 million, $4.2 million and
$2.9 million in 1997, 1996 and 1995, respectively. Net cash provided by
operating activities was $3.0 million for the three months ended March 31, 1998.
The Company anticipates that cash will continue to be provided by operations as
additional skill-crane machines are placed in service. Cash required in the
future is expected to be funded by existing cash and cash provided by
operations, borrowings under the Credit Facility, issuances of Debt Securities
or sale of equity securities.
Net cash used by investing activities was $16.1 million, $7.4 million and
$5.5 million in 1997, 1996 and 1995, respectively. Capital expenditures
amounted to $12.2 million, $6.1 million and $2.2 million in 1997, 1996 and 1995,
respectively, of which $7.2 million, $4.8 million and $1.6 million was used for
the acquisition of skill-crane machines. The acquisition of franchisees, other
than through the Reorganization in 1995, used $2.6 million, $1.2 million and
$160,000 in 1997, 1996 and 1995, respectively. Payments to the persons other
than the Founders in the Reorganization were $3.1 million in 1995. Net cash
used by investing activities was $6.4 million for the three
S-32
<PAGE> 38
months ended March 31, 1998 and capital expenditures during the period were
$3.8 million, of which $2.8 million was used to acquire skill-crane machines.
Net cash provided by financing activities was $8.9 million, $2.4 million and
$3.9 million in 1997, 1996 and 1995 respectively. The issuance of Common Stock
primarily in connection with the Company's follow-on offering in November 1997
provided $13.9 million. The issuance of Common Stock primarily in connection
with the Company's initial public offering in October 1995 provided $10.1
million of which $4.5 million was used to pay distributions to the Founders in
connection with the Reorganization. Cash of $326,000 was retained by the
Affiliated Entities in the Reorganization. Net cash provided by financing
activities was $3.7 million for the three months ended March 31, 1998. Other
financing activities consist of advances and, in 1995, repayments on the Credit
Facility and other debt obligations and S-corporation distributions to owners.
Under the Credit Facility, the Company may borrow up to $50 million ($60
million after this Offering) at the bank's prime interest rate or, at the
Company's option, an interest rate based on the current LIBOR rate. The Credit
Facility is available through July 13, 2001 and at June 30, 1998 there was $41.8
million in principal outstanding. The Credit Facility provides that certain
financial ratios be maintained and places restrictions on, among other things,
the occurrence of additional debt financing and the payment of dividends.
The Company may use a portion of its capital resources to effect
acquisitions. Because the Company cannot predict the timing or nature of
acquisition opportunities, or the availability of acquisition financing, the
Company cannot determine the extent to which capital resources may be used.
Management believes the Company's financial condition is strong and that
funds generated from operations, and borrowings available under the Credit
Facility and the Company's ability to negotiate additional and enhanced credit
agreements will be sufficient to meet the Company's foreseeable operating and
capital expenditure needs.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards, No. 130, Reporting Comprehensive
Income (Statement No. 130), and No. 131, Disclosures About Segments of an
Enterprise and Related Information (Statement No. 131), effective for years
beginning after December 15, 1997. Statement No. 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general- purpose financial statements. The Company has not yet adopted
Statement No. 130. The Company will comply with the reporting and display
requirements under this statement when required. Statement No. 131 establishes
standards for reporting information about operating segments and the methods by
which such segments were determined. The Company has not yet adopted Statement
No. 131. As the Company operates within one industry segment, the reporting of
such information is not expected to be significant.
In February 1998, FASB issued Statement of Financial Accounting Standard No.
132, Employers' Disclosures about Pensions and Other Postretirement Benefits
(Statement No. 132), effective for fiscal years beginning after December 15,
1997. Statement No. 132 revises disclosures about pension and other
postretirement benefit plans. It does not change the measurement or
recognition of those plans. Statement No. 132 standardizes the disclosure
requirements and suggests combined formats for presentation of such disclosure.
The Company has not yet adopted Statement No. 132. The Company will comply
with the reporting requirements under this statement when required.
In June 1998, FASB issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities (Statement
No. 133), effective for fiscal years beginning after June 15, 1999. Statement
No. 133 establishes accounting and reporting standards for derivative
instruments and requires companies to recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. The Company has not yet adopted Statement No. 133.
The Company believes the accounting and reporting standards required by this
statement will not be significant. The Company will comply with the accounting
and reporting requirements under this statement when required.
S-33
<PAGE> 39
YEAR 2000 COMPLIANCE
Certain management information systems use two-digit data fields which
recognize dates using the assumption that the first two digits are "19" (i.e.,
the number 98 is recognized as the year 1998). The Company has conducted a
comprehensive review of its computer systems to identify systems that are not
year 2000 compliant and has developed a plan to resolve any year 2000 issues.
The Company also is in the process of verifying whether its major suppliers,
service providers and financial institutions are year 2000 compliant. The
Company will make any necessary investments in its software and hardware
systems and applications to ensure that they are year 2000 compliant. The
financial impact to the Company is not anticipated to be material in any single
year.
S-34
<PAGE> 40
BUSINESS
OVERVIEW
The Company is the leading owner, operator and franchisor in the United
States of coin-operated skill-crane machines that dispense stuffed animals,
plush toys, watches, jewelry and other items through a national network of more
than 11,000 machines operated by the Company and its franchisees. For up to
50c. a play, customers maneuver the skill-crane into position and attempt to
retrieve the desired item in the machine's enclosed display area before play is
ended. The Company's Shoppes are placed in supermarkets, mass merchandisers,
bowling centers, bingo halls, bars, restaurants and similar locations to take
advantage of the regular customer traffic at these locations. The Company
utilizes appealing displays of quality merchandise, new product introductions,
including Company-designed products, licensed products and seasonal items, and
other merchandising techniques to attract new and repeat customers.
Management believes that owners and operators of national and regional
supermarket, mass merchandise and restaurant chain accounts are becoming
increasingly aware of the economic benefits of amusement and vending machines,
such as the Company's Shoppes, which can provide them greater revenue and
profits per square foot than alternative uses of available floor space with
minimal expense. The Company believes that the Shoppes' potential economic
return, visual appeal, product quality, and the Company's high operational
standards are important factors in gaining acceptance of the Company's Shoppes
by Retail Accounts.
The Company was formed in Colorado in July 1988 and was reincorporated in
Delaware in July 1995. At the time the Company was founded, certain of the
Founders owned and operated entities that operated skill-crane machines. A
wholly- owned company of one of the Founders also had licensed the rights to
operate similar businesses through license, sale and set-up agreements that
were assigned to the Company. The Company was formed to support the license,
sale and set-up agreements and to offer additional license, sale and set-up
arrangements and franchises in new territories. Shortly after the Company was
formed, it began combining the buying power of the affiliated businesses to
purchase products and skill-crane machines at lower prices. In 1990, the
Company began developing its own territories by directly owning and operating
skill-crane machines.
To continue to expand its operations, on August 31, 1995 the Company
purchased substantially all of the inventory, property and equipment and
assumed certain facilities leases and contracts of the Affiliated Entities for
an aggregate purchase price of approximately $9.0 million. All of the
Affiliated Entities previously were franchisees of the Company and all, except
Sugarloaf Marketing, were under common control with the Company.
INDUSTRY
The skill-crane industry has been in existence for over 75 years and is
highly fragmented, with the average operator owning 16 machines. Based on
analysis of certain industry publications, the Company believes that there are
approximately 50,000 units of prize-dispensing equipment in operation
nationwide, of which skill-cranes are the most prevalent type. The Company
believes that supermarkets, mass merchandisers, bowling centers, bingo halls,
bars, restaurants and similar locations represent over 100,000 viable locations
for skill-cranes in the United States. Management believes that skill-cranes
in the past have been operated principally as amusement devices, dispensing
products of minimal retail value. As a result, these machines were typically
located in arcades, amusement parks and similar venues catering to adolescents.
S-35
<PAGE> 41
BUSINESS STRATEGY
The Company's business strategy is to differentiate itself from traditional
skill-crane operators and to strengthen its position as a leading owner and
operator of skill-crane machines in the U.S. The key elements of the Company's
business strategy are as follows:
Quality Products. The Company's Shoppes offer a mix of products, including
selected products of higher quality than the carnival-type products
traditionally associated with skill-crane and other prize-dispensing
equipment. The plush toys offered in the Company's Shoppes are made with 100%
polyester fiber fill and high-grade outer covers and the watches include
dependable movements. In addition, the Company's Shoppes offer licensed
products featuring recognizable characters (such as Looney Tunes and the
Winnie-the-Pooh characters) and theme-based items (such as Christmas and
Halloween items). All products offered in the Shoppes must adhere to the
Company's safety and quality standards.
Machine Appearance, Merchandise and Merchandising Techniques. The
Company's Shoppes are distinctively marked with the SugarLoaf logo and other
signage that is readily identifiable with the Company in order to create
brand recognition. In addition, the Shoppes are well-lit and are cleaned and
serviced regularly to maintain their attractive appearance. The Shoppes
contain an appealing mix of products arranged by size, color, shape and type.
Products with higher perceived value are prominently displayed, and the
Company frequently incorporates new items into the merchandise mix to
maintain the Shoppes' fresh appearance. Management believes the Shoppes'
appearance and the Company's merchandising techniques are important factors
in gaining acceptance of the Company's Shoppes by retailers.
Product Procurement and Company-Designed Product. The Company controls
product cost by purchasing a significant portion of its products directly
from manufacturers in large quantities and acquiring merchandise that has
been discontinued or is subject to substantial "close-out" discounts. The
Company also controls product cost by pre-packing products that it
distributes to Company-owned offices and sells to its franchisees for use in
filling and merchandising the Shoppes. These pre-packed units include a
predetermined mix or "recipe" of different types, sizes, shapes and colors of
product which achieve the Company's merchandising objectives while also
controlling average product cost. The Company is able to frequently introduce
new product in its Toy Shoppes by designing a significant portion of the
product and by purchasing licensed and other product from suppliers.
Designing products at various price points furthers the Company's objective
of controlling product cost. See "--Suppliers--Product."
Vend Ratio and Revenue Management. The Company closely monitors the
revenue per product dispensed, or the Vend Ratio, of each of its Shoppes to
maintain customer satisfaction and to optimize Shoppe revenue and
profitability. A lower than optimal vend frequency reduces customer
satisfaction, resulting in less frequent plays and lower revenue at a given
location, while a higher than optimal vend frequency reduces profitability.
If the Vend Ratio falls outside of the Company's target range, the route
merchandiser can influence various factors affecting the Vend Ratio,
including the mix of products by size and weight, the placement of products
within the Shoppe's display area, the number of products and the density of
the products within the Shoppe. Additionally, the Company monitors each
Shoppe's average weekly revenue. If a Shoppe's weekly revenue consistently
falls below the Company's minimum weekly revenue goal, the Company will
consider relocating the Shoppe.
Location Selection. The Company concentrates its sales efforts on placing
Shoppes in Retail Accounts such as Wal- Mart and Safeway/Vons which have good
reputations for quality and attract a high level of foot traffic. Within
these accounts, the Company seeks to secure sites with the greatest
visibility and accessibility to potential customers. See
"--Operations--Account Acquisition, Location Selection and Shoppe Placement."
Timely Installation and National Operations. The Company provides Retail
Accounts with an integrated system of Shoppe and vending installation,
maintenance, service and an accounting of revenue and commissions on a local
or national basis. Such services have been deployed rapidly across the
country to Retail Accounts including Wal-Mart and Safeway/Vons.
S-36
<PAGE> 42
Training. The Company employs a comprehensive training program, including
seminars and field training, for its regional managers, general managers and
franchisees. It also provides operations manuals, training videos and other
materials relating to office management and route merchandising to assure the
achievement of the Company's business objectives. See
"--Operations--Supervision, Training and Support."
GROWTH STRATEGY
As of June 30, 1998, the Company owned and operated over 9,200 Shoppes from
a national network that consisted of 40 offices with operations in 40 states,
which management believes makes the Company the largest national owner and
operator of skill-crane machines. The Company believes this network is well
positioned to serve the skill-crane operations of supermarkets, mass
merchandisers, restaurants, bowling centers, bingo halls, bars, and similar
locations, which the Company estimates represent over 100,000 potential crane
locations in the United States. The Company believes that owners and operators
of these locations are becoming increasingly aware of the economic benefits of
amusement and vending machines, such as the Company's Shoppes, which can
provide retailers greater revenue and profits per square foot than alternative
uses of available floor space, with minimal expense. The Company's growth
strategy includes the following:
o Increase penetration of existing Retail Accounts. The Company and its
franchisees are designated skill-crane operators for many regional and
national Retail Accounts including Wal-Mart, Safeway/Vons, Kroger, AMF
Bowling Centers, Fred Meyer Stores and franchised Denny's. The Company
believes opportunities exist to increase penetration within its existing
Retail Accounts.
o Target marketing efforts towards new large Retail Accounts. The Company
believes the attractive economic returns its Shoppes offer and its
demonstrated success with installing and operating a significant number
of Shoppes in Retail Accounts such as Wal-Mart, Safeway/Vons, AMF
Bowling Centers and Fred Meyer Stores will allow it to successfully
target new national and regional Retail Accounts.
o Capitalize on relationships with existing Retail Accounts. The Company
believes it can capitalize on its existing relationships with Retail
Accounts to expand the number and type of amusement and vending machines
it offers at each location. The Company has introduced multiple Shoppes
at individual locations. In addition, the Company has begun to place
complementary vending machines, including kiddie rides, bulk vending and
video games at existing locations.
o Acquire franchisees and other complementary vending businesses. The
Company has completed 13 acquisitions since January 1, 1996, including
eight acquisitions since October 1, 1997 acquiring over 2,300 Shoppes,
significant franchised territories and bulk vending and kiddie ride
businesses (see "--Recent Acquisitions"). The Company plans to pursue
acquisition opportunities in order to increase the number of
Company-owned machines and to acquire franchised territories and to add
other complementary businesses to the Company's product lines.
The Company plans to increase the number of Shoppes it owns and operates by
an average of at least 1,400 for 1999 and 2000 through a combination of
acquisitions and new Shoppe placements. The Company believes that the Shoppes'
potential economic return, visual appeal, product quality and the Company's
high operational standards are important factors in gaining acceptance of the
Company's Shoppes by Retail Accounts. The Company operates four types of
Shoppes: (i) the Toy Shoppe which primarily dispenses plush toys and other
toys, (ii) the Treasure Shoppe which dispenses items such as jewelry and
watches, (iii) the Beanie Bag Shoppe which dispenses beanie-bag type stuffed
toys and (iv) the Fun Shoppe which dispenses small toys, novelty items and
candy. Over 60% of the Company's Shoppe placements have been Toy Shoppes,
which the Company purchases new for an average price of $3,600. In 1997, a Toy
Shoppe averaged over $12,100 in revenue and over $4,200 in cash profit
contribution (revenue minus cost of vended products, location commission and
direct service cost). Historically, skill-cranes are generally available for
installation within two to four weeks of ordering from the manufacturer, and
can be quickly rolled out on a national basis over a one year period, as was
done in the first year after the signing of the Wal-Mart contract in 1996 with
over 1,000 new skill-crane placements.
S-37
<PAGE> 43
RECENT ACQUISITIONS
Since October 1, 1997, as part of the Company's growth strategy, it has
completed the eight acquisitions described below:
o Three Rivers Toy Company. The Company's former franchisee for portions
of Pennsylvania, including 83 Shoppes, was purchased in October 1997 for
approximately $0.2 million
o Quality Amusements Corp. and Quality Entertainment Corp. A bulk vending
and kiddie ride company with operations in Illinois, Indiana, Wisconsin,
Missouri and Iowa was purchased in November 1997 for approximately $2.0
million.
o Creative Coin of Arizona, Inc. The Company's former franchisee for
Arizona, including 146 Shoppes, was purchased in December 1997 for
approximately $1.5 million.
o Tejas Toy Corporation. The Company's former franchisee for portions of
Texas, including 250 Shoppes, was purchased in January 1998 for
approximately $2.4 million.
o McCathren Vending Co. A bulk vending company operating 4,800 pieces of
bulk vending equipment throughout Colorado, Utah and Wyoming was
purchased in March 1998 for approximately $1.2 million.
o American Coin Company of Minneapolis. A skill-crane company in
Minnesota, including 90 shoppes, was purchased in May 1998 for
approximately $0.3 million.
o Chilton Vending Co. An owner and operator of simulator and traditional
video games, skill-cranes and redemption equipment located in portions
of Kansas and Missouri was purchased in June 1998 for approximately $4.0
million.
o Suncoast Acquisition. The Company's franchisees for portions of
Washington, Oregon and Florida, including 1,388 Shoppes, were purchased
in June 1998 for approximately $30.0 million.
RECENT DEVELOPMENTS
o Plush 4 Play Acquisition. In July 1998, the Company entered into the
Plush 4 Play Agreement to acquire Plush 4 Play for a base purchase price
of $6.8 million and a contingent earn-out of up to $2.7 million, subject
to certain adjustments. Plush 4 Play has skill-crane placement
agreements with several national Retail Accounts, including Shoney's,
Inc. and Friendly's Ice Cream Corporation. Presently, 614 skill-cranes
are operated at such Retail Accounts pursuant to agreements between
Plush 4 Play and independent third party operators. Plush 4 Play is a
party to placement agreements which cover an aggregate of 178 additional
Retail Account locations which do not currently have an installed
skill-crane. Plush 4 Play also sells pre-packaged plush toys and
animals to the skill-crane industry. The Plush 4 Play Agreement contains
certain closing conditions which must be satisfied by Plush 4 Play and
the Company before the acquisition can occur. While the Company
believes the Plush 4 Play acquisition will close in September 1998,
there can be no assurance that the acquisition will close by such date,
if at all. Pursuant to the terms of the Plush 4 Play Agreement, the
Company will (i) operate certain skill-crane machines in certain Retail
Accounts under the terms of agreements between Plush 4 Play and such
Retail Accounts prior to the closing of the Plush 4 Play acquisition,
and (ii) be assigned the rights to place skill-crane machines in certain
Retail Accounts if the Plush 4 Play acquisition does not close.
o Increased Credit Facility. Upon the completion of this Offering and
the application of the net proceeds therefrom, the Company's Credit
Facility will increase from $50 million to up to $60 million, and the
Company will have up to approximately $57.0 million of unused
availability under the Credit Facility, based upon certain financial
ratios. See "Use of Proceeds."
S-38
<PAGE> 44
o Shelf Registration of Trust Preferred Securities. In addition to the
Offering contemplated hereby, the Company has filed with the Securities
and Exchange Commission a shelf registration statement which registers up
to an aggregate of $100 million of trust preferred securities (including
the Trust Preferred Securities offered hereby). Such additional trust
preferred securities may be offered by the Company at any time.
SHOPPES
The Company has sought to position its Shoppes as an entertaining way to
"purchase" quality products. Management believes that the quality of the
Shoppes' products and the entertainment and amusement afforded by their
skill-crane format have broad appeal to adults and adolescents. While
skill-crane machines have been in operation for 75 years, the Company has
incorporated into its Shoppes several improvements and refinements. The
Company increased the size of the Shoppes to enhance their visibility and to
display and vend more products and created bright, distinctive signage which is
readily identifiable with the Company. The Company also added exterior
lighting, brightened interior lighting and selected exterior colors of the
machines to attract and focus customer attention on the products in the
Shoppes. In addition, the Company has upgraded the Shoppes' operating
mechanisms to achieve consistency of play and reliability of performance.
The SugarLoaf Toy Shoppe has been operated by the Company since its
inception. The Company introduced the SugarLoaf Fun Shoppe in 1993, the
SugarLoaf Treasure Shoppe in 1994 and the SugarLoaf Beanie Bag Shoppe in 1997.
Management believes that the introduction of new types of skill-crane machines
has enabled the Company to capitalize on its current routes and existing
relationships by placing additional machines in existing locations, thereby
increasing revenue at each location with little incremental service costs. The
introductions of SugarLoaf Treasure Shoppes, SugarLoaf Fun Shoppes and
SugarLoaf Beanie Bag Shoppes are typically made in locations where a SugarLoaf
Toy Shoppe is already located. Currently the Company operates four types of
Shoppes as described below.
The SugarLoaf Toy Shoppe. The SugarLoaf Toy Shoppe features a play price of
50c. and dispenses plush toys and other toys. The estimated retail values of
products offered in the SugarLoaf Toy Shoppe generally range from $4.00 to
$30.00. As of June 30,1998, the Company and its franchisees were operating
approximately 7,671 SugarLoaf Toy Shoppes.
The SugarLoaf Treasure Shoppe. The SugarLoaf Treasure Shoppe features a
play price of 50c. and dispenses jewelry, watches, bolo ties and belt buckles.
The SugarLoaf Treasure Shoppe improves upon traditional skill-crane machines of
this type by dispensing products with estimated retail values ranging from
$4.00 to $30.00 instead of carnival-type merchandise of low retail value. As
of June 30, 1998, the Company and its franchisees were operating approximately
1,589 SugarLoaf Treasure Shoppes, approximately 90% of which were placed within
locations in which another Shoppe was already in operation.
The SugarLoaf Beanie Bag Shoppe. During 1997 the Company converted a
substantial portion of its SugarLoaf Fun Shoppes into SugarLoaf Beanie Bag
Shoppes and purchased additional SugarLoaf Beanie Bag Shoppes. The SugarLoaf
Beanie Bag Shoppe features a play price of 50c. and dispenses beanie-bag type
stuffed toys with estimated retail values ranging from $3.00 to $6.00. As of
June 30, 1998, the Company and its franchisees were operating 1,629 SugarLoaf
Beanie Bag Shoppes.
The SugarLoaf Fun Shoppe. The SugarLoaf Fun Shoppe features a play price of
25c. and dispenses small toys, novelty items and candy. The SugarLoaf Fun
Shoppe is designed to appeal primarily to adolescents and young adults. The
estimated retail values of products offered in the SugarLoaf Fun Shoppe are
generally under $5.00. Because the retail value of the products offered in the
SugarLoaf Fun Shoppe are generally lower than the products offered in the
SugarLoaf Toy Shoppe, the SugarLoaf Treasure Shoppe and the SugarLoaf Beanie
Bag Shoppe, the SugarLoaf Fun Shoppe dispenses more frequently than the
Company's other Shoppes, including certain SugarLoaf Fun Shoppes which operate
until a player wins a prize. As of June 30, 1998, the Company and its
franchisees were operating approximately 675 SugarLoaf Fun Shoppes.
S-39
<PAGE> 45
The following chart indicates the number of Company-owned Shoppes in
operation at the indicated date:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996 DECEMBER 31, 1997 JUNE 30, 1998
------------------ ------------------ ------------------ -----------------
TYPE NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT
- ---- ------ ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Toy Shoppes 1,291 62.7% 2,699 68.0% 3,831 62.1% 6,033 65.5%
Treasure Shoppes 357 17.4 542 13.7 1,016 16.5 1,360 14.8
Beanie Bag Shoppes -- -- -- -- 1,156 18.8 1,629 17.7
Fun Shoppes 409 19.9 726 18.3 163 2.6 187 2.0
----- ----- ----- ----- ----- ----- ----- -----
Total 2,057 100.0% 3,967 100.0% 6,166 100.0% 9,209 100.0%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
OPERATIONS
Management believes that the Company's operations program provides for
efficient and cost-effective purchasing and distribution of product. In
addition, the Company and its franchisees have a route-servicing system that
facilitates the development of a good working relationship with location
managers in regional and national chain accounts. The Company offers its
franchisees the same software management tools, training programs and product
and machine purchasing programs used by the Company, and they are required to
use substantially the same procedures, systems and methods the Company employs
in its own operations.
Retail Accounts. Currently, the Company's Shoppes are located, in order of
prevalence, in supermarkets, mass merchandisers, restaurants, bingo halls, bars
and similar locations. The Company is focusing on placing Shoppes in national
and regional Retail Accounts to take advantage of the regular customer traffic
at these locations. The following chart identifies some of the Company's
Retail Accounts:
RETAIL ACCOUNTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
SUPERMARKETS MASS MERCHANDISERS RESTAURANTS OTHER
- ---------------- --------------------- -------------------- -----------------------
<S> <C> <C> <C>
Kroger Wal-Mart Denny's (franchised) AMF Bowling Centers
Safeway/Vons Kmart Ponderosa Steak House Brunswick Bowling Centers
Fred Meyer Stores Bonanza Steak Houses Truckstops of America
Cub Foods Flying J Truckstop
Smith's 76 Truckstops
</TABLE>
The Company or its franchisees provide the Shoppes and pay for certain
installation costs, while the retailer provides a site within the location and
electrical power. The retailers are paid commissions based upon a percentage
of gross revenue, which for the period ended March 31, 1998 generally ranged
from 20% to 30%, depending on the dollar volume, number of Shoppes installed
and total number of locations the retailer controls. Management believes that
national and regional supermarket, mass merchandise and restaurant-chain
accounts are increasingly aware of the economic benefits of amusement and
vending machines such as the Company's Shoppes, which can provide retailers
greater revenue per square foot than alternative uses of available floor space.
In individual-location accounts, the Company and its franchisees generally
place Shoppes pursuant to oral agreements with location managers. While the
Company has written agreements with certain major Retail Accounts, the Company
and its franchisees also have placed Shoppes in national and regional Retail
Accounts pursuant to oral or other agreements, which may be terminated at
anytime. Management believes that the Company and its franchisees generally
have good relations with their retail accounts.
Account Acquisition, Location Selection and Shoppe Placement. The Company
acquires new individual-location accounts for the placement of its Shoppes
through regional sales managers and field office general managers. To augment
its field office general managers' account acquisition activities, the Company
began a concerted marketing effort in August 1994 to national and regional
chain accounts and has entered into new agreements with national and regional
supermarket and mass merchandise chain accounts covering the placement of
Shoppes within the locations of such accounts. In August 1996, the Company
signed an agreement with Wal-Mart appointing the Company as the principal
operator of skill-crane vending machines for Wal-Mart through January 1, 2000.
At June 30, 1998, the Company had installed more than 2,670 Shoppes in
approximately 1,370 Wal-Mart stores nationwide. The Company's largest account,
Wal-Mart, accounted for approximately 33.5% of total revenue in 1997. In
January 1997, the Company signed a three-year agreement with Safeway that
designated the Company
S-40
<PAGE> 46
and its franchisees as Safeway's domestic skill-crane operator. At June 30,
1998, the Company and its franchisees had installed more than 580 Shoppes in
approximately 500 Safeway stores nationwide. In September 1997, the Company
signed a three-year agreement with AMF Bowling Centers, Inc. As of June 30,
1998, the Company and its franchisees had installed more than 500 Shoppes in
approximately 150 AMF Bowling Centers nationwide.
Once the Company enters into a national or regional chain account agreement,
it contacts each location manager to arrange for a review of the location to
confirm its suitability and to obtain the manager's agreement to the placement
of one or more Shoppes within the location. The Company and its regional sales
manager or franchisee work together to place Shoppes at national and regional
chain account locations.
For accounts other than national chain accounts, the Company's regional
sales and general managers identify viable locations, contact the location's
owner or manager to confirm the suitability of the location and obtain the
owner's or manager's agreement to the placement of the Shoppes and related
compensation arrangements. The suitability of a location is based upon a
thorough assessment by the Company, including an analysis of the surrounding
trade area in order to determine the neighborhood demographics, local
regulations, the level of overall retail activity and the cost- effectiveness
of servicing the location through existing route merchandisers. The Company
also reviews each site within the location for its visibility and accessibility
to customers.
The Company and its franchisees compete for limited sites within
supermarkets with purveyors of seasonal and specialty items and with owners and
operators of other amusement and vending machines. The Company's Shoppes also
compete with vending machine and coin-operated amusement device operators for
sites in mass merchandise and restaurant chains, bowling centers and other
locations. Competition for such sites is based primarily on the amount of
revenue to the location owner that can be generated by a particular use of a
site. Management believes that the revenue potential of the Company's Shoppes
compares favorably to that of competing uses for available sites within retail
locations.
Other Vending. The Company has introduced new types of complementary
vending and amusement machines at existing Shoppe locations which management
believes will expand the potential customers for the Company. In April 1997,
the Company signed a three-year agreement with Safeway that made the Company
and its franchisees Safeway's domestic coin- operated kiddie ride operator. As
of June 30, 1998, the Company and its franchisees had approximately 980 kiddie
rides in Retail Accounts nationwide. In November 1997, the Company purchased
the assets of Quality Amusements Corp. and Quality Entertainment Corp.,
operators of bulk vending machines and kiddie rides. In March 1998, the
Company purchased the assets of McCathren Vending Co., another operator of bulk
vending machines. Bulk vending refers to the sale of unsorted confections,
nuts, gumballs, toys and novelty items (in or out of capsules) selected by the
customer and dispensed through vending machines. As of June 30, 1998, the
Company and its franchisees had approximately 6,880 pieces of bulk vending
equipment in operation. In June 1998, the Company acquired the assets of
Chilton Vending Co., an operator of simulator and traditional video games,
skill-cranes and redemption equipment. As of June 30, 1998, the Company had
approximately 650 simulator and traditional video games in operation. From
time to time, the Company has placed, and may continue to place in the future,
other types of coin-operated vending machines in retail accounts in order to
leverage the Company's existing national distribution and service network.
Supervision, Training and Support. The Company's area directors are
primarily responsible for training the Company's regional managers and the
regional managers are responsible for training the general managers and for
on-going support and supervision of the Company's field offices.
Each Company field office is managed by a general manager who is responsible
for the management of the office, including inventory management, and training
and monitoring route merchandisers. The Company has developed a comprehensive
training program for office general managers and franchisees covering office
management, new account acquisition, inventory control, route merchandising,
site selection, machine servicing and all other aspects of the operation of the
business. The general managers attend training programs and receive ongoing
field training. The Company considers its route merchandisers to be a key
element of its merchandising efforts. The Company's general managers provide
training of route merchandisers in all aspects of route
S-41
<PAGE> 47
management, machine servicing, revenue collection, Vend Ratio monitoring and
product merchandising. See "--Employees."
Route Merchandising. Frequent, regular and reliable service and support is
an important element in the operation of the Company's Shoppes. The Company's
route merchandisers and franchisee personnel are trained to perform regularly
scheduled merchandising and service procedures. A route merchandiser has a
route consisting of 10 to 33 locations, depending upon volume, which are
visited and serviced two to 10 times per week. The route merchandiser cleans
and services the Shoppe, takes inventory of the Shoppe, replaces product as
needed, monitors the Vend Ratio and arranges the product within the Shoppe in
accordance with the Company's merchandising techniques. The route merchandiser
records the number of units of product placed in the machines and the number of
plays from nonresettable meters. The meter readings are subsequently
reconciled against actual collections. All collections are delivered to and
verified by a field office for deposit.
Inventory Management and Distribution. The Company's distribution system is
designed to allow efficient and cost- effective distribution of its product to
Company field offices and franchise offices. After the product is procured
from the Company's suppliers, it is shipped to one of two distribution centers
where it is sorted and pre-packed. The Company maintains inventory for the
products offered through its Toy Shoppes in a public warehousing facility in
Seattle, Washington and in its regional distribution warehouse centers in
Atlanta, Georgia, Chicago, Illinois and Allentown, Pennsylvania. An inventory
of products offered in Treasure Shoppes and Fun Shoppes is maintained in the
Company's warehouse in Boulder, Colorado. The Company communicates appropriate
product mix requirements to the warehouses on a weekly basis. The warehouses
sort the products according to the Company's specified mix requirements and
pack the product for each type of Shoppe into pre-packed units for shipment to
Company field offices and franchises on a weekly basis.
At June 30, 1998, the Company was operating in 40 states through a national
network of 40 offices. The field offices average approximately 2,500 square
feet and comprise a small office area and a warehouse area where out-of-service
Shoppes are repaired and product inventory is maintained. Part of the route
merchandisers' daily route servicing responsibilities is to distribute product
to Shoppes. Pre-packing aids in controlling product cost and facilitates new
product introductions. Pre-packing also substantially reduces the warehouse
space required for inventory, allowing the Company-owned and franchise offices
to service a greater number of Shoppes without a commensurate increase in
warehouse space. In addition, pre-packing significantly reduces the time
general managers and franchise personnel spend on inventory management, which
allows more time for acquiring new accounts and monitoring the quality of
Shoppe merchandising in the field.
Management Information Systems. The Company's management information system
utilizes customized software for monitoring field office and franchisee Shoppe
results. The software allows the Company to monitor individual Shoppe
placements, Shoppe revenue, Vend Ratio and tax and commission payments through
reports generated at the Company field offices. The software also allows the
Company to monitor total Shoppe revenue, average Shoppe revenue, Shoppes on
location and Vend Ratio and to determine franchisee royalty payments for
franchise offices.
MERCHANDISING
Merchandising Mix. The Company offers merchandise for the Shoppes in
pre-pack bags along with bulk merchandise. The pre-pack bags include an
assortment of exclusive SugarLoaf designs, along with licensed and other
domestic goods. The merchandise variety is regularly updated, and the Company
offers at least 1,500 new items each year. Seasonal goods are placed in
Shoppes for all major holidays.
New Designs. The Company works with several free-lance designers and
creates at least 300 new, exclusive designs each year which can only be
obtained through the SugarLoaf Toy Shoppes. The Company also creates several
theme product collectibles and many players attempt to retrieve all of the
products in the series.
S-42
<PAGE> 48
Merchandise Sourcing and Vendor Relationships. The Company purchases
product from several overseas factories and has developed good relationships
with these suppliers over the past ten years. The Company also utilizes
several domestic sources and attempts to take advantage of licensed and
closeout merchandise.
SUPPLIERS
Product. The Company maintains a purchasing and development staff at its
corporate headquarters and contracts with foreign and domestic manufacturers
and outside vendors for its supply of products. The SugarLoaf Toy Shoppes
offer a combination of Company-designed products that are manufactured to the
Company's specifications and "off the shelf" products available from foreign
manufacturers and third-party vendors. Since 1988, all Company-designed toys
have been manufactured to its specifications by foreign manufacturers.
Currently, the Company relies on multiple manufacturers in China to produce its
custom designs, each of whom has the capability to produce a range of the toys
required by the Company. Decisions regarding the choice of manufacturer are
based on price, quality of workmanship, reliability and the ability of a
manufacturer to meet the Company's delivery requirements.
Shoppes. The Company currently purchases Shoppes from three principal
approved crane manufacturers and may seek to add new suppliers. Management
believes that suitable skill-crane machines are available from a number of
domestic and foreign manufacturers.
FRANCHISE RELATIONS
As of June 30, 1998, the Company had franchise agreements in effect with
franchisees covering 16 territories in the U.S. and one territory in British
Columbia, Canada covering, in the aggregate, 2,355 Shoppes. The Company does
not currently intend to grant any additional franchises. In the event any
franchisee proposes to transfer to any third party its SugarLoaf business or
any rights or interests granted by the franchise agreement, the Company has up
to 45 days to exercise a right of first refusal to purchase such business,
rights or interests on the same terms and conditions as the franchisee's
proposed transfer of such business rights or interests.
EMPLOYEES
As of June 30, 1998, the Company had a total of 671 employees, including 56
employees at its headquarters in Boulder, Colorado. None of the Company's
employees are represented by labor unions or covered by any collective
bargaining contract. Management believes it has a good relationship with the
Company's employees.
Generally, each of the Company's field offices employs approximately 5 to 35
persons, including a general manager, an office assistant and an adequate
number of route merchandisers to properly service the Company's Shoppes. The
general manager is responsible for the daily operations of the office,
monitoring route merchandisers and acquiring new accounts. The regional
managers oversee the operations of the Company field offices and report
directly to the Company's area directors.
The Company has an incentive bonus program pursuant to which regional
managers and field office personnel may be eligible to receive incentive
compensation based on office and route profitability. Management believes that
this program rewards excellence in management, gives field office personnel an
incentive to improve operations and results in an overall reduction in the cost
of operations. In addition, regional field managers and other corporate
personnel are eligible to receive options to purchase shares of Common Stock
subject to ongoing service requirements.
PROPERTY
The Company's principal executive offices are located at 5660 Central
Avenue, Boulder, Colorado, where the Company, its Treasure and Fun Shoppe
fulfillment warehouse facilities and the Denver, Colorado operation occupy
approximately 28,000 square feet of office and warehouse space under a lease
that expires January 28, 2003. The Company also is a party to 42 other leases
which are used for office and warehouse space which average
S-43
<PAGE> 49
approximately 2,500 square feet, provide for monthly rental payments ranging
from $275 to $3,930 and expire at various times over the period July 31, 1998
to January 31, 2001. The Company believes that its facilities are adequate for
its current needs and for the anticipated expansion of its business.
THE TRUST
The Trust is a statutory business trust created under Delaware law pursuant
to (i) the trust agreement of the Trust among the Company, as depositor, the
Delaware Trustee and an Administrative Trustee and (ii) the filing of a
Certificate of Trust with the Delaware Secretary of State on July 22, 1998.
The Trust's business and affairs are conducted by the Property Trustee, the
Delaware Trustee and two individual Administrative Trustees who are officers of
the Company. The Trust exists for the exclusive purposes of (i) issuing and
selling the Trust Securities, (ii) using the proceeds from the sale of the
Trust Securities to acquire the Junior Subordinated Debentures issued by the
Company and (iii) engaging in only those other activities necessary, advisable
or incidental thereto. The Junior Subordinated Debentures will be the sole
assets of the Trust and payments by the Company under the Junior Subordinate
Debentures and the Expense Agreement will be the sole revenues of the Trust.
All of the Common Securities will be owned by the Company. The Common
Securities will rank pari passu, and payments will be made thereon pro rata,
with the Trust Preferred Securities, except that upon the occurrence and during
the continuance of an event of default under the Trust Agreement resulting from
an event of default under the Indenture, the rights of the Company as holder of
the Common Securities to payment in respect of Distributions and payments upon
liquidation, redemption or otherwise will be subordinated to the rights of the
holders of the Trust Preferred Securities. See "Description of the Trust
Preferred Securities--Subordination of Common Securities of the Trust Held by
the Company." The Company will acquire Common Securities in an aggregate
liquidation amount equal to approximately 3% of the total capital of the Trust.
The Trust has a perpetual existence but may be terminated as provided in the
Trust Agreement.
S-44
<PAGE> 50
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company as of June 30, 1998 were
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jerome M. Lapin.......... 68 President, Chief Executive Officer and Chairman of
the Board of Directors
W. John Cash............. 51 Vice President, Chief Financial Officer and
Treasurer
Randall J. Fagundo....... 38 Vice President of Operations, Secretary and
Director
Abbe M. Stutsman(1)...... 45 Vice President of Purchasing and Product
Development and Director
Richard D. Jones(2)...... 57 Director
J. Gregory Theisen....... 52 Director
Jim D. Baldwin(1)........ 65 Director
John A. Sullivan(1)(2)... 43 Director
</TABLE>
- --------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Jerome M. Lapin has served as President, Chief Executive Officer and a
Director since January 1994 and as Chairman of the Board since July 1995.
Prior to joining the Company, he was the Managing Director for World Hosts Pty.
Ltd., a restaurant leasing consulting business, from July 1991 to January 1994.
From June 1989 to June 1990, Mr. Lapin was the President of Sanwa Foods, Inc.,
a soup manufacturer and marketer ("Sanwa"), and from June 1990 to June 1991 he
was a consultant for Sanwa. Mr. Lapin was a co-founder of the International
House of Pancakes, Inc. in 1958.
W. John Cash has served as Vice President, Chief Financial Officer and
Treasurer since July 1995. Prior to joining the Company he was Vice President
and Chief Financial Officer of Kasler Holding Company, a diversified
construction company, from May 1991 to March 1995. From July 1984 to April
1991, Mr. Cash served as a partner of KPMG Peat Marwick LLP.
Randall J. Fagundo, a co-founder of the Company, has served as Vice
President of Operations and Secretary since May 1991 and as a Director since
August 1988. Prior to joining the Company, he was one of the founders of
Southwest Coin Company.
Abbe M. Stutsman, a co-founder of the Company, has served as a Vice
President since January 1994 and as a Director since December 1989. Ms.
Stutsman served as the Company's Secretary from August 1988 until May 1991,
Treasurer from January 1994 until July 1995 and President from May 1991 until
January 1994. Prior to joining the Company, she was the Business Manager of
Colorado Coin from April 1988 to August 1988.
Richard D. Jones, a co-founder of the Company, has served as a Director
since August 1988 and served as Chairman of the Board from August 1988 to July
1995 and as President of the Company from August 1988 to April 1991. Mr. Jones
has served as President of T.R. Baron & Associates, Inc., a marketing and
consulting business, since May 1975. Mr. Jones was a co-founder of Colorado
Coin in 1987.
J. Gregory Theisen, a co-founder of the Company, has served as a Director
since August 1988. Mr. Theisen has served as a Vice President of Lorac, Inc.,
an investment consulting company, since December 1989. Mr. Theisen served as
Vice President of the Company from August 1988 to December 1993. Prior to
joining the
S-45
<PAGE> 51
Company, Mr. Theisen was a co-founder of Colorado Coin and served as its
Operations Manager from January 1987 to October 1988.
Jim D. Baldwin, has served as a Director since October 1995. Mr. Baldwin
served as President and Chief Executive Officer of King Soopers, a
supermarket/combination store retailer, from 1979 until his retirement in
February 1990. Mr. Baldwin served as a consultant with Knight, Roth and
Associates, a consulting firm, from February 1990 to July 1994. Mr. Baldwin
also serves as a director of Grease Monkey Holding Corp.
John A. Sullivan, has served as a Director since October 1995. Mr. Sullivan
has been employed by Relational Investors, LLC, an investment managing firm,
since March 1998. Mr. Sullivan was employed by Batchelder & Partners, Inc., an
investment advisory and consulting firm, from May 1996 to February 1998. Mr.
Sullivan also served as a Senior Vice President of The Seidler Companies
Incorporated ("Seidler"), the underwriter of the Company's initial public
offering, from August 1993 to April 1996. Prior to being elected Senior Vice
President at Seidler, Mr. Sullivan served as a Vice President from October 1990
to August 1993. Mr. Sullivan also serves as a director of the Farr Company.
BOARD COMMITTEES
The standing committees of the Board of Directors include an Audit Committee
and a Compensation Committee.
The Audit Committee is comprised of Messrs. Baldwin and Sullivan and Ms.
Stutsman. The functions performed by the Audit Committee include recommending
to the Board of Directors independent auditors to serve the Company for the
ensuing year, reviewing with the independent auditors and management, the scope
and results of the audit, assuring that the independent auditors act
independently, reviewing and approving any substantial change in the Company's
accounting policies and practices, reviewing with management and the
independent auditors the adequacy of the Company's system of internal controls
and reviewing the Company's annual report.
The Compensation Committee is comprised of Messrs. Jones and Sullivan. The
functions performed by the Compensation Committee include reviewing and
approving management's recommendations as to executive compensation and
reviewing, approving and administering the Company's executive compensation and
stock option plans.
COMPENSATION OF DIRECTORS
Each non-employee director of the Company, other than Messrs. Jones and
Theisen, receives $2,500 for each regular or special meeting of the Board of
Directors or committee meeting that is held on a date other than the date of a
board meeting. All Directors also receive reimbursement for their reasonable
out-of-pocket expenses related to such attendance. In the fiscal year ended
December 31, 1997, the total compensation paid to non-employee directors was
$10,000.
Each non-employee director of the Company, other than Messrs. Jones and
Theisen, are eligible to receive stock option grants under the 1995
Non-Employee Director Stock Option Plan (the "Directors' Plan"). Only
non-employee directors of the Company or an affiliate of such directors (as
defined in the Code) are eligible to receive options under the Directors' Plan.
Options granted under the Directors' Plan are intended by the Company not to
qualify as incentive stock options under the Code.
During 1997, the Company did not grant options to non-employee directors of
the Company. As of June 30, 1998, no options had been exercised under the
Directors' Plan.
S-46
<PAGE> 52
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table shows for the years ended December 31, 1997, 1996 and
1995, compensation awarded or paid to, or earned by, the Company's Chief
Executive Officer and its three other most highly compensated executive
officers for the year ended December 31, 1997 (the "Named Executive Officers"):
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION ------------
------------------------ SECURITIES
SALARY BONUS UNDERLYING ALL OTHER
NAME OF PRINCIPAL POSITION YEAR ($) (1) ($) OPTIONS COMPENSATION(2)
-------------------------- ---- ---------- ------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Jerome M. Lapin 1997 $ 178,750 -- -- $ 10,351
President and Chief Executive 1996 155,833 -- -- 6,757
Officer 1995 156,250 -- -- 7,074
W. John Cash 1997 125,547 -- 100,000 10,025
Vice President, Chief Financial 1996 112,320 -- -- 9,128
Officer and Treasurer 1995(3) 50,416 -- 20,000 1,860
Randall J. Fagundo 1997 125,547 -- -- 10,779
Vice President of Operations 1996 111,837 -- -- 9,550
and Secretary 1995 80,411 $ 98,469(4) -- 6,445
Abbe M. Stutsman 1997 125,547 -- -- 10,385
Vice President of Purchasing 1996 111,837 -- -- 9,824
and Product Development 1995 79,167 203,870(4) -- 2,918
</TABLE>
- ----------
(1) Includes amounts deferred pursuant to Section 401(k) of the Internal
Revenue Code of 1986, as amended.
(2) Includes value of Company provided automobile, health insurance premiums
paid by the Company and funds contributed by the Company as matching
contributions to the Named Executive Officers' 401(k) Plan account.
(3) Mr. Cash joined the Company in July 1995.
(4) Consists of S corporation distributions.
S-47
<PAGE> 53
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of July 20, 1998 by (i)
each person (or group of affiliated persons) who is known by the Company to own
beneficially more than 5% of the Common Stock, (ii) each of the Company's
directors, (iii) each of the Named Executive Officers, and (iv) all directors
and executive officers of the Company as a group. Except as otherwise noted,
the persons or entities in this table have sole voting and investing power with
respect to all the shares of Common Stock owned by them.
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENT
BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED(1) OWNED(1)
- ------------------------------------------------- ------------ ------------
<S> <C> <C>
Merrill Lynch Asset Management, L.P. (2)......... 833,600 (1) 12.89% (1)
800 Scudders Mill Road
Plainsboro, NJ 08536
Richard D. and Melinda K. Jones (3).............. 508,623 7.86
5660 Central Avenue
Boulder, CO 80301
J. Gregory Theisen (4)........................... 473,623 7.32
5660 Central Avenue
Boulder, CO 80301
Jerome M. Lapin (5).............................. 460,932 7.13
5660 Central Avenue
Boulder, CO 80301
SAFECO Asset Management Company (6).............. 412,300 6.37
601 Union Street
Seattle, WA 98101
Abbe M. Stutsman (7)............................. 314,354 4.86
Randall J. Fagundo............................... 294,091 4.55
W. John Cash (8)................................. 35,000 *
Jim D. Baldwin (9)............................... 9,300 *
John A. Sullivan (10)............................ 24,500 *
All directors and executive officers as a group
(8 persons) (3)-(5) and (7)-(10)............... 2,120,423 32.45
</TABLE>
- ----------
* Less than one percent.
(1) Percentage of beneficial ownership is based on 6,468,903 shares of Common
Stock outstanding as of July 20, 1998. Beneficial ownership is determined
in accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to securities.
Shares of Common Stock subject to options or warrants currently exercisable
or exercisable within 60 days of July 20, 1998, are deemed outstanding for
computing the percentage of the person or entity holding such securities,
but are not outstanding for computing the percentage of any other person or
entity. Except as indicated by footnote, and subject to community property
laws where applicable, the persons named in the table above have sole
voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them.
(2) Merrill Lynch & Co., Inc. ("ML&Co."), Merrill Lynch Group, Inc. ("ML
Group"), Princeton Services, Inc. ("PSI") and Merrill Lynch Asset
Management, L.P. ("MLAM") have together filed a Schedule 13G/A with
the Commission on July 13, 1998, pursuant to which they reported sole or
shared voting and dispositive power over 833,600 shares owned. ML&Co. may
be deemed to be the beneficial owner of certain of the securities held by
or deemed to be beneficially owned by its wholly-owned subsidiary, ML
Group. ML Group may be deemed to be the beneficial owner of certain of the
securities by virtue of its control
S-48
<PAGE> 54
of its wholly-owned subsidiary, PSI. PSI, may be deemed to be the
beneficial owner of certain of the securities by virtue of its being the
general partner of MLAM. MLAM is a registered investment adviser and may
be deemed to be the beneficial owner of the securities by virtue of its
acting as investment adviser to one or more investment companies registered
pursuant to Section 8 of the Investment Company Act.
(3) Includes (i) 46,464 shares held by T.R. Baron and Associates, Inc. Defined
Benefit Pension Plan, of which Mr. Jones is the Trustee, and (ii) 294,080
held by Ms. Jones.
(4) Includes 12,464 shares held by Colorado Coin Company Defined Benefit Keogh
Plan of which Mr. Theisen is the Trustee.
(5) Shares of Common Stock held jointly with Mr. Lapin's spouse.
(6) SAFECO Asset Management Company is a subsidiary of SAFECO Corporation and
holds such shares on behalf of its clients, including SAFECO Common Stock
Trust, which holds 250,000 shares and SAFECO Resource Series Trust, which
holds 162,300 shares. SAFECO Asset Management Company disclaims beneficial
ownership of all shares held by SAFECO Common Stock Trust and SAFECO
Resource Series Trust.
(7) Includes 50,519 shares of Common Stock held jointly with Ms. Stutsman's
spouse.
(8) Consists of options to purchase Common Stock exercisable within 60 days of
July 20, 1998 by Mr. Cash.
(9) Includes 540 shares of Common Stock held jointly with Mr. Baldwin's spouse
and options to purchase 7,000 shares of Common Stock granted under the
Directors' Plan which are exercisable within 60 days of July 20, 1998.
(10) Includes options to purchase 35,000 shares of Common Stock granted under
the Option Plan which are exercisable within 60 days of July 20, 1998,
options to purchase 14,000 shares of Common Stock granted under the
Directors' Plan which are exercisable within 60 days of July 20, 1998 and
a warrant held by Mr. Sullivan exercisable to purchase 17,500 shares of
Common Stock.
S-49
<PAGE> 55
DESCRIPTION OF THE TRUST PREFERRED SECURITIES
The Trust Preferred Securities will be issued pursuant to the terms of the
Trust Agreement. The Trust Agreement will be qualified as an indenture under
the Trust Indenture Act. Initially, Wilmington Trust Company will be the
Delaware Trustee and the Property Trustee. The Property Trustee is the
independent trustee whose sole responsibility is to fulfill the trustee
obligations specified in the Trust Indenture Act. The terms of the Trust
Preferred Securities will include those stated in the Trust Agreement and those
made part of the Trust Agreement by the Trust Indenture Act. This summary of
certain terms and provisions of the Trust Preferred Securities and the Trust
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the Trust Agreement,
including the definitions therein of certain terms, and the Trust Indenture
Act. Wherever particular defined terms of the Trust Agreement (as amended or
supplemented from time to time) are referred to herein, such terms as defined
therein are incorporated herein by reference. The form of the Trust Agreement
has been filed as an exhibit to the Registration Statement of which this
Prospectus Supplement forms a part.
GENERAL
Pursuant to the terms of the Trust Agreement, the Administrative Trustees on
behalf of the Trust will issue the Trust Preferred Securities and the Common
Securities of the Trust (collectively, the "Trust Securities"). The Trust
Securities represent undivided beneficial interests in the assets of the Trust.
The holders of the Trust Preferred Securities will be entitled to a preference
over the Common Securities (which will be held by the Company) in certain
circumstances with respect to Distributions and amounts payable on redemption
or liquidation, as well as other benefits as described in the Trust Agreement.
The Trust Preferred Securities will rank pari passu, and payments will be
made thereon pro rata, with the Common Securities of the Trust, except as
described under "-- Subordination of Common Securities of the Trust Held by the
Company" below. Legal title to the Junior Subordinated Debentures will be held
by the Property Trustee in trust for the benefit of the holders of the Trust
Securities. The Guarantee executed by the Company for the benefit of the
holders of the Trust Preferred Securities (the "Guarantee") will be a guarantee
on a subordinated basis with respect to the Trust Preferred Securities but will
not guarantee payment of Distributions or amounts payable on redemption or on
liquidation of the Trust Preferred Securities if the Trust does not have funds
on hand available to make such payments. See "Description of Guarantee."
DISTRIBUTIONS
Payment of Distributions. Distributions on the Trust Preferred Securities
will be paid at the annual rate of _____% of the stated Liquidation Amount of
$10, payable quarterly in arrears on each January 15, April 15, July 15 and
October 15 to the holders of the Trust Preferred Securities on the relevant
record dates (each date on which Distributions are payable in accordance with
the foregoing, a "Distribution Date"). The amount of each Distribution due
with respect to the Trust Preferred Securities will include amounts accrued
through the Distribution Date. Distributions on the Trust Preferred Securities
will be payable to the holders thereof as they appear on the register of the
Trust on the relevant record date which will be, so long as such Securities
remain in book-entry form, one Business Day (as defined below) prior to the
relevant Distribution Date or, in the event that the Trust Preferred Securities
are not then in book-entry form, the relevant record date will be the date 15
days prior to the relevant Distribution Date. Distributions will accrue from
the date of original issuance and will accumulate whether or not funds are
available for payment. The first Distribution Date for the Trust Preferred
Securities will be October 15, 1998.
The amount of Distributions payable for any period will be computed on the
basis of a 360-day year of twelve 30-day months. In the event that any date on
which Distributions are payable on the Trust Preferred Securities is not a
Business Day, payment of the Distribution payable on such date will be made on
the next Business Day (and without any interest or other payment in respect of
any such delay), with the same force and effect as if made on the date such
payment was originally payable. As used in this Prospectus, a "Business Day"
shall mean any day other
S-50
<PAGE> 56
than a Saturday or a Sunday, or a day on which banking institutions in the
State of Colorado are authorized or required by law or executive order to
remain closed or a day on which the corporate trust office of the Property
Trustee or the Indenture Trustee is closed for business.
The funds of the Trust available for distribution to holders of its Trust
Preferred Securities will be limited to payments by the Company under the
Junior Subordinated Debentures in which the Trust will invest the proceeds from
the sale of its Trust Preferred Securities. See "Description of Junior
Subordinated Debentures." If the Company does not make interest payments on
the Junior Subordinated Debentures, the Property Trustee will not have funds
available to pay Distributions on the Trust Preferred Securities. The payment
of Distributions (if and to the extent the Trust has funds legally available
for the payment of such Distributions and cash sufficient to make such
payments) is guaranteed by the Company. See "Description of Guarantee."
Extension Period. So long as no Debenture Event of Default has occurred and
is continuing, the Company has the right under the Indenture to defer the
payment of interest on the Junior Subordinated Debentures at any time or from
time to time for a period not exceeding 20 consecutive quarters with respect to
each such period (each, an "Extension Period"), provided that no Extension
Period may extend beyond the Stated Maturity of the Junior Subordinated
Debentures. As a consequence of any such election, quarterly Distributions on
the Trust Preferred Securities will be deferred by the Trust during any such
Extension Period. Distributions to which holders of Trust Preferred Securities
are entitled will accumulate additional amounts thereon at the rate per annum
of _____% thereof, compounded quarterly from the relevant Distribution Date, to
the extent permitted under applicable law. The term "Distribution," as used
herein, shall include any such additional accumulated amounts. During any such
Extension Period, the Company may not, and shall not permit any Subsidiary to,
(i) declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of the Company's
capital stock (which includes common and preferred stock), (ii) make any
payment of principal, interest or premium, if any, on or repay, repurchase or
redeem any debt securities of the Company that rank pari passu with or junior
in interest to the Junior Subordinated Debentures or make any guarantee
payments with respect to any guarantee by the Company of the debt securities of
any subsidiary of the Company if such guarantee ranks pari passu with or junior
in interest to the Junior Subordinated Debentures (other than (a) dividends or
distributions in the Company's capital stock (which includes common and
preferred stock), (b) any declaration of a dividend in connection with the
implementation of a stockholders' rights plan, or the issuance of stock under
any such plan in the future, or the redemption or repurchase of any such rights
pursuant thereto, (c) payments under the Guarantee and (d) purchases of common
stock related to the issuance of common stock or rights under any of the
Company's benefit plans for its directors, officers, employees or consultants)
or (iii) redeem, purchase or acquire less than all of the Junior Subordinated
Debentures or any of the Trust Preferred Securities. Prior to the termination
of any such Extension Period, the Company may further extend such Extension
Period, provided that such extension does not cause such Extension Period to
exceed 20 consecutive quarters or extend beyond the Stated Maturity. Upon the
termination of any such Extension Period and the payment of all amounts then
due, and subject to the foregoing limitations, the Company may elect to begin a
new Extension Period. Subject to the foregoing, there is no limitation on the
number of times that the Company may elect to begin an Extension Period. The
Company has no current intention of exercising its right to defer payments of
interest by extending the interest payment period on the Junior Subordinated
Debentures.
REDEMPTION
Mandatory Redemption of Trust Preferred Securities. Upon the repayment or
redemption at any time, in whole or in part, of any Junior Subordinated
Debentures, the proceeds from such repayment or redemption shall be applied by
the Property Trustee to redeem a Like Amount (as defined below) of the Trust
Securities, upon not less than 30 nor more than 60 days' notice of a date of
redemption (the "Redemption Date"), at the Redemption Price (as defined below).
See "Description of Junior Subordinated Debentures--Redemption." If less than
all of the Junior Subordinated Debentures are to be repaid or redeemed on a
Redemption Date, then the proceeds from such repayment or redemption shall be
allocated to the redemption of the Trust Securities on a pro rata basis. The
amount of premium, if any, paid by the Company upon the redemption of all or
any part of the Junior Subordinated
S-51
<PAGE> 57
Debentures to be repaid or redeemed on a Redemption Date shall be allocated to
the redemption pro rata of the Trust Securities.
Optional Redemption of Junior Subordinated Debentures. The Company will have
the right to redeem the Junior Subordinated Debentures (i) on or after
_______________, 2003, in whole at any time or in part from time to time at a
redemption price equal to the accrued and unpaid interest on the Junior
Subordinated Debentures so redeemed to the date fixed for redemption, plus 100%
of the principal amount thereof, or (ii) at any time, in whole (but not in
part), upon the occurrence of a Tax Event or an Investment Company Event at a
redemption price equal to the accrued and unpaid interest on the Junior
Subordinated Debentures so redeemed to the date fixed for redemption, plus 100%
of the principal amount thereof. See "Description of Junior Subordinated
Debentures--Redemption."
Tax Event Redemption, Investment Company Event Redemption. If a Tax Event
or an Investment Company Event shall occur and be continuing, the Company has
the right to redeem the Junior Subordinated Debentures in whole (but not in
part) and thereby cause a mandatory redemption of the Trust Securities in whole
(but not in part) at the Redemption Price (as defined below) within 90 days
following the occurrence of such Tax Event or Investment Company Event. If a
Tax Event or an Investment Company Event has occurred and is continuing and the
Company does not elect to redeem the Junior Subordinated Debentures and thereby
cause a mandatory redemption of the Trust Securities or to dissolve the Trust
and cause the Junior Subordinated Debentures to be distributed to holders of
the Trust Securities in liquidation of the Trust as described below, such Trust
Securities will remain outstanding and Additional Sums (as defined below) may
be payable on the Junior Subordinated Debentures.
DEFINITIONS
"Additional Sums" means the additional amounts as may be necessary to be
paid by the Company with respect to the Junior Subordinated Debentures in order
that the amount of Distributions then due and payable by the Trust on the
outstanding Trust Securities of the Trust shall not be reduced as a result of
any additional taxes, duties and other governmental charges to which the Trust
has become subject as a result of a Tax Event.
"Like Amount" means (i) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount (as defined below) equal to that
portion of the principal amount of Junior Subordinated Debentures to be
contemporaneously redeemed in accordance with the Indenture, allocated to the
Common Securities and to the Trust Preferred Securities based upon the relative
Liquidation Amounts of such classes and the proceeds of which will be used to
pay the Redemption Price of such Trust Securities, and (ii) with respect to a
distribution of Junior Subordinated Debentures to holders of Trust Securities
in connection with a dissolution and liquidation of the Trust, Junior
Subordinated Debentures having a principal amount equal to the Liquidation
Amount of the Trust Securities of the holder to whom such Junior Subordinated
Debentures are distributed.
"Liquidation Amount" means the stated amount of $10 per Trust Security.
"Redemption Price" means, with respect to any Trust Security, the
Liquidation Amount of such Trust Security, plus accumulated and unpaid
Distributions to the Redemption Date, plus the related amount of the premium,
if any, paid by the Depositor upon the concurrent redemption of a Like Amount
of Debentures, allocated on a pro rata basis (based on Liquidation Amounts),
among the Trust Securities.
See "Risk Factors" for definitions of "Tax Event" and "Investment Company
Event."
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES
Subject to the Company and the Trust having received an opinion of counsel
to the effect that a proposed liquidating distribution will not be a taxable
event to the holders of the Trust Preferred Securities, the Company will have
the right at any time to dissolve the Trust and, after satisfaction of the
liabilities of creditors of the Trust as
S-52
<PAGE> 58
provided by applicable law, cause the Junior Subordinated Debentures to be
distributed to the holders of Trust Securities in liquidation of the Trust.
After the liquidation date fixed for any distribution of Junior Subordinated
Debentures for Trust Preferred Securities (i) such Trust Preferred Securities
will no longer be deemed to be outstanding, and (ii) certificates representing
Trust Preferred Securities that are not then held by the Depositary or its
nominee will be deemed to represent Junior Subordinated Debentures having a
principal amount equal to the Liquidation Amount of such Trust Preferred
Securities, and bearing accrued and unpaid interest in an amount equal to the
accrued and unpaid Distributions on the Trust Preferred Securities until such
certificates are presented to the Administrative Trustees or their agent for
transfer or exchange.
There can be no assurance as to the market prices for the Trust Preferred
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for the Trust Preferred Securities if a dissolution and liquidation of
the Trust were to occur. Accordingly, the Trust Preferred Securities that an
investor may purchase, or the Junior Subordinated Debentures that the investor
may receive on dissolution and liquidation of the Trust, may trade at a
discount to the price that the investor paid to purchase the Trust Preferred
Securities offered hereby.
REDEMPTION PROCEDURES
Trust Preferred Securities redeemed on each Redemption Date shall be
redeemed at the Redemption Price with the applicable proceeds from the
contemporaneous redemption of the Junior Subordinated Debentures. Redemptions
of the Trust Preferred Securities shall be made and the Redemption Price shall
be payable on each Redemption Date only to the extent that the Trust has funds
on hand available for the payment of such Redemption Price. See "--
Subordination of Common Securities of the Trust Held by the Company" herein and
"Description of Guarantee."
If the Property Trustee gives a notice of redemption in respect of the Trust
Preferred Securities, then, by 12:00 noon, Eastern time on the Redemption Date,
to the extent funds are available and to the extent the Trust Preferred
Securities are no longer in book-entry form, the Property Trustee will deposit
with the Paying Agent for such Trust Preferred Securities funds sufficient to
pay the aggregate Redemption Price and will give such Paying Agent irrevocable
instructions and authority to pay the Redemption Price to the holders thereof
upon surrender of their certificates evidencing such Trust Preferred
Securities. If such Trust Preferred Securities are only in book-entry form,
the Property Trustee, to the extent funds are available, will deposit with the
Depositary funds sufficient to pay the aggregate Redemption Price and will give
the Depositary irrevocable instructions and authority to pay the Redemption
Price to the holders of such Trust Preferred Securities. Notwithstanding the
foregoing, Distributions payable on or prior to the Redemption Date shall be
payable to the holders of such Trust Preferred Securities on the relevant
record dates for the related Distribution Dates. If notice of redemption shall
have been given and funds deposited as required, then upon the date of such
deposit, all rights of the holders of the Trust Preferred Securities will
cease, except the right of the holders of the Trust Preferred Securities to
receive the applicable Redemption Price, but without interest on such
Redemption Price, and such Trust Preferred Securities will cease to be
outstanding. In the event that any date fixed for redemption of such Trust
Preferred Securities is not a Business Day, then payment of the Redemption
Price payable on such date will be made on the next succeeding Business Day
(and without any interest or other payment in respect of any such delay), with
the same force and effect as if made on the date such payment was originally
payable. In the event that payment of the Redemption Price in respect of Trust
Preferred Securities called for redemption is improperly withheld or refused
and not paid either by the Trust or by the Company pursuant to the Guarantee,
Distributions on such Trust Preferred Securities will continue to accrue at the
then applicable rate, from the Redemption Date originally established by the
Trust for such Trust Preferred Securities to the date such Redemption Price is
actually paid, in which case the actual payment date will be the date fixed for
redemption for purposes of calculating the Redemption Price. See "Description
of Guarantee."
Subject to applicable law (including, without limitation, United States
federal securities law), and further provided that the Company is not then
exercising its right to defer interest payments on the Junior Subordinated
Debentures, the Company may at any time and from time to time purchase
outstanding Trust Preferred Securities by tender, in the open market or by
private agreement.
S-53
<PAGE> 59
Payment of the Redemption Price on the Trust Preferred Securities and any
distribution of Junior Subordinated Debentures to holders of Trust Preferred
Securities shall be made to the applicable recordholders thereof as they appear
on the register for such Trust Preferred Securities on the relevant record
date, which date shall be, so long as such securities remain in book-entry
form, one Business Day prior to the Redemption Date or Liquidation Date, as
applicable. In the event that the Trust Preferred Securities are not in
book-entry form, the relevant record date for such Trust Preferred Securities
shall be the date 15 days prior to the relevant Redemption Date.
If less than all of the Trust Securities issued by the Trust are to be
redeemed on a Redemption Date, then the aggregate Redemption Price for such
Trust Securities to be redeemed shall be allocated pro rata (based on
Liquidation Amounts) to the Trust Preferred Securities and Common Securities
based upon the relative Liquidation Amounts of such classes. The particular
Trust Preferred Securities to be redeemed shall be selected by the Property
Trustee from the outstanding Trust Preferred Securities not previously called
for redemption, by such method as the Property Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of portions
(equal to $10 or an integral multiple thereof) of the Liquidation Amount of
Trust Preferred Securities. The Property Trustee shall promptly notify the
Securities Registrar (as defined below) in writing of the Trust Preferred
Securities selected for redemption and, in the case of any Trust Preferred
Securities selected for partial redemption, the Liquidation Amount thereof to
be redeemed. For all purposes of the Trust Agreement, unless the context
otherwise requires, all provisions relating to the redemption of Trust
Preferred Securities shall relate to the portion of the aggregate Liquidation
Amount of Trust Preferred Securities which has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each holder of Trust Securities at such
holder's registered address. Unless the Trust defaults in payment of the
applicable Redemption Price, on and after the Redemption Date, Distributions
will cease to accrue on such Trust Preferred Securities called for redemption.
SUBORDINATION OF COMMON SECURITIES OF THE TRUST HELD BY THE COMPANY
Payment of Distributions on, and the Redemption Price of, the Trust
Preferred Securities and Common Securities, as applicable, shall be made pro
rata based on the Liquidation Amounts of the Trust Preferred Securities and
Common Securities; provided, however, that if on any Distribution Date or
Redemption Date a Debenture Event of Default shall have occurred and be
continuing, no payment of any Distribution on, or applicable Redemption Price
of, any of the Common Securities, and no other payment on account of the
redemption, liquidation or other acquisition of the Common Securities, shall be
made unless payment in full in cash of all accumulated and unpaid Distributions
on all of the outstanding Trust Preferred Securities for all Distribution
periods terminating on or prior thereto, or in the case of payment of the
applicable Redemption Price, the full amount of such Redemption Price on all of
the outstanding Trust Preferred Securities then called for redemption, shall
have been made or provided for, and all funds available to the Property Trustee
shall first be applied to the payment in full in cash of all Distributions on,
or the Redemption Price of, the Trust Preferred Securities then due and
payable.
In the case of any Event of Default under the Trust Agreement resulting from
a Debenture Event of Default, the Company as holder of the Common Securities
will be deemed to have waived any right to act with respect to any such Event
of Default until the effect of all such Events of Default have been cured,
waived or otherwise eliminated. Until any such Events of Default have been so
cured, waived or otherwise eliminated, the Property Trustee shall act solely on
behalf of the holders of the Trust Preferred Securities and not on behalf of
the Company as holder of the Common Securities, and only the holders of the
Trust Preferred Securities will have the right to direct the Property Trustee
to act on their behalf.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
The Company will have the right at any time to dissolve the Trust, subject
to certain limitations, and, after satisfaction of liabilities to creditors of
the Trust as required by applicable law, cause the Junior Subordinated
Debentures to be distributed to the holders of the Trust Preferred Securities.
See "--Distribution of Junior Subordinated Debentures" above. The Company
might exercise its right to dissolve the Trust under circumstances
S-54
<PAGE> 60
where a "Tax Event," "Investment Company Event" or other undesirable event
could be avoided simply by dissolving the Trust and causing the Junior
Subordinated Debentures to be distributed to holders of the Trust Preferred
Securities.
In addition, pursuant to the Trust Agreement, the Trust shall automatically
dissolve upon expiration of its term and shall earlier dissolve on the first to
occur of: (i) certain events of bankruptcy, dissolution or liquidation of the
Company; (ii) the distribution of a Like Amount of the Junior Subordinated
Debentures to the holders of its Trust Securities, if the Company, as
Depositor, has delivered written direction to the Property Trustee to dissolve
the Trust (which direction is optional and, except as described above, wholly
within the discretion of the Company, as Depositor); (iii) redemption of all of
the Trust Preferred Securities as described under "--Redemption" and (iv) the
entry of an order for the dissolution of the Trust by a court of competent
jurisdiction.
If an early dissolution occurs as described in clause (i), (ii), or (iv)
above, the Trust shall be liquidated by the Trustees as expeditiously as the
Trustees determine to be possible by distributing, after satisfaction of
liabilities to creditors of the Trust as provided by applicable law, to the
holders of such Trust Securities a Like Amount of the Junior Subordinated
Debentures, unless such distribution is determined by the Property Trustee not
to be practical, in which event such holders will be entitled to receive out of
the assets of the Trust available for distribution to holders, after
satisfaction of liabilities to creditors of the Trust as provided by applicable
law, an amount equal to, in the case of holders of Trust Preferred Securities,
the aggregate of the Liquidation Amount plus accrued and unpaid Distributions
thereon to the date of payment (such amount being the "Liquidation
Distribution"). If such Liquidation Distribution can be paid only in part
because the Trust has insufficient assets available to pay in full the
aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Trust Preferred Securities shall be paid on a pro rata basis. The
holder(s) of the Common Securities will be entitled to receive distributions
upon any such liquidation on a pro rata basis with the holders of the Trust
Preferred Securities, except that if a Debenture Event of Default has occurred
and is continuing, the Trust Preferred Securities shall have a priority over
the Common Securities.
Under current United States federal income tax law and interpretations, and
assuming that the Trust is treated as a grantor trust, a distribution of the
Junior Subordinated Debentures should not be a taxable event to holders of the
Trust Preferred Securities. Should there be a change in law, a change in
distribution, a Tax Event or other circumstances, however, the distribution
could be a taxable event to the Trust and to holders of the Trust Preferred
Securities. See "Certain Federal Income Tax Consequences." If the Company
elects neither to redeem the Junior Subordinated Debentures prior to maturity
nor to liquidate the Trust and distribute the Junior Subordinated Debentures to
holders of the Trust Preferred Securities, the Trust Preferred Securities will
remain outstanding until the repayment of the Junior Subordinated Debentures.
If the Company elects to dissolve the Trust and thereby causes the Junior
Subordinated Debentures to be distributed to holders of the Trust Preferred
Securities in liquidation of the Trust, the Company shall continue to have the
right to shorten the Stated Maturity of such Junior Subordinated Debentures.
See "Description of Junior Subordinated Debentures--General."
EVENTS OF DEFAULT; NOTICE
Any one of the following events that has occurred and is continuing
constitutes an "Event of Default" under the Trust Agreement (an "Event of
Default") with respect to the Trust Preferred Securities (whatever the reason
for such Event of Default and whether it shall be voluntary or involuntary or
be effected by operation of law or pursuant to any judgment, decree or order of
any court or any order, rule or regulation of any administrative or
governmental body):
(i) the occurrence of a Debenture Event of Default (see "Description of
Junior Subordinated Debentures--Debenture Events of Default"); or
S-55
<PAGE> 61
(ii) default by the Property Trustee in the payment of any Distribution when
it becomes due and payable, and continuation of such default for a period of 30
days; or
(iii) default by the Property Trustee in the payment of any Redemption Price
of any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect, of any
covenant or warranty of the Property Trustee in the Trust Agreement (other than
a default or breach in the performance of a covenant or warranty which is
addressed in clause (ii) or (iii) above), and continuation of such default or
breach, for a period of 60 days after there has been given, by registered or
certified mail, to the defaulting Property Trustee by the holders of at least
25% in aggregate Liquidation Amount of the outstanding Trust Preferred
Securities, a written notice specifying such default or breach and requiring it
to be remedied and stating that such notice is a "Notice of Default" under the
Trust Agreement; or
(v) the occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to the Property Trustee and the failure by the
Company to appoint a successor Property Trustee within 60 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to a Responsible Officer of the Property Trustee, the Property
Trustee shall transmit notice of such Event of Default to the holders of the
Trust Preferred Securities, the Administrative Trustees and the Company, as
Depositor, unless such Event of Default shall have been cured or waived. The
Company, as Depositor, and the Administrative Trustees are required to file
annually with the Property Trustee a certificate as to whether or not they are
in compliance with all the conditions and covenants applicable to them under
the Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the Trust
Preferred Securities shall have a preference over the Common Securities upon
dissolution of the Trust as described above. See "--Liquidation Distribution
upon Dissolution" herein. Upon a Debenture Event of Default (other than with
respect to certain events in bankruptcy, insolvency or reorganization), unless
the principal of all the Junior Subordinated Debentures has already become due
and payable, either the Property Trustee or the holders of not less than 25% in
aggregate principal amount of the Junior Subordinated Debentures then
outstanding may declare all of the Junior Subordinated Debentures to be due and
payable immediately by giving notice in writing to the Company (and to the
Property Trustee, if notice is given by holders of the Junior Subordinated
Debentures). If the Property Trustee or the holders of the Junior Subordinated
Debentures fail to declare the principal of all of the Junior Subordinated
Debentures due and payable upon a Debenture Event of Default, the holders of at
least 25% in Liquidation Amount of the Trust Preferred Securities then
outstanding shall have the right to declare the Junior Subordinated Debentures
immediately due and payable. In either event, payment of principal and
interest on the Junior Subordinated Debentures shall remain subordinated to the
extent provided in the Indenture. In addition, holders of the Trust Preferred
Securities have the right in certain circumstances to bring a Direct Action (as
hereinafter defined). See "Description of Junior Subordinated
Debentures--Enforcement of Certain Rights by Holders of Trust Preferred
Securities."
If a Debenture Event of Default with respect to certain events in
bankruptcy, insolvency or reorganization occurs, the Junior Subordinated
Debentures shall automatically, and without any declaration or other action on
the part of the Property Trustee or the holders of the Junior Subordinated
Debentures, become immediately due and payable. In such event, payment of
principal and interest on the Junior Subordinated Debentures will also remain
subordinated to the extent provided in the Indenture.
REMOVAL OF TRUSTEES
Unless a Debenture Event of Default has occurred and is continuing, any of
the Property Trustee, the Delaware Trustee or the Administrative Trustees may
be removed at any time by the holder of the Common Securities. For example,
the holder of the Common Securities may seek to remove such trustees upon
substandard performance or non-performance of their duties or upon a
significant increase in a trustee's fee. If a Debenture Event of Default has
S-56
<PAGE> 62
occurred and is continuing, the Property Trustee and the Delaware Trustee also
may be removed at such time by the holders of a majority in Liquidation Amount
of the outstanding Trust Preferred Securities. In no event will the holders of
the Trust Preferred Securities have the right to vote to appoint, remove or
replace the Administrative Trustees, which voting rights are vested exclusively
in the Company as the holder of the Common Securities. No resignation or
removal of an Issuer Trustee and no appointment of a successor trustee shall be
effective until the acceptance of appointment by the successor trustee in
accordance with the provisions of the Trust Agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an Event of Default shall have occurred and be continuing, at any
time or times, for the purpose of meeting the legal requirements of the Trust
Indenture Act or of any jurisdiction in which any part of the Trust property
may at the time be located, the Company, as the holder of the Common
Securities, and the Administrative Trustees shall have power to appoint one or
more persons either to act as a co-trustee, jointly with the Property Trustee,
of all or any part of such Trust property, or to act as separate trustee of any
such property, in either case with such powers as may be provided in the
instrument of appointment, and to vest in such person or persons in such
capacity any property, title, right or power deemed necessary or desirable,
subject to the provisions of the Trust Agreement. In case a Debenture Event of
Default has occurred and is continuing, the Property Trustee alone shall have
power to make such appointment.
MERGER OR CONSOLIDATION OF TRUSTEES
Any Person (as defined in the Trust Agreement) into which the Property
Trustee and the Delaware Trustee may be merged or converted or with which it
may be consolidated, or any corporation resulting from any merger, conversion
or consolidation to which such relevant Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of such Issuer Trustee, shall be the successor of such Trustee under the Trust
Agreement, provided such corporation shall be otherwise qualified and eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST
The Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other body, except as
described below or as described in "--Liquidation Distribution Upon
Dissolution." The Trust may, at the request of the Company, with the consent of
the Administrative Trustees and without the consent of the holders of the Trust
Preferred Securities, merge with or into, consolidate, amalgamate, or be
replaced by or convey, transfer or lease its properties and assets
substantially as an entirety to a trust organized as such under the laws of any
State; provided, that (i) such successor entity either (a) expressly assumes
all of the obligations of the Trust with respect to the Trust Preferred
Securities or (b) substitutes for the Trust Preferred Securities other
securities having substantially the same terms as the Trust Preferred
Securities (the "Successor Securities") so long as the Successor Securities
rank the same as the Trust Preferred Securities rank in priority with respect
to distributions and payments upon liquidation, redemption and otherwise, (ii)
the Company expressly appoints a trustee of such successor entity, possessing
the same powers and duties as the Property Trustee, as the holder of the Junior
Subordinated Debentures, (iii) the Successor Securities are listed or traded,
or any Successor Securities will be listed upon notification of issuance, on
any national securities exchange, national stock market or other organization
on which the Trust Preferred Securities are then listed or traded, if any, (iv)
such merger, consolidation, amalgamation, conveyance, transfer or lease does
not cause the Trust Preferred Securities (including any Successor Securities)
to be downgraded by any nationally recognized statistical rating organization,
(v) such merger, consolidation, amalgamation, replacement, conveyance, transfer
or lease does not adversely affect the rights, preferences and privileges of
the holders of the Trust Preferred Securities (including any Successor
Securities) in any material respect, (vi) such successor entity has a purpose
substantially identical to that of the Trust, (vii) prior to such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease, the
Company has received an Opinion of Counsel to the effect that (a) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does
not adversely affect the rights, preferences and privileges of the holders of
the Trust Preferred Securities (including any Successor Securities) in any
material respect, and (b) following such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease,
S-57
<PAGE> 63
neither the Trust nor such successor entity will be required to register as an
investment company under the Investment Company Act and (viii) the Company or
any permitted successor or designee owns all of the common securities of such
successor entity and guarantees the obligations of such successor entity under
the Successor Securities at least to the extent provided by the Guarantee.
Notwithstanding the foregoing, the Trust shall not, except with the consent of
holders of 100% in Liquidation Amount of the Trust Preferred Securities,
consolidate, amalgamate, merge with or into, or be replaced by or convey,
transfer or loan its properties and assets substantially as an entirety to any
other entity or permit any other entity to consolidate, amalgamate, merge with
or into, or replace it if such consolidation, amalgamation, merger,
replacement, conveyance, transfer or loan would cause the Trust or the
successor entity to be classified as other than a grantor trust for United
States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF THE TRUST AGREEMENT
Except as provided below and under "Description of Guarantee--Amendments and
Assignment" and as otherwise required by law and the Trust Agreement, the
holders of the Trust Preferred Securities will have no voting rights.
The Trust Agreement may be amended from time to time by the Company, the
Property Trustee and the Administrative Trustees, without the consent of the
holders of the Trust Securities, (i) to cure any ambiguity, correct or
supplement any provisions in the Trust Agreement that may be inconsistent with
any other provision, or to make any other provisions with respect to matters or
questions arising under the Trust Agreement, which shall not be inconsistent
with the other provisions of the Trust Agreement, or (ii) to modify, eliminate
or add to any provisions of the Trust Agreement to such extent as shall be
necessary to ensure that the Trust will be classified for United States federal
income tax purposes as a grantor trust at all times that any Trust Securities
are outstanding or to ensure that the Trust will not be required to register as
an "investment company" under the Investment Company Act; provided, however,
that in the case of clause (i), such action shall not adversely affect in any
material respect the interests of any holder of Trust Securities, and any such
amendments of the Trust Agreement shall become effective when notice thereof is
given to the holders of the Trust Securities. The Trust Agreement may be
amended by the Administrative Trustees and the Property Trustee with (i) the
consent of holders representing not less than a majority of the aggregate
Liquidation Amount of the outstanding Trust Securities, and (ii) receipt by
such Trustees of an Opinion of Counsel to the effect that such amendment or the
exercise of any power granted to the Issuer Trustees in accordance with such
amendment will not affect the Trust's status as a grantor trust for United
States federal income tax purposes or the Trust's exemption from registration
as an "investment company" under the Investment Company Act, provided that
without the unanimous consent of the holders of the Trust Securities to be
affected thereby, the Trust Agreement may not be amended to (i) change the
amount or timing of any Distribution on the Trust Securities or otherwise
adversely affect the amount of any Distribution required to be made in respect
of the Trust Securities as of a specified date or (ii) restrict the right of a
holder of Trust Securities to institute suit for the enforcement of any such
payment on or after such date.
So long as any Junior Subordinated Debentures are held by the Property
Trustee, the Issuer Trustees shall not (i) direct the time, method and place of
conducting any proceeding for any remedy available to the Indenture Trustee, or
executing any trust or power conferred on the Indenture Trustee with respect to
the Junior Subordinated Debentures, (ii) waive any past default that is
waivable under the Indenture, (iii) exercise any right to rescind or annul a
declaration that the principal of all the Junior Subordinated Debentures shall
be due and payable or (iv) consent to any amendment, modification or
termination of the Indenture or the Junior Subordinated Debentures, where such
consent shall be required, without, in each case, obtaining the prior approval
of the holders of a majority in aggregate Liquidation Amount of all outstanding
Trust Preferred Securities; provided, however, that where a consent under the
Indenture would require the consent of each holder of Junior Subordinated
Debentures affected thereby, no such consent shall be given by the Property
Trustee without the prior consent of each holder of the Trust Preferred
Securities. The Issuer Trustees shall not revoke any action previously
authorized or approved by a vote of the holders of the Trust Preferred
Securities except by subsequent vote of the holders of the Trust Preferred
Securities. The Property Trustee shall notify each holder of the Trust
Preferred Securities of any notice of default
S-58
<PAGE> 64
with respect to the Junior Subordinated Debentures. In addition to obtaining
the foregoing approvals of such holders of the Trust Preferred Securities,
prior to taking any of the foregoing actions, the Issuer Trustees shall obtain
an Opinion of Counsel experienced in such matters to the effect that such
action will not cause the Trust to fail to be classified as a grantor trust for
United States federal income tax purposes.
Any required approval of holders of the Trust Preferred Securities may be
given at a meeting of holders of Trust Preferred Securities convened for such
purpose or pursuant to written consent. The Property Trustee will cause a
notice of any meeting at which holders of the Trust Preferred Securities are
entitled to vote, or of any matter upon which action by written consent of such
holders is to be taken, to be given to each holder of record of the Trust
Preferred Securities in the manner set forth in the Trust Agreement.
No vote or consent of the holders of the Trust Preferred Securities will be
required for the Trust to redeem and cancel the Trust Preferred Securities in
accordance with the Trust Agreement.
Notwithstanding that holders of the Trust Preferred Securities are entitled
to vote or consent under any of the circumstances described above, any of the
Trust Preferred Securities that are owned by the Company, the Issuer Trustees
or any affiliate of the Company or any Issuer Trustees, shall, for purposes of
such vote or consent, be treated as if they were not outstanding.
GLOBAL TRUST PREFERRED SECURITIES
The Trust Preferred Securities will be represented by one or more global
certificates registered in the name of the Depositary or its nominee ("Global
Trust Preferred Security"). Beneficial interests in the Global Trust Preferred
Security will be shown on, and transfers thereof will be effected only through,
records maintained by participants in the Depositary. Except as described
below, Trust Preferred Securities in certificated form will not be issued in
exchange for the Global Trust Preferred Securities. See "Book-Entry Issuance."
A Global Trust Preferred Security will be exchanged for Trust Preferred
Securities in certificated form registered in the names of persons other than
the Depositary or its nominee only if (i) the Depositary notifies the Company
that it is unwilling or unable to continue as a depositary for such Global
Trust Preferred Security and no successor depositary shall have been appointed,
or if at any time the Depositary ceases to be a clearing agency registered
under the Exchange Act, at a time when the Depositary is required to be so
registered to act as such depositary, and no successor depositary shall have
been appointed, (ii) the Company in its sole discretion determines that such
Global Trust Preferred Security shall be so exchangeable or (iii) there shall
have occurred and be continuing a Debenture Event of Default and the owners of
beneficial interests in such Global Trust Preferred Security aggregating at
least a majority in Liquidation Amount of the Trust Preferred Securities inform
the Property Trustee that the continuation of a book- entry registration system
is no longer in the best interests of the holders of Trust Preferred
Securities. Any Global Trust Preferred Security that is exchangeable pursuant
to the preceding sentence shall be exchangeable for definitive certificates
registered in such names as the Depositary shall direct. It is expected that
such instructions will be based upon directions received by the Depositary with
respect to ownership of beneficial interests in such Global Trust Preferred
Security. In the event that Trust Preferred Securities are issued in
definitive form, such Trust Preferred Securities will be in denominations of
$10 and integral multiples thereof and may be transferred or exchanged at the
corporate trust office of the Property Trustee, or the offices of a paying or
transfer agent appointed by the Administrative Trustees.
Unless and until it is exchanged in whole or in part for the individual
Trust Preferred Securities represented thereby, a Global Trust Preferred
Security may not be transferred except as a whole by the Depositary to a
nominee of such Depositary or by a nominee of the Depositary to such Depositary
or another nominee of such Depositary or by the Depositary or any nominee to a
successor Depositary or any nominee of such successor.
Payments on Global Trust Preferred Securities will be made to the
Depositary, as the record holder of the Trust Preferred Securities. In the
event the Trust Preferred Securities are issued in definitive form,
Distributions will be payable, the transfer of the Trust Preferred Securities
will be registrable, and Trust Preferred Securities will be
S-59
<PAGE> 65
exchangeable for Trust Preferred Securities of other denominations of a like
aggregate Liquidation Amount, at the corporate trust office of the Property
Trustee, or at the offices of any paying agent or transfer agent appointed by
the Administrative Trustees, provided that payment of any Distribution may be
made at the option of the Administrative Trustees by check mailed to the
address of the persons entitled thereto or by wire transfer, provided that
payments will be made by wire transfer if so requested by a holder of more than
$1 million aggregate Liquidation Amount. In addition, if the Trust Preferred
Securities are issued in definitive, certificated form, the record dates for
payment of Distributions will be the first day of the month in which the
relevant Distribution Date occurs. For a description of the terms of the
depositary arrangements relating to payments, transfer, voting rights,
redemptions and other notices and other matters, see "Book-Entry Issuance."
Upon the issuance of a Global Trust Preferred Security, and the deposit of
such Global Trust Preferred Security with or on behalf of the Depositary, the
Depositary for such Global Trust Preferred Security or its nominee will credit,
on its book-entry registration and transfer system, the respective aggregate
Liquidation Amounts of the individual Trust Preferred Securities represented by
such Global Trust Preferred Securities to the accounts of Participants (as
defined below). Such accounts shall be designated by the dealers, underwriters
or agents with respect to such Trust Preferred Securities. Ownership of
beneficial interests in a Global Trust Preferred Security will be limited to
Participants or persons that may hold interests through Participants.
Ownership of beneficial interests in such Global Trust Preferred Security will
be shown on, and the transfer of that ownership will be effected only through,
records maintained by the applicable Depositary or its nominee (with respect to
interests of Participants) and the records of Participants (with respect to
interests of persons who hold through Participants). The laws of some states
require that certain purchasers of securities take physical delivery of such
securities in definitive form. Such limits and such laws may impair the
ability to transfer beneficial interests in a Global Trust Preferred Security.
So long as the Depositary for a Global Trust Preferred Security, or its
nominee, is the registered owner of such Global Trust Preferred Security, such
Depositary or such nominee, as the case may be, will be considered the sole
owner or holder of the Trust Preferred Securities represented by such Global
Trust Preferred Security for all purposes under the Trust Agreement governing
such Trust Preferred Securities. Except as provided herein, owners of
beneficial interests in a Global Trust Preferred Security will not be entitled
to have any of the individual Trust Preferred Securities represented by such
Global Trust Preferred Security registered in their names, will not receive or
be entitled to receive physical delivery of any such Trust Preferred Securities
in definitive form and will not be considered the owners or holders thereof
under the Trust Agreement.
None of the Company, the Property Trustee, any Paying Agent or the
Securities Registrar for such Trust Preferred Securities will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests of the Global Trust
Preferred Security representing such Trust Preferred Securities or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
The Company expects that the Depositary or its nominee, upon receipt of any
payment of the Liquidation Amount or Distributions in respect of a permanent
Global Trust Preferred Security, will immediately credit Participants' accounts
with payments in amounts proportionate to their respective beneficial interest
in the aggregate Liquidation Amount of such Global Trust Preferred Security as
shown on the records of such Depositary or its nominee. The Company also
expects that payments by Participants to owners of beneficial interests in such
Global Trust Preferred Security held through such Participants will be governed
by standing instructions and customary practices, as is now the case with
securities held for the accounts of customers in bearer form or registered in
"street name." Such payments will be the responsibility of such Participants.
PAYMENT AND PAYING AGENT
Payments in respect of the Trust Preferred Securities shall be made to the
Depositary, which shall credit the relevant accounts at the Depositary on the
applicable Distribution Dates or, if any of the Trust Preferred Securities are
not held by the Depositary, such payments shall be made by check mailed to the
address of the holder entitled
S-60
<PAGE> 66
thereto as such address shall appear on the Securities Register. The paying
agent (the "Paying Agent") shall initially be the Property Trustee and any
co-paying agent chosen by the Property Trustee and acceptable to the
Administrative Trustees and the Company. The Paying Agent shall be permitted
to resign as Paying Agent upon 30 days' written notice to the Administrative
Trustees, the Property Trustee and the Company. In the event that the Property
Trustee shall no longer be the Paying Agent, the Administrative Trustees shall
appoint a successor (which shall be a bank or trust company acceptable to the
Administrative Trustees and the Company) to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for the Trust
Preferred Securities. Registration of transfers of the Trust Preferred
Securities will be effected without charge to the holder, but upon payment by
the holder of any tax or other governmental charges that may be imposed in
connection with any transfer or exchange. The Trust will not be required to
register or cause to be registered the transfer of the Trust Preferred
Securities after such Trust Preferred Securities have been called for
redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than upon the occurrence and during the
continuance of an Event of Default, undertakes to perform only such duties as
are specifically set forth in the Trust Agreement and, after such Event of
Default, must exercise the same degree of care and skill as a prudent person
would exercise or use in the conduct of his or her own affairs. Subject to
this provision, the Property Trustee is under no obligation to exercise any of
the powers vested in it by the Trust Agreement at the request of any holder of
Trust Preferred Securities unless it is offered reasonable indemnity against
the costs, expenses and liabilities that might be incurred thereby. If the
Property Trustee is required to decide between alternative causes of action or
to construe ambiguous provisions in the Trust Agreement or is unsure of the
application of any provision of the Trust Agreement, and the matter is not one
on which holders of the Trust Preferred Securities are entitled under the Trust
Agreement to vote, then the Property Trustee shall take such action as is
directed by the Company and, if not so directed, shall take such action as it
deems advisable and in the best interests of the holders of the Trust
Securities and will have no liability except for its own bad faith, negligence
or willful misconduct.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Trust in such a way that the Trust will not be
deemed to be an "investment company" required to be registered under the
Investment Company Act or fail to be classified as a grantor trust for United
States federal income tax purposes and so that the Junior Subordinated
Debentures will be treated as indebtedness of the Company for United States
federal income tax purposes. In this connection, the Company and the
Administrative Trustees are authorized to take any action, not inconsistent
with applicable law, the certificate of trust of the Trust or the Trust
Agreement, that the Company and the Administrative Trustees determine in their
discretion to be necessary or desirable for such purposes, as long as such
action does not materially adversely affect the interests of the holders of the
Trust Preferred Securities. Holders of the Trust Preferred Securities have no
preemptive or similar rights.
The Trust may not borrow money, issue debt or mortgage or pledge any of its
assets.
The Trust Agreement is governed by Delaware law.
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
Concurrently with the issuance of the Trust Preferred Securities, the Trust
will invest the proceeds thereof, together with the consideration paid by the
Company for the Common Securities, in Junior Subordinated Debentures issued by
the Company. The Junior Subordinated Debentures will be issued as unsecured
debt under the Junior Subordinated Indenture, dated as of _______________, 1998
(the "Indenture"), between the Company
S-61
<PAGE> 67
and the Indenture Trustee. The following summary of the terms and provisions
of the Junior Subordinated Debentures and the Indenture does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
the Indenture, which has been filed as an exhibit to the Registration Statement
of which this Prospectus forms a part, and to the Trust Indenture Act. The
Indenture is qualified under the Trust Indenture Act. Whenever particular
defined terms of the Indenture are referred to herein, such terms as defined
therein are incorporated herein by reference.
GENERAL
The Junior Subordinated Debentures will bear interest at the annual rate of
_____% of the principal amount thereof, payable quarterly in arrears on each
January 15, April 15, July 15 and October 15 (each, an "Interest Payment
Date"), commencing October 15, 1998, to the person in whose name each Junior
Subordinated Debenture is registered, subject to certain exceptions, at the
close of business on the first day of the month in which such payment is made.
Notwithstanding the above, in the event that either the (i) Junior Subordinated
Debentures are held by the Property Trustee and the Trust Preferred Securities
are registered in book-entry only form or (ii) the Junior Subordinated
Debentures are represented by a Global Subordinated Debenture (as defined
herein), the record date for such payment shall be the Business Day next
preceding such Interest Payment Date. The amount of each interest payment due
with respect to the Junior Subordinated Debentures will include amounts accrued
through the date the interest payment is due. It is anticipated that, until
the liquidation, if any, of the Trust, each Junior Subordinated Debenture will
be held in the name of the Property Trustee, in trust for the benefit of the
holders of the Trust Preferred Securities. The amount of interest payable for
any period will be computed on the basis of a 360-day year of twelve 30-day
months. In the event that any date on which interest is payable on the Junior
Subordinated Debentures is not a Business Day, then payment of the interest
payable on such date will be made on the next Business Day (and without any
interest or other payment in respect of any such delay), in each case with the
same force and effect as if made on the date such payment was originally
payable. Accrued interest that is not paid on the applicable Interest Payment
Date will bear additional interest on the amount thereof (to the extent
permitted by law) at the rate per annum of _____% thereof. The term "interest"
as used herein shall include quarterly interest payments, interest on quarterly
interest payments not paid on the applicable Interest Payment Date and
Additional Sums (as defined below), as applicable.
The Junior Subordinated Debentures will mature on _______________, 2028
(such date, as it may be shortened as hereinafter described, the "Stated
Maturity"). Such date may be shortened at any time by the Company to any date
not earlier than _______________, 2003. The Company might exercise its right
to shorten the maturity of the Junior Subordinated Debentures under
circumstances where a "Tax Event," "Investment Company Event" or other
undesirable event could be avoided simply by shortening the maturity of the
Junior Subordinated Debentures. In the event that the Company elects to
shorten the Stated Maturity of the Junior Subordinated Debentures, it shall
give notice to the Indenture Trustee, and the Indenture Trustee shall give
notice of such shortening to the holders of the Junior Subordinated Debentures
no less than 60 days prior to the effectiveness thereof.
The Junior Subordinated Debentures will be unsecured and will rank junior
and be subordinate in right of payment to all Senior Debt and Subordinated Debt
of the Company. The Indenture does not limit the incurrence or issuance of
other secured or unsecured debt of the Company, including Senior Debt and
Subordinated Debt, whether under the Indenture or any existing or other
indenture that the Company may enter into in the future or otherwise. See
"--Subordination" below.
OPTION TO DEFER INTEREST PAYMENT PERIOD
So long as no Debenture Event of Default has occurred and is continuing, the
Company has the right under the Indenture at any time during the term of the
Junior Subordinated Debentures to defer the payment of interest at any time or
from time to time for a period not exceeding 20 consecutive quarters (each such
period an "Extension Period"), provided that no Extension Period may extend
beyond the Stated Maturity. At the end of such Extension Period, the Company
must pay all interest then accrued and unpaid (together with interest thereon
at the annual rate of _____%, compounded quarterly, to the extent permitted by
applicable law). During an Extension Period, interest
S-62
<PAGE> 68
will continue to accrue and holders of Junior Subordinated Debentures will be
required to accrue interest income for United States federal income tax
purposes. See "Certain Federal Income Tax Consequences--Interest Income and
Original Issue Discount." The default by the Company on any Senior Debt and
Subordinated Debt will not constitute a Debenture Event of Default. See
"--Debenture Events of Default" below.
During any such Extension Period, the Company may not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock (which
includes common and preferred stock), or (ii) make any payment of principal,
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Company (including other Junior Subordinated Debentures) that
rank pari passu with or junior in interest to the Junior Subordinated
Debentures, or make any guarantee payments with respect to any guarantee by the
Company of the debt securities of any subsidiary of the Company if such
guarantee ranks pari passu with or junior in interest to the Junior
Subordinated Debentures (other than (a) dividends or distributions in capital
stock of the Company (which includes common and preferred stock), (b) any
declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any such plan in the
future, or the redemption or repurchase of any such rights pursuant thereto,
(c) payments under the Guarantee and (d) purchases of common stock related to
the issuance of common stock or rights under any of the Company's benefit plans
for its directors, officers or employees) or (iii) redeem, purchase or acquire
less than all of the Junior Subordinated Debentures or any of the Trust
Preferred Securities. Prior to the termination of any such Extension Period,
the Company may further extend such Extension Period, provided that such
extension does not cause such Extension Period to exceed 20 consecutive
quarters or extend beyond the Stated Maturity. Upon the termination of any
such Extension Period and the payment of all amounts then due on any Interest
Payment Date, the Company may elect to begin a new Extension Period subject to
the above requirements. No interest shall be due and payable during an
Extension Period, except at the end thereof. The Company must give notice to
the Property Trustee, the Administrative Trustees and the Indenture Trustee of
its election of any Extension Period at least one Business Day prior to the
earlier of (i) the date the distributions on the Trust Preferred Securities
would have been payable but for the election to begin or extend such Extension
Period, (ii) the date the Administrative Trustees are required to give notice
to the American Stock Exchange, the New York Stock Exchange, the Nasdaq Stock
Market or any applicable stock exchange or automated quotation system on which
the Trust Preferred Securities are then listed or quoted or to the holders of
the Trust Preferred Securities on the record date or (iii) the date such
distributions are payable, but in any event not less than one Business Day
prior to such record date. There is no limitation on the number of times that
the Company may elect to begin an Extension Period.
Distributions on the Trust Preferred Securities will be deferred by the
Trust during any such Extension Period. See "Description of the Trust
Preferred Securities--Distributions." For a description of certain federal
income tax consequences and special considerations applicable to any such
Junior Subordinated Debentures, see "Certain Federal Income Tax Consequences."
ADDITIONAL SUMS
If the Trust is required to pay any additional taxes, duties or other
governmental charges as a result of a Tax Event, the Company will pay as
additional amounts on the Junior Subordinated Debentures such amounts
("Additional Sums") as shall be required so that the Distributions payable by
the Trust shall not be reduced as a result of any such additional taxes, duties
or other governmental charges.
REDEMPTION
The Junior Subordinated Debentures are redeemable prior to maturity at the
option of the Company (i) on or after _______________, 2003, in whole at any
time or in part from time to time, or (ii) at any time in whole (but not in
part), within 90 days following the occurrence of a Tax Event or an Investment
Company Event, in each case at a redemption price equal to the accrued and
unpaid interest on the Junior Subordinated Debentures so redeemed to the date
fixed for redemption, plus 100% of the principal amount thereof.
S-63
<PAGE> 69
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of Junior Subordinated
Debentures to be redeemed at such holder's registered address. Unless the
Company defaults in payment of the redemption price, on and after the
redemption date interest will cease to accrue on such Junior Subordinated
Debentures or portions thereof called for redemption.
The Junior Subordinated Debentures will not be subject to any sinking fund.
DISTRIBUTION UPON LIQUIDATION
As described under "Description of the Trust Preferred
Securities--Liquidation Distribution Upon Dissolution," under certain
circumstances involving the dissolution of the Trust, the Junior Subordinated
Debentures may be distributed to the holders of the Trust Preferred Securities
in liquidation of the Trust after satisfaction of liabilities to creditors of
the Trust as provided by applicable law. If the Junior Subordinated Debentures
are distributed to the holders of Trust Preferred Securities upon the
liquidation of the Trust, the Company will use its best efforts to list the
Junior Subordinated Debentures on the American Stock Exchange or such other
stock exchanges or automated quotation system, if any, on which the Trust
Preferred Securities are then listed or quoted. There can be no assurance that
the Company will be able to cause such listing or as to the market price of any
Junior Subordinated Debentures that may be distributed to the holders of Trust
Preferred Securities.
RESTRICTIONS ON CERTAIN PAYMENTS
If at any time (i) there shall have occurred a Debenture Event of Default,
(ii) the Company shall have given notice of its election of an Extension Period
as provided in the Indenture with respect to the Junior Subordinated Debentures
and shall not have rescinded such notice, or such Extension Period, or any
extension thereof, shall be continuing or (iii) while the Junior Subordinated
Debentures are held by the Trust, the Company shall be in default with respect
to its payment of any obligation under the Guarantee, then the Company will not
(1) declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of the Company's
capital stock, (2) make any payment of principal, interest or premium, if any,
on or repay, repurchase or redeem any debt securities of the Company (including
other Junior Subordinated Debt) that rank pari passu with or junior in interest
to the Junior Subordinated Debentures or make any guarantee payments with
respect to any guarantee by the Company of the debt securities of any
subsidiary of the Company if such guarantee ranks pari passu with or junior in
interest to the Junior Subordinated Debentures (other than (a) dividends or
distributions in capital stock of the Company, (b) any declaration of a
dividend in connection with the implementation of a stockholders' rights plan,
or the issuance of stock under any such plan in the future or the redemption or
repurchase of any such rights pursuant thereto, (c) payments under the
Guarantee and (d) purchases of common stock related to issuances of common
stock or rights under any of the Company's benefit plans for its directors,
officers, employees or consultants) or (3) redeem, purchase or acquire less
than all of the Junior Subordinated Debentures or any of the Trust Preferred
Securities.
SUBORDINATION
The Indenture provides that the Junior Subordinated Debentures are
subordinated and junior in right of payment to all Senior Debt and Subordinated
Debt whether now existing or hereafter incurred. Senior Debt and Subordinated
Debt may include indebtedness of the Company which is subordinated to other
indebtedness of the Company but nevertheless senior to the Junior Subordinated
Debentures. No payment of principal of (including redemption payments, if
any), premium, if any, or interest on, the Junior Subordinated Debentures may
be made if any event of default with respect to any Senior Debt and
Subordinated Debt shall have occurred and be continuing and the Company and the
Trustee receive notice of such default from any person permitted to give such
notice. Upon any payment by the Company or distribution of assets of the
Company to creditors upon any dissolution, winding-up, liquidation or
reorganization of the Company, whether voluntary or involuntary or in
bankruptcy, insolvency, receivership or other proceedings, all amounts due on
all Senior Debt and Subordinated Debt must be paid in full before the holders
of the Junior Subordinated Debentures are entitled to receive or retain any
payment. Upon payment in full of all amounts due on the Senior Debt and
Subordinated Debt then outstanding, the rights of
S-64
<PAGE> 70
the holders of the Junior Subordinated Debentures will be subrogated to the
rights of the holders of Senior Debt and Subordinated Debt to receive payments
or distributions applicable to such Senior Debt and Subordinated Debt until all
amounts owing on the Junior Subordinated Debentures are paid in full.
In the event of the acceleration of the maturity of any Junior Subordinated
Debentures by reason of a Debenture Event of Default, the holders of all Senior
Debt and Subordinated Debt outstanding at the time of such acceleration will
first be entitled to receive payment in full of all amounts due thereon
(including any amounts due upon acceleration) before the holders of Junior
Subordinated Debentures will be entitled to receive or retain any payment in
respect of the Junior Subordinated Debentures.
"Debt" means, with respect to any Person, whether recourse is to all or a
portion of the assets of such Person and whether or not contingent: (i) every
obligation of such Person for money borrowed; (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person; (iv) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of such Person; (vi) all
indebtedness of such Person whether incurred on or prior to the date of the
Indenture or thereafter incurred, for claims in respect of derivative products
including interest rate, foreign exchange rate and commodity forward contracts,
options and swaps and similar arrangements; and (vii) every obligation of the
type referred to in clauses (i) through (vi) of another Person and all
dividends of another Person the payment of which, in either case, such Person
has guaranteed or is responsible or liable for, directly or indirectly, as
obligor or otherwise.
"Senior Debt and Subordinated Debt" means the principal of (and premium, if
any) and interest, if any (including interest accruing on or after the filing
of any petition in bankruptcy or for reorganization relating to the Company
whether or not such claim for post-petition interest is allowed in such
proceeding), on Debt of the Company whether incurred on or prior to the date of
the Indenture or thereafter incurred, unless, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is
provided that such obligations are not superior in right of payment to the
Junior Subordinated Debentures or to other Debt which is pari passu with, or
subordinated to, the Junior Subordinated Debentures; provided, however, that
Senior Debt and Subordinated Debt shall not be deemed to include (i) any Debt
of the Company which when incurred and without respect to any election under
Section 1111(b) of the United States Bankruptcy Code of 1978, as amended, was
without recourse to the Company, (ii) any Debt of the Company to any of its
subsidiaries, (iii) Debt to any employee of the Company and (iv) any other debt
securities issued pursuant to the Indenture.
The Indenture places no limitation on the amount of additional Senior Debt
and Subordinated Debt that may be incurred by the Company. The Company expects
from time to time to incur additional indebtedness constituting Senior Debt and
Subordinated Debt.
REGISTRATION, DENOMINATION AND TRANSFER
The Junior Subordinated Debentures will initially be registered in the name
of the Property Trustee. If the Junior Subordinated Debentures are distributed
to holders of Trust Preferred Securities, it is anticipated that the depository
arrangements for the Junior Subordinated Debentures will be substantially
identical to those in effect for the Trust Preferred Securities. See
"Description of the Trust Preferred Securities--Global Trust Preferred
Securities" and "Book- Entry Issuance."
Although the Depositary has agreed to the procedures described above, it is
under no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If 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 of receipt of notice from the
Depositary to such effect, the Company will cause the Junior Subordinated
Debentures to be issued in definitive form.
S-65
<PAGE> 71
Payments on Junior Subordinated Debentures represented by a global
certificate will be made to Cede & Co., the nominee for the Depositary as the
registered holder of the Junior Subordinated Debentures, as described under
"Description of the Trust Preferred Securities--Global Trust Preferred
Securities." If Junior Subordinated Debentures are issued in certificated form,
principal and interest will be payable, the transfer of the Junior Subordinated
Debentures will be registrable, and Junior Subordinated Debentures will be
exchangeable for Junior Subordinated Debentures of other authorized
denominations of a like aggregate principal amount, at the corporate trust
office of the Indenture Trustee in Wilmington, Delaware or at the offices of
any paying agent or transfer agent appointed by the Company, provided that
payment of interest may be made at the option of the Company by check mailed to
the address of the persons entitled thereto.
Junior Subordinated Debentures will be exchangeable for other Junior
Subordinated Debentures of like tenor, of any authorized denominations and of a
like aggregate principal amount.
Junior Subordinated Debentures may be presented for exchange as provided
above, and may be presented for registration of transfer (with the form of
transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed), at the office of the securities registrar (the "Securities
Registrar") appointed under the Indenture or at the office of any transfer
agent designated by the Company for such purpose without service charge and
upon payment of any taxes and other governmental charges as described in the
Indenture. The Company will appoint the Indenture Trustee as Securities
Registrar under the Indenture. The Company may at any time designate
additional transfer agents with respect to the Junior Subordinated Debentures.
In the event of any redemption, neither the Company nor the Indenture
Trustee shall be required to (i) issue, register the transfer of or exchange
Junior Subordinated Debentures during a period beginning at the opening of
business 15 days before the day of selection for redemption of the Junior
Subordinated Debentures to be redeemed and ending at the close of business on
the date of mailing of the relevant notice of redemption or (ii) transfer or
exchange any Junior Subordinated Debentures so selected for redemption, except
in the case of any Junior Subordinated Debentures being redeemed in part, any
portion thereof not to be redeemed.
PAYMENT AND PAYING AGENTS
Payment of principal (and premium, if any) and interest on the Junior
Subordinated Debentures will be made at the office of the Indenture Trustee,
except that at the option of the Company payment of any interest may be made
(i) except in the case of Global Junior Subordinated Debentures, by check
mailed to the address of the person entitled thereto as such address shall
appear in the securities register, (ii) by transfer to an account maintained by
the person entitled thereto as specified in the Securities Register, provided
that proper transfer instructions have been received by the regular record date
or (iii) if the Junior Subordinated Debentures are held by the Property
Trustee, by agreement between the Company and the Property Trustee. Payment of
any interest on Junior Subordinated Debentures will be made to the person in
whose name such Junior Subordinated Debenture is registered at the close of
business on the regular record date for such interest. The Company may at any
time designate additional Paying Agents or rescind the designation of any
Paying Agent; however the Company will at all times be required to maintain a
Paying Agent in each place of payment for the Junior Subordinated Debentures.
Any moneys deposited with the Indenture Trustee or any Paying Agent, or then
held by the Company in trust, for the payment of the principal of (and premium,
if any) or interest on the Junior Subordinated Debentures and remaining
unclaimed for two years after such principal or interest has become due and
payable shall, at the request of the Company, be repaid to the Company and the
holder of such Junior Subordinated Debenture shall thereafter look, as a
general unsecured creditor, only to the Company for payment thereof.
MODIFICATION OF INDENTURE
From time to time the Company and the Indenture Trustee may, without the
consent of the holders of the Junior Subordinated Debentures, amend, waive or
supplement the Indenture for specified purposes, including, among other things,
curing ambiguities, defects or inconsistencies (provided that any such action
does not materially adversely affect the interests of the holders of the Junior
Subordinated Debentures or the Trust Preferred Securities so long as
S-66
<PAGE> 72
they remain outstanding) and qualifying, or maintaining the qualification of,
the Indenture under the Trust Indenture Act. The Indenture contains provisions
permitting the Company and the Indenture Trustee, with the consent of the
holders of not less than a majority in principal amount of the outstanding
Junior Subordinated Debentures, to modify the Indenture in a manner affecting
the rights of the holders of the Junior Subordinated Debentures; provided, that
no such modification may, without the consent of the holder of each outstanding
Junior Subordinated Debenture affected thereby, (i) change the Stated Maturity
of the Junior Subordinated Debentures, or reduce the principal amount thereof,
or reduce the rate or extend the time of payment of interest thereon or (ii)
reduce the percentage of principal amount of Junior Subordinated Debentures,
the holders of which are required to consent to any such modification of the
Indenture; provided that so long as any of the Trust Preferred Securities
remain outstanding, no such modification may be made that adversely affects the
holders of such Trust Preferred Securities in any material respect, and no
termination of the Indenture may occur, and no waiver of any Debenture Event of
Default or compliance with any covenant under the Indenture may be effective,
without the prior consent of the holders of at least a majority of the
aggregate Liquidation Amount of the Trust Preferred Securities unless and until
the principal of the Junior Subordinated Debentures and all accrued and unpaid
interest thereon have been paid in full and certain other conditions have been
satisfied. Where a consent under the Indenture would require the consent of
each holder of Junior Subordinated Debentures, no such consent shall be given
by the Property Trustee without the prior consent of each holder of Trust
Preferred Securities. In addition, the Company and the Indenture Trustee may
execute, without the consent of any holder of Junior Subordinated Debentures,
any supplemental Indenture for the purpose of creating any new series of Junior
Subordinated Debentures.
DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events with respect to the Junior Subordinated Debentures that has occurred and
is continuing constitutes a "Debenture Event of Default," with respect to the
Junior Subordinated Debentures:
(i) failure for 30 days to pay any interest on the Junior Subordinated
Debentures when due (subject to the deferral of any due date in the case of an
Extension Period); or
(ii) failure to pay any principal on the Junior Subordinated Debentures
when due, whether at maturity, upon redemption, by declaration or otherwise; or
(iii) failure to observe or perform in any material respect certain other
covenants contained in the Indenture for 90 days after written notice to the
Company from the Indenture Trustee or to the Company and the Indenture Trustee
by the holders of at least 25% in aggregate outstanding principal amount of the
Junior Subordinated Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of the
Company.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Indenture
Trustee. The Indenture Trustee or the holders of not less than 25% in
aggregate outstanding principal amount of the Junior Subordinated Debentures
may declare the principal due and payable immediately upon a Debenture Event of
Default. If the Indenture Trustee or such holders of such Junior Subordinated
Debentures fail to make such declaration, the holders of at least 25% in
aggregate Liquidation Amount of the Trust Preferred Securities shall have such
right. The holders of a majority in aggregate outstanding principal amount of
the Junior Subordinated Debentures may annul such declaration and waive the
default if the default (other than the non-payment of the principal of the
Junior Subordinated Debentures which has become due solely by such
acceleration) has been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Indenture Trustee. Should the holders of the Junior
Subordinated Debentures fail to annul such declaration and waive such default,
the holders of a majority in aggregate Liquidation Amount of the Trust
Preferred Securities shall have such right.
S-67
<PAGE> 73
The holders of a majority in aggregate outstanding principal amount of
Junior Subordinated Debentures affected thereby may, on behalf of the holders
of all the Junior Subordinated Debentures, waive any past default, except a
default in the payment of principal or interest (unless such default has been
cured and a sum sufficient to pay all matured installments of interest and
principal due otherwise than by acceleration has been deposited with the
Indenture Trustee) or a default in respect of a covenant or provision which
under the Indenture cannot be modified or amended without the consent of the
holder of each outstanding Junior Subordinated Debenture.
In case a Debenture Event of Default shall occur and be continuing as to the
Junior Subordinated Debentures, the Property Trustee, as holder of the Junior
Subordinated Debentures, will have the right to declare the principal of and
the interest on such Junior Subordinated Debentures, and any other amounts
payable under the Indenture, to be forthwith due and payable and to enforce its
other rights as a creditor with respect to such Junior Subordinated Debentures.
The Company is required to file annually with the Indenture Trustee a
certificate as to whether or not the Company is in compliance with all the
conditions and covenants applicable to it under the Indenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF TRUST PREFERRED SECURITIES
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to pay interest or
principal on the Junior Subordinated Debentures on the date such interest or
principal is otherwise payable, a holder of Trust Preferred Securities may
institute a legal proceeding directly against the Company for enforcement of
payment to such holder of the principal of or interest on such Junior
Subordinated Debentures having a principal amount equal to the aggregate
Liquidation Amount of the Trust Preferred Securities of such holder (a "Direct
Action"). The Company may not amend the Indenture to remove the foregoing
right to bring a Direct Action without the prior written consent of the holders
of all of the Trust Preferred Securities outstanding. The Company shall have
the right under the Indenture to set off any payment made to such holder of
Trust Preferred Securities by the Company in connection with a Direct Action.
The holders of the Trust Preferred Securities will not be able to exercise
directly any remedies other than those set forth in the preceding paragraph
available to the holders of the Junior Subordinated Debentures unless there
shall have been an Event of Default under the Trust Agreement. See
"Description of the Trust Preferred Securities--Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that the Company shall not consolidate with or merge
into any other Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, and no Person shall consolidate
with or merge into the Company or convey, transfer or lease its properties and
assets substantially as an entirety to the Company, unless (i) in case the
Company consolidates with or merges into another Person or conveys, transfers
or leases its properties and assets substantially as an entirety to any Person,
the successor Person is organized under the laws of the United States or any
state or the District of Columbia, and such successor Person expressly assumes
the Company's obligations on the Junior Subordinated Debentures issued under
the Indenture; (ii) immediately after giving effect thereto, no Debenture Event
of Default, and no event which, after notice or lapse of time or both, would
become a Debenture Event of Default, shall have occurred and be continuing; and
(iii) certain other conditions as prescribed in the Indenture are met.
The general provisions of the Indenture do not afford holders of the Junior
Subordinated Debentures protection in the event of a highly leveraged or other
similar transaction involving the Company that may adversely affect holders of
the Junior Subordinated Debentures.
S-68
<PAGE> 74
SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all Junior
Subordinated Debentures not previously delivered to the Indenture Trustee for
cancellation (i) have become due and payable or (ii) will become due and
payable at their Stated Maturity within one year, and the Company deposits or
causes to be deposited with the Indenture Trustee funds, in trust, for the
purpose and in an amount in the currency or currencies in which the Junior
Subordinated Debentures are payable sufficient to pay and discharge the entire
indebtedness on the Junior Subordinated Debentures not previously delivered to
the Indenture Trustee for cancellation, for the principal and interest to the
date of the deposit or to the Stated Maturity, as the case may be, then the
Indenture will cease to be of further effect (except as to the Company's
obligations to pay all other sums due pursuant to the Indenture and to provide
the officers' certificates and opinions of counsel described therein), and the
Company will be deemed to have satisfied and discharged the Indenture.
COVENANTS OF THE COMPANY
The Company will covenant in the Indenture, as to the Junior Subordinated
Debentures, that if and so long as (i) the Property Trustee on behalf of the
Trust is the holder of all such Junior Subordinated Debentures, (ii) a Tax
Event in respect of the Trust has occurred and is continuing and (iii) the
Company has elected, and has not revoked such election, to pay Additional Sums
(as defined under "Description of the Trust Preferred Securities--Redemption")
in respect of the Trust Preferred Securities, the Company will pay to the Trust
such Additional Sums. The Company will also covenant, as to the Junior
Subordinated Debentures, (i) to maintain directly or indirectly 100% ownership
of the Common Securities of the Trust to which Junior Subordinated Debentures
have been issued, provided that certain successors which are permitted to do so
pursuant to the Indenture may succeed to the Company's ownership of the Common
Securities, (ii) not to voluntarily dissolve, wind up or liquidate the Trust,
except (a) in connection with a distribution of Junior Subordinated Debentures
to the holders of the Trust Preferred Securities in liquidation of the Trust or
(b) in connection with certain mergers, consolidations, or amalgamations
permitted by the Trust Agreement and (iii) to use its reasonable efforts,
consistent with the terms and provisions of the Trust Agreement, to cause the
Trust to remain classified as a grantor trust and not an association taxable as
a corporation for United States federal income tax purposes.
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be governed by and
construed in accordance with the laws of the State of New York, except that the
immunities and standard of care of the Indenture Trustee will be governed by
Delaware law.
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The Indenture Trustee shall have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the Trust
Indenture Act. Subject to such provisions, the Indenture Trustee is under no
obligation to exercise any of the powers vested in it by the Indenture at the
request of any holder of Junior Subordinated Debentures, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
which might be incurred thereby. The Indenture Trustee is not required to
expend or risk its own funds or otherwise incur personal financial liability in
the performance of its duties if the Indenture Trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
BOOK-ENTRY ISSUANCE
The Depositary will act as securities depositary for all of the Trust
Preferred Securities and, if the Junior Subordinated Debentures are distributed
to holders of Trust Preferred Securities, the Junior Subordinated Debentures.
The Trust Preferred Securities and, in such event, the Junior Subordinated
Debentures will be issued only as fully- registered securities registered in
the name of Cede & Co. (the Depositary's nominee). One or more
S-69
<PAGE> 75
fully-registered global certificates will be issued for the Trust Preferred
Securities and the Junior Subordinated Debentures and will be deposited with
the Depositary.
The Depositary is a limited purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The Depositary holds securities that its Participants deposit with the
Depositary. The Depositary also facilitates the settlement among Participants
of securities transactions, such as transfers and pledges, in deposited
securities through electronic computerized book-entry changes in Participants'
accounts, thereby eliminating the need for physical movement of securities
certificates. "Direct Participants" include securities brokers and dealers,
banks, trust companies, clearing corporations and certain other organizations.
The Depositary is owned by a number of its Direct Participants and by the New
York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. Access to the Depositary system is
also available to others such as securities brokers and dealers, banks and
trust companies that clear through or maintain custodial relationships with
Direct Participants, either directly or indirectly ("Indirect Participants").
The rules applicable to the Depositary and its Participants are on file with
the Commission.
Purchases of Trust Preferred Securities or Junior Subordinated Debentures
within the Depositary system must be made by or through Direct Participants,
which will receive a credit for the Trust Preferred Securities or Junior
Subordinated Debentures on the Depositary's records. The ownership interest of
each actual purchaser of each Trust Preferred Security and each Junior
Subordinated Debenture ("Beneficial Owner") will be recorded on the Direct and
Indirect Participants' records. Beneficial Owners will not receive written
confirmation from the Depositary of their purchases, but Beneficial Owners are
expected to receive written confirmations providing details of the
transactions, as well as periodic statements of their holdings, from the Direct
or Indirect Participants through which the Beneficial Owners purchased Trust
Preferred Securities or Junior Subordinated Debentures. Transfers of ownership
interests in the Trust Preferred Securities or Junior Subordinated Debentures
are to be accomplished by entries made on the books of Participants acting on
behalf of Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in Trust Preferred Securities or Junior
Subordinated Debentures, except in the event that use of the book-entry system
for the Trust Preferred Securities or Junior Subordinated Debentures is
discontinued.
The Depositary has no knowledge of the actual Beneficial Owners of the Trust
Preferred Securities or Junior Subordinated Debentures; the Depositary's
records reflect only the identity of the Direct Participants to whose accounts
such Trust Preferred Securities or Junior Subordinated Debentures are credited,
which may or may not be the Beneficial Owners. The Participants will remain
responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by the Depositary to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Redemption notices will be sent to the Depositary. If less than all of the
Trust Preferred Securities or the Junior Subordinated Debentures are being
redeemed, the Depositary has informed the Trust and the Company that its
practice is to determine by lot the amount of the Trust Preferred Securities of
each Direct Participant to be redeemed.
Although voting with respect to the Trust Preferred Securities or the Junior
Subordinated Debentures is limited to the holders of record of the Trust
Preferred Securities or Junior Subordinated Debentures, as applicable, in those
instances in which a vote is required, neither the Depositary nor Cede & Co.
will itself consent or vote with respect to Trust Preferred Securities or
Junior Subordinated Debentures. Under its usual procedures, the Depositary
would mail an omnibus proxy (the "Omnibus Proxy") to the relevant Trustee as
soon as possible after the record date. The
S-70
<PAGE> 76
Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts such Trust Preferred Securities or Junior
Subordinated Debentures are credited on the record date (identified in a
listing attached to the Omnibus Proxy).
Distribution and Redemption Price payments on the Trust Preferred Securities
or, if applicable, interest payments on the Junior Subordinated Debentures will
be made to Cede & Co., as nominee of the Depositary. The Depositary's practice
is to credit Direct Participants' accounts on the relevant payment date in
accordance with their respective holdings shown on the Depositary's records.
Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices and will be the responsibility of such
Participant and not of the Depositary, the relevant Trustee, the Trust or the
Company, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of Distributions, Redemption Price payments
or interest, as applicable, to Cede & Co. is the responsibility of the relevant
Trustee, disbursement of such payments to Direct Participants is the
responsibility of Cede & Co., and disbursements of such payments to the
Beneficial Owners is the responsibility of Direct and Indirect Participants.
Under certain circumstances set forth in the Trust Agreement, the Global
Trust Preferred Security will be exchangeable for definitive certificated Trust
Preferred Securities. See "Description of the Trust Preferred
Securities--Global Trust Preferred Securities."
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that the Trust
and the Company believe to be accurate, but the Trust and the Company assume no
responsibility for the accuracy thereof. Neither the Trust nor the Company has
any responsibility for the performance by the Depositary or its Participants of
their respective obligations as described herein or under the rules and
procedures governing their respective operations.
DESCRIPTION OF GUARANTEE
The Guarantee Agreement will be executed and delivered by the Company
concurrently with the issuance of the Trust Preferred Securities for the
benefit of the holders of the Trust Preferred Securities. Wilmington Trust
Company will act as Guarantee Trustee under the Guarantee Agreement for the
purposes of compliance with the Trust Indenture Act, and the Guarantee
Agreement will be qualified as an indenture under the Trust Indenture Act. The
following summary of certain provisions of the Guarantee does not purport to be
complete and is subject to, and qualified in its entirety by reference to, all
of the provisions of the Guarantee Agreement, including the definition therein
of certain terms, and the Trust Indenture Act. The form of the Guarantee
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus Supplement forms a part. The Guarantee Trustee will hold the
Guarantee for the benefit of the holders of the Trust Preferred Securities.
GENERAL
The Guarantee will be an irrevocable guarantee on a subordinated basis of
the Trust's obligations under the Trust Preferred Securities, but will apply
only to the extent that the Trust has funds sufficient to make such payments,
and is not a guarantee of collection.
The Company will irrevocably unconditionally agree to pay in full on a
subordinated basis, to the extent set forth therein, the Guarantee Payments (as
defined below) to the holders of the Trust Preferred Securities, as and when
due, regardless of any defense, right of set-off or counterclaim that the Trust
may have or assert, other than the defense of payment. The following payments
with respect to the Trust Preferred Securities, to the extent not paid by or on
behalf of the Trust (the "Guarantee Payment"), will be subject to the
Guarantee: (i) any accumulated and unpaid Distributions required to be paid on
the Trust Preferred Securities, to the extent that the Trust has funds on hand
available therefor at such time, (ii) the redemption price with respect to any
Trust Preferred Securities called for redemption, to the extent that the Trust
has funds on hand available therefor at such time and (iii) upon a voluntary or
involuntary dissolution, winding up or liquidation of the Trust (unless the
Junior Subordinated Debentures are distributed to holders of the Trust
Preferred Securities), the lesser of (a) the Liquidation Distribution
S-71
<PAGE> 77
and (b) the amount of assets of the Trust remaining available for distribution
to holders of Trust Preferred Securities, after satisfaction of liabilities to
creditors of the Trust as required by law. The Company's obligation to make a
Guarantee Payment may be satisfied by direct payment of the required amounts by
the Company to the holders of the Trust Preferred Securities or by causing the
Trust to pay such amounts to such holders.
If the Company does not make interest payments on the Junior Subordinated
Debentures held by the Trust, the Trust will not be able to pay Distributions
on the Trust Preferred Securities and will not have funds legally available
therefor. The Guarantee will rank subordinate and junior in right of payment
to all Senior Debt and Subordinated Debt of the Company. See "--Status of the
Guarantee" below. Except as otherwise described herein, the Guarantee does not
limit the incurrence or issuance of other secured or unsecured debt of the
Company, including Senior Debt and Subordinated Debt whether under the
Indenture, any other indenture that the Company may enter into in the future,
or otherwise. The Company has, through the Guarantee Agreement, the Trust
Agreement, the Junior Subordinated Debentures, the Indenture and the Expense
Agreement, taken together, fully, irrevocably and unconditionally guaranteed
all of the Trust's obligations under the Trust Preferred Securities. No single
document standing alone or operating in conjunction with fewer than all of the
other documents constitutes such guarantee. It is only the combined operation
of these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the Trust's obligations under the Trust Preferred
Securities. See "Relationship Among the Trust Preferred Securities, the Junior
Subordinated Debentures and the Guarantee."
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all Senior Debt and
Subordinated Debt in the same manner as the Junior Subordinated Debentures.
The Guarantee will constitute a guarantee of payment and not of collection.
For example, the guaranteed party may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity. The
Guarantee will be held for the benefit of the holders of the Trust Preferred
Securities. The Guarantee will not be discharged except by payment of the
Guarantee Payment in full to the extent not paid by the Trust or upon
distribution of the Junior Subordinated Debentures to the holders of the Trust
Preferred Securities. The Guarantee does not place a limitation on the amount
of additional Senior Debt and Subordinated Debt that may be incurred by the
Company. The Company expects from time to time to incur additional
indebtedness constituting Senior Debt and Subordinated Debt.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the Trust Preferred Securities (in which case no vote
will be required), the Guarantee Agreement may not be amended without the prior
approval of the holders of not less than a majority of the aggregate
Liquidation Amount of such outstanding Trust Preferred Securities. See
"Description of the Trust Preferred Securities--Voting Rights; Amendment of the
Trust Agreement." All guarantees and agreements contained in the Guarantee
Agreement shall bind the successors, assigns, receivers, trustees and
representatives of the Company and shall inure to the benefit of the holders of
the Trust Preferred Securities then outstanding.
EVENTS OF DEFAULT
An Event of Default under the Guarantee Agreement will occur upon the
failure of the Company to perform any of its payment or other obligations
thereunder and, except for a default in payment of a Guarantee Payment, the
Guarantor shall have received notice of default and shall not have cured such
default within 90 days after receipt of such notice. The holders of not less
than a majority in aggregate Liquidation Amount of the Trust Preferred
Securities have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Guarantee Trustee in respect of
the Guarantee or to direct the exercise of any trust or power conferred upon
the Guarantee Trustee under the Guarantee Agreement. Any holder of the Trust
Preferred Securities
S-72
<PAGE> 78
may institute a legal proceeding directly against the Company to enforce its
rights under the Guarantee without first instituting a legal proceeding against
the Trust, the Guarantee Trustee or any other person or entity.
The Company, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not the Company is in compliance with
all the conditions and covenants applicable to it under the Guarantee
Agreement.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of
an Event of Default, and after curing all Events of Default that shall have
occurred under the Guarantee Agreement, has undertaken to perform only such
duties as are specifically set forth in the Guarantee Agreement and, after the
occurrence of an Event of Default under the Guarantee Agreement, must exercise
the same degree of care and skill as a prudent person would exercise or use in
the conduct of his or her own affairs. Subject to this provision, the
Guarantee Trustee is under no obligation to exercise any of the powers vested
in it by the Guarantee Agreement at the request of any holder of the Trust
Preferred Securities unless it is offered adequate security and indemnity as
would satisfy a reasonable person in the position of the Guarantee Trustee
against the costs, expenses and liabilities that might be incurred thereby.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon full
payment of the Redemption Price of the Trust Preferred Securities, upon full
payment of the amounts payable upon liquidation of the Trust or upon
distribution of Junior Subordinated Debentures to the holders of the Trust
Preferred Securities. The Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of the Trust
Preferred Securities must restore payment of any sums paid under the Trust
Preferred Securities or the Guarantee.
GOVERNING LAW
The Guarantee Agreement will be governed by and construed in accordance with
the laws of the State of California.
EXPENSE AGREEMENT
Pursuant to the Expense Agreement to be entered into between the Company and
the Trust under the Trust Agreement, the Company will irrevocably and
unconditionally guarantee to each person or entity to whom the Trust becomes
indebted or liable, the full payment of any costs, expenses or liabilities of
the Trust (including, without limitation, expenses relating to the Offering of
the Trust Preferred Securities and any expenses the Property Trustee may incur
relating to the enforcement of the rights of the holders of the Trust Preferred
Securities or the Junior Subordinated Debentures pursuant to the Trust
Agreement and the Indenture, respectively), other than obligations of the Trust
to pay to the holders of the Trust Preferred Securities or other similar
interests in the Trust the amounts due such holders pursuant to the terms of
the Trust Preferred Securities or such other similar interests, as the case may
be. The Expense Agreement may be enforced against the Company by any person or
entity to whom the Trust is or becomes indebted or liable.
S-73
<PAGE> 79
RELATIONSHIP AMONG THE TRUST PREFERRED
SECURITIES, THE JUNIOR SUBORDINATED
DEBENTURES AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Trust Preferred
Securities (to the extent the Trust has funds available for the payment of such
Distributions) are irrevocably guaranteed by the Company as and to the extent
set forth under "Description of Guarantee." Taken together, the Company's
obligations under the Junior Subordinated Debentures, the Indenture, the Trust
Agreement, the Expense Agreement and the Guarantee Agreement provide, in the
aggregate, a full, irrevocable and unconditional guarantee of payments of
distributions and other amounts due on the Trust Preferred Securities. No
single document standing alone or operating in conjunction with fewer than all
of the other documents constitutes such guarantee. It is only the combined
operation of these documents that has the effect of providing a full,
irrevocable and unconditional guarantee of the Trust's obligations under the
Trust Preferred Securities. If and to the extent that the Company does not
make payments on the Junior Subordinated Debentures, the Trust will not pay
Distributions or other amounts due on the Trust Preferred Securities. The
Guarantee does not cover payment of Distributions when the Trust does not have
sufficient funds to pay such Distributions. In such event, the remedy of a
holder of the Trust Preferred Securities is to institute a legal proceeding
directly against the Company for enforcement of payment on the Junior
Subordinated Debentures. The obligations of the Company under the Guarantee
are subordinate and junior in right of payment to all Senior Debt and
Subordinated Debt of the Company.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
Junior Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the Trust Preferred Securities,
primarily because: (i) the aggregate principal amount of the Junior
Subordinated Debentures will be equal to the sum of the aggregate Liquidation
Amount of the Trust Preferred Securities and Common Securities; (ii) the
interest rate and interest and other payment dates on the Junior Subordinated
Debentures will match the Distribution rate and Distribution and other payment
dates for the Trust Preferred Securities; (iii) the Company shall pay for all
and any costs, expenses and liabilities of the Trust, except the Trust's
obligations to holders of Trust Preferred Securities; and (iv) the Trust
Agreement further provides that the Trust will not engage in any activity that
is not consistent with its limited purposes.
Notwithstanding anything to the contrary in the Indenture, the Company has
the right to set off any payment it is otherwise required to make thereunder to
the extent the Company has theretofore made, or is concurrently on the date of
such payment making, a payment under the Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF THE TRUST PREFERRED SECURITIES UNDER THE
GUARANTEE
A holder of any of the Trust Preferred Securities may institute a legal
proceeding directly against the Company to enforce its rights under the
Guarantee without first instituting a legal proceeding against the Guarantee
Trustee, the Trust or any other person or entity.
A default or event of default under any Senior Debt and Subordinated Debt
would not constitute a default or Event of Default under the Guarantee.
However, in the event of a default under Senior Debt and Subordinated Debt, the
subordination provisions of the Indenture provide that no payments may be made
in respect of the Junior Subordinated Debentures from and after the time that
the Company and the Indenture Trustee receive notice of such default and while
such default is continuing. Failure to make required payments on Junior
Subordinated Debentures would constitute an Event of Default.
S-74
<PAGE> 80
LIMITED PURPOSE OF THE TRUST
The Trust Preferred Securities evidence a beneficial interest in the Trust,
and the Trust exists for the sole purpose of issuing the Trust Securities and
investing the proceeds thereof in Junior Subordinated Debentures. A principal
difference between the rights of a holder of the Trust Preferred Securities and
a holder of a Junior Subordinated Debenture is that a holder of a Junior
Subordinated Debenture is entitled to receive from the Company the principal
amount of and interest accrued on Junior Subordinated Debentures held, while a
holder of the Trust Preferred Securities is entitled to receive Distributions
from the Trust (or from the Company under the Guarantee) if and to the extent
the Trust has funds available for the payment of such Distributions.
RIGHTS UPON DISSOLUTION
Upon any voluntary or involuntary dissolution, winding-up or liquidation of
the Trust involving the liquidation of the Junior Subordinated Debentures,
after satisfaction of liabilities to creditors of the Trust as provided by
applicable law, the holders of Trust Preferred Securities will be entitled to
receive, out of assets held by the Trust, the Liquidation Distribution in cash.
See "Description of the Trust Preferred Securities--Liquidation Distribution
Upon Dissolution." Upon any voluntary or involuntary liquidation or bankruptcy
of the Company, the Property Trustee, as holder of the Junior Subordinated
Debentures, would be a subordinated creditor of the Company, subordinated in
right of payment to all Senior Debt and Subordinated Debt as set forth in the
Indenture, but entitled to receive payment in full of principal and interest,
before any stockholders of the Company receive payments or distributions.
Since the Company is the guarantor under the Guarantee and has agreed to pay
for all costs, expenses and liabilities of the Trust (other than the Trust's
obligations to the holders of its Trust Preferred Securities), the positions of
a holder of the Trust Preferred Securities and a holder of Junior Subordinated
Debentures relative to other creditors and to stockholders of the Company in
the event of liquidation or bankruptcy of the Company are substantially the
same.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
It is the opinion of Cooley Godward LLP, counsel to the Company ("Counsel"),
that the following is accurate in all material respects and, subject to the
limitations stated herein, describes the material federal income tax
consequences to holders of the Trust Preferred Securities arising from the
purchase, ownership and disposition thereof. The following discussion assumes
the accuracy of the facts set forth in the Prospectus and Prospectus
Supplement. The discussion set forth in this section, unless otherwise stated,
deals only with Trust Preferred Securities held as capital assets by United
States Persons (defined below) who purchase the Trust Preferred Securities upon
original issuance at their original offering price. As used herein, a "United
States Person" means a person that is (i) a citizen or resident of the United
States as determined for United States federal income tax purposes, (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, (iii) an estate
the income of which is subject to United States federal income taxation
regardless of its source or (iv) a trust if a U.S. court is able to exercise
primary supervision over the administration of such trust and one or more
United States persons have the authority to control all substantial decisions
of such trust or an electing trust that was existing on August 19, 1996 and
treated as a domestic trust on such date. The tax treatment of holders may
vary depending on their particular situation. The following discussion does
not address all the tax consequences that may be relevant to a particular
holder or to holders who may be subject to special tax treatment, such as
banks, real estate investment trusts, regulated investment companies, insurance
companies, dealers in securities or currencies, tax-exempt investors, foreign
investors, investors that hold the Trust Preferred Securities as part of a
hedging, straddle, constructive sale, or conversion or other risk reduction
transaction or whose functional currency is not the U.S. dollar. In addition,
the following discussion does not include any description of any alternative
minimum tax consequences or the tax laws of any state, local or foreign
government that may be applicable to a holder of Trust Preferred Securities.
The discussion set forth herein is based on the Internal Revenue Code of 1986,
as amended (the "Code"), the Treasury Regulations promulgated thereunder and
administrative and judicial interpretations thereof, as of the date hereof, all
of which are subject to change, possibly on a retroactive basis.
S-75
<PAGE> 81
\ The following discussion does not address the tax consequences that might be
relevant to persons that are not United States Persons ("non-United States
Persons"). Non-United States Persons should consult their own tax advisors as
to the specific United States federal income and other tax consequences of the
purchase, ownership and disposition of Trust Preferred Securities.
The authorities on which the discussion set forth herein is based are
subject to various interpretations, and opinions of counsel are not binding on
the Internal Revenue Service ("Service") or the courts, either of which could
take a contrary position. Moreover, no rulings have been or will be sought
from the Service with respect to the transactions described herein.
Accordingly, there can be no assurance that the Service will not challenge the
tax consequences discussed herein or that a court would not sustain such a
challenge.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE TRUST
PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES
FEDERAL OR OTHER TAX LAWS. FOR A DISCUSSION OF THE POSSIBLE REDEMPTION OF THE
TRUST PREFERRED SECURITIES UPON THE OCCURRENCE OF CERTAIN TAX EVENTS, SEE
"DESCRIPTION OF THE TRUST PREFERRED SECURITIES--REDEMPTION."
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Trust Preferred Securities, Counsel
will render its opinion that, under current law and assuming compliance with
the terms of the Trust Agreement, and based on certain facts and assumptions
contained in such opinion, the Trust will be classified as a grantor trust and
not as a partnership or an association taxable as a corporation for United
States federal income tax purposes. As a result, each beneficial owner of the
Trust Preferred Securities (a "Securityholder") will be treated as owning an
undivided beneficial interest in the Junior Subordinated Debentures.
Accordingly, each Securityholder will be required to include in its gross
income its pro rata share of the interest income or original issue discount
("OID") that is paid or accrued on the Junior Subordinated Debentures. See
"--Interest Income and Original Issue Discount" herein.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
The Company intends to take the position that the Junior Subordinated
Debentures will be classified for United States federal income tax purposes as
indebtedness of the Company under current law, and, by acceptance of a Trust
Preferred Security, each holder covenants to treat the Junior Subordinated
Debentures as indebtedness and the Trust Preferred Securities as evidence of an
indirect beneficial ownership interest in the Junior Subordinated Debentures.
Counsel has not delivered any opinion relating to the classification of the
Junior Subordinated Debentures as indebtedness and no assurance can be given
that such position of the Company will not be challenged by the Service or, if
challenged, that such a challenge will not be successful. The remainder of
this "Material Federal Income Tax Consequences" section assumes that the Junior
Subordinated Debentures will be classified for United States federal income tax
purposes as indebtedness of the Company. No amount included in income with
respect to the Junior Subordinated Debentures and Trust Preferred Securities
will be eligible for the dividends received deduction.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Except as set forth below, stated interest on the Junior Subordinated
Debentures generally will be included in income by a Securityholder at the time
such interest income is paid or accrued in accordance with such
Securityholder's regular method of tax accounting. Under the applicable
Treasury Regulations, the Junior Subordinated Debentures will not be considered
to have been issued with OID within the meaning of Section 1273(a) of the Code,
so long as the Junior Subordinated Debentures have terms and conditions that
render the likelihood of the Company's exercising its right to defer payments
of interest on the Junior Subordinated Debentures to be remote. The Company
believes that the terms and conditions of the Junior Subordinated Debentures
(including the restrictions on other payments during the Extension Period) are
such that the likelihood of
S-76
<PAGE> 82
its exercising such right is remote, and intends to take the position that the
Junior Subordinated Debentures are not issued with OID. Because this issue is
inherently factual, Counsel is unable to express any opinion regarding whether
the Junior Subordinated Debentures are issued with OID. If, however, the
Company exercises its right to defer payments of interest on the Junior
Subordinated Debentures, the Junior Subordinated Debentures will become OID
instruments at such time and all Securityholders will be required to accrue the
stated interest on the Junior Subordinated Debentures as it accrues on a daily
basis during the Extension Period, even though the Company will not pay such
interest until the end of the Extension Period, and even though some
Securityholders otherwise may use the cash method of tax accounting. Moreover,
if the Company exercises such right, the Junior Subordinated Debentures
thereafter will be taxed as OID instruments for as long as they remain
outstanding. Thus, even after the end of the Extension Period, all
Securityholders will be required to continue to include the stated interest on
the Junior Subordinated Debentures in income on a daily economic accrual basis,
regardless of their method of tax accounting and in advance of receipt of the
cash attributable to such interest income. Under the economic accrual rules, a
Securityholder is required to accrue an amount of interest income each year
that approximates the stated interest payments called for under the Junior
Subordinated Debentures, and actual cash payments of interest on the Junior
Subordinated Debentures are not reported separately as taxable income. A
Securityholder's basis in Trust Preferred Securities will be increased by any
OID includible in income.
The Company's determination that there is a remote likelihood of exercising
its right to defer the payment of interest on the Junior Subordinated
Debentures is binding on each Securityholder unless the holder explicitly
discloses in the manner required by applicable Treasury Regulations that its
determination is different from the Company's. The Company's determination is
not, however, binding on the Service.
The Treasury Regulations described above have not yet been addressed in any
definitive interpretations by the Service, and it is possible that the Service
could take a contrary position. If the Service were to assert successfully
that the stated interest on the Junior Subordinated Debentures was OID
regardless of whether the Company exercises its right to defer payments of
interest on such debentures, all Securityholders will be required to include
such stated interest in income on a daily economic accrual basis as described
above.
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF TRUST PREFERRED
SECURITIES
Under current law, a distribution by the Trust of the Junior Subordinated
Debentures as described under the captions "Description of the Trust Preferred
Securities--Distribution of Junior Subordinated Debentures" and "Liquidation
Distribution Upon Dissolution" will be non-taxable and will result in the
Securityholder receiving directly its pro rata share of the Junior Subordinated
Debentures previously held indirectly through the Trust, with a holding period
and aggregate tax basis equal to the holding period and aggregate tax basis
such Securityholder had in its Trust Preferred Securities before such
distribution. A Securityholder would continue to recognize interest income in
respect of Junior Subordinated Debentures received from the Trust in the manner
described above under "--Interest Income and Original Issue Discount" herein.
If, however, the Trust is characterized for United States federal income tax
purposes as an association taxable as a corporation at the time of its
dissolution, the distribution of Junior Subordinated Debentures to
Securityholders by the Trust could be a taxable event to the Trust and each
Securityholder, and a Securityholder could be required to recognize gain or
loss as if the Securityholder had exchanged its Trust Preferred Securities for
the Junior Subordinated Debentures it received upon the liquidation of the
Trust, and the Securityholder's holding period for the Junior Subordinated
Debentures received would not include the holding period for the Trust
Preferred Securities surrendered in the liquidation.
SALES OR REDEMPTION OF TRUST PREFERRED SECURITIES
Gain or loss will be recognized by a Securityholder on a sale of Trust
Preferred Securities (including a redemption for cash) in an amount equal to the
difference between the amount realized (which for this purpose, will exclude
amounts attributable to accrued interest or OID not previously included in
income) and the Securityholder's adjusted tax basis in the Trust Preferred
Securities sold or so redeemed. Gain or loss recognized by a Securityholder on
Trust Preferred Securities held for more than one year will generally be taxable
as long-term capital gain or loss and any such long-term capital gain recognized
by a noncorporate Securityholder generally will be taxed at a rate of 20
percent.
S-77
<PAGE> 83
Amounts attributable to accrued interest or OID with respect to a
Securityholder's pro rata share of the Junior Subordinated Debentures not
previously included in income will be taxable as ordinary income.
MARKET DISCOUNT
Securityholders acquiring Trust Preferred Securities should note that the
resale of Trust Preferred Securities may be adversely affected by the market
discount provisions of Section 1276 through 1278 of the Code. To the extent a
subsequent Securityholder acquires its Trust Preferred Securities at a price
that is less than the adjusted issue price of such holder's share of the Junior
Subordinated Debentures (which generally should approximate par plus accrued
but unpaid interest), the Securityholder will be deemed to have acquired its
interest in the Trust Preferred Securities with market discount. Such
Securityholders are advised to consult their tax advisors as to the income tax
consequences of the acquisition, ownership and disposition of the Trust
Preferred Securities.
A Securityholder acquiring Trust Preferred Securities at a market discount
generally will be required to recognize ordinary income to the extent of
accrued market discount upon the retirement of the underlying Junior
Subordinated Debentures or, to the extent of any gain, upon disposition of the
Trust Preferred Securities. Such market discount would accrue ratably, or, at
the election of the Securityholder, under a constant yield method, over the
remaining term of the Junior Subordinated Debentures. A Securityholder also
will be required, in the absence of the election described in the next
sentence, to defer the deduction of a portion of the interest paid or accrued
on indebtedness incurred to purchase or carry Trust Preferred Securities
acquired with market discount. In lieu of the foregoing, a Securityholder may
elect to include market discount in income currently as it accrues on all
market discount instruments acquired by such holder in the taxable year of the
election or thereafter, in which case the interest deduction deferral rule will
not apply.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
Income on the Trust Preferred Securities held of record by United States
Persons (other than certain exempt Securityholders), if any, will be reported
to the Service and to such holders. "Backup" withholding at a rate of 31% will
apply to distributions and other payments on, and proceeds from the sale of,
Trust Preferred Securities paid to non-exempt United States Persons unless the
Securityholder furnishes its taxpayer identification number in the manner
prescribed in applicable Treasury Regulations, certifies that such number is
correct, certifies as to no loss of exemption from backup withholding and meets
certain other conditions. Any amounts withheld from a Securityholder under the
backup withholding rules will be allowed as a refund or a credit against such
Securityholder's United States federal income tax liability, provided the
required information is timely furnished to the Service.
POSSIBLE TAX LAW CHANGES AFFECTING THE TRUST PREFERRED SECURITIES
There can be no assurance that future legislation will not affect the
ability of the Company to deduct interest on the Junior Subordinated
Debentures. Such a change could give rise to a Tax Event, which may permit the
Company to cause a redemption of the Trust Preferred Securities. In addition,
the Service recently asserted that interest payable on a security with
characteristics and issued in circumstances similar to the characteristics and
issuance of the Junior Subordinated Debentures was not deductible for United
States federal income tax purposes. The taxpayer in that case has filed a
petition in the United States Tax Court challenging the Service's position on
this matter. If this matter is litigated and the Tax Court sustains the
Service's position, such judicial decision could give rise to a Tax Event which
could, in certain circumstances, require the dissolution of the trust or permit
the Company to redeem the Junior Subordinated Debentures. See "Description of
the Trust Preferred Securities--Redemption--Tax Event Redemption, Investment
Company Event Redemption or Distribution of Junior Subordinated Debentures" and
"Description of Junior Subordinated Debentures--Redemption."
S-78
<PAGE> 84
ERISA CONSIDERATIONS
A fiduciary of a pension, profit-sharing or other employee benefit plan
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), should consider the fiduciary standards of ERISA in the context of
the plan's particular circumstances before authorizing an investment in the
Trust Preferred Securities. Among other factors, the fiduciary should consider
whether such an investment is in accordance with the documents governing the
plan and whether an investment is appropriate for the plan in view of its
overall investment policy and the composition and diversification of its
portfolio. Other provisions of ERISA and the Code prohibit an employee benefit
plan subject to either ERISA or Section 4975 of the Code (which generally
includes individual retirement accounts and so-called "Keogh" plans as well as
other employer-sponsored plans) from engaging in certain transactions involving
"plan assets" with parties which are "parties in interest" under ERISA or
"disqualified persons" under the Code with respect to the plan. Therefore, a
fiduciary of an employee benefit plan should also consider whether an
investment in the Trust Preferred Securities might constitute or give rise to a
prohibited transaction under ERISA and the Code.
If the assets of the Trust were deemed to be plan assets of employee benefit
plans that are holders of the Trust Preferred Securities (including holders who
are not employee benefit plans themselves but are investing "plan assets" of an
employee benefit plan), the plan's investment in the Trust Preferred Securities
might be deemed to constitute a delegation under ERISA of the duty to manage
plan assets by an ERISA plan fiduciary investing in Trust Preferred Securities,
and certain transactions involving the operation of the Trust might be deemed
to constitute prohibited transactions under ERISA and the Code.
The U.S. Department of Labor (the "DOL") has issued a regulation with regard
to whether the underlying assets of an entity in which employee benefit plans
acquire equity investments would be deemed to be plan assets. The regulation
provides that the underlying assets of an entity will not be considered to be
plan assets if the interests of the entity acquired by the employee benefit
plan are "publicly offered securities" -- that is, they are (1) widely held
(i.e., owned by more than 100 investors independent of the entity and of each
other), (2) freely transferable and (3) sold as part of an offering pursuant to
an effective registration statement under the Securities Act and timely
registered under Section 12(b) or 12(g) of the Exchange Act. It is expected
that the Trust Preferred Securities will meet the criteria of "publicly offered
securities" above. The Underwriters expect that the Trust Preferred Securities
will be held by at least 100 independent investors at the conclusion of the
Offering. There are no restrictions imposed on the transfer of the Trust
Preferred Securities and the Trust Preferred Securities will be sold as part of
an offering pursuant to an effective registration statement under the
Securities Act, and will be timely registered under the Exchange Act.
Even if the assets of the Trust were deemed to be "plan assets" of employee
benefit plans that are holders of the Trust Preferred Securities, there are
five class exemptions issued by the DOL which could apply to except certain
transactions involving assets of the Trust from the prohibited transaction
provisions of ERISA and the Code--Prohibited Transaction Exemption 84-14, for
certain transactions determined by qualified professional asset managers;
Prohibited Transaction Exemption 90-1, for certain transactions involving
insurance company pooled separate accounts; Prohibited Transaction Exemption
91-38, for certain transactions involving bank collective investment funds;
Prohibited Transaction Exemption 95-60, for certain transactions involving
insurance company general accounts; and Prohibited Transaction Exemption 96-23,
for certain transactions determined by in-house asset managers.
Even if the assets of the Trust are not deemed "plan assets" of employee
benefit plans that hold Trust Preferred Securities, one or more the Trustees of
the Trust might be considered a party in interest or a disqualified person with
respect to certain such employee benefit plans by reason of pre-existing
relationships, such as plans for which that Trustee or one of its affiliates
serves as trustee. Therefore, before such employee benefit plans purchase
Trust Preferred Securities, they should determine that (a) none of the Trustees
nor any affiliate is a party in interest or disqualified person with respect to
such plan or (b) one of the class exemptions referred to in the preceding
paragraph or any other exemption from the prohibited transaction rules under
ERISA and the Code is applicable to their purchase and holding of the Trust
Preferred Securities.
S-79
<PAGE> 85
Due to the complexity of these rules and the penalties imposed upon persons
involved in prohibited transactions, it is important that an employee benefit
plan considering the purchase of Trust Preferred Securities consult with its
counsel regarding the consequences under ERISA of the acquisition and ownership
of Trust Preferred Securities. Employee benefit plans which are governmental
plans (as defined in Section 3(32) of ERISA) and certain church plans (as
defined in Section 3(33) of ERISA) generally are not subject to ERISA
requirements of the prohibited transaction provisions of the Code.
S-80
<PAGE> 86
UNDERWRITING
Subject to the terms and certain conditions of the Underwriting Agreement
(the "Underwriting Agreement"), the underwriters named below (the
"Underwriters"), for whom EVEREN Securities, Inc., is acting as representative
(the "Representative"), have severally agreed to purchase an aggregate of
5,000,000 Trust Preferred Securities from the Trust. The number of Trust
Preferred Securities that each Underwriter has agreed to purchase is set forth
opposite its name below:
<TABLE>
NUMBER OF TRUST
UNDERWRITERS PREFERRED SECURITIES
- ----------------------- --------------------
<S> <C>
EVEREN Securities, Inc. ...............
---------
Total 5,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters who are parties thereunder are subject to certain conditions. If
any of the Trust Preferred Securities are purchased by the Underwriters
pursuant to the Underwriting Agreement, all of such Trust Preferred Securities
(other than the Trust Preferred Securities covered by the over-allotment option
described below) must be so purchased.
The Trust and the Company have been advised by the Representative that the
Underwriters propose to offer the Trust Preferred Securities to the public
initially at the price to the public set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not to exceed
$________ per Trust Preferred Security. The Underwriters may allow, and such
dealers may reallow, discounts not to exceed $________ per Trust Preferred
Security to certain other dealers. After the initial public offering of the
Trust Preferred Securities, the public offering price and the other selling
terms may be changed by the Representative. In view of the fact that the
proceeds of the sale of the Trust Preferred Securities will be used to purchase
the Junior Subordinated Debentures of the Company, the Underwriting Agreement
provides that the Company will pay as compensation to the Underwriters
arranging the investment therein of such proceeds, an amount in immediately
available funds of $.40 per Trust Preferred Security (or $2,000,000 in the
aggregate) for the accounts of the Underwriters.
The Trust has granted to the Underwriters an option to purchase up to an
additional $7,500,000 aggregate liquidation amount of Trust Preferred
Securities at the price to the public set forth on the cover page of this
Prospectus, solely to cover over-allotments, if any. To the extent that the
Underwriters exercise such option, each of the Underwriters will be committed,
subject to certain conditions, to purchase a number of option Trust Preferred
Securities proportionate to such Underwriter's initial commitment as indicated
in the preceding table.
The Trust and the Company have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
The Trust Preferred Securities are a new issue of securities with no
established trading market. The Trust will apply to have the Trust Preferred
Securities listed on the American Stock Exchange, subject to notice of
issuance. In order to meet the listing requirements of the American Stock
Exchange, the Representative has undertaken to distribute the Trust Preferred
Securities to a minimum of 400 public stockholders. The Representative has
advised the Trust and the Company that the Underwriters presently intend to
make a market in the Trust Preferred Securities after the commencement of
trading on the American Stock Exchange, but no assurances can be made as to the
liquidity of the Trust Preferred Securities or that an active and liquid
trading market will develop or, if developed, that it will continue. The
offering price and distribution rate have been determined by negotiations
between representatives of the Company and the Representative, and the Offering
price of the Trust Preferred Securities may not be indicative of the market
price following the Offering. The Underwriters will have no obligation to make
a market in the Trust Preferred Securities, however, and may cease
market-making activities, if commenced, at any time.
S-81
<PAGE> 87
The Trust and the Company have agreed with the Underwriters not to (other
than in connection with this Offering), directly or indirectly, offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase, or
otherwise issue any Trust Preferred Securities or Junior Subordinated
Debentures, any securities convertible into or exercisable or exchangeable for
Trust Preferred Securities, or any securities substantially similar to the
Trust Preferred Securities or Junior Subordinated Debentures, enter into any
swap or other agreement to do any of the foregoing, or file any registration
statement relating to any of the foregoing on behalf of itself or any other
person, for a period of 180 days after the date of this Prospectus Supplement,
without the written consent of EVEREN Securities, Inc.
In connection with the Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Trust Preferred
Securities. Such transactions may include stabilization transactions effected
in accordance with the Securities Exchange Act pursuant to which such persons
may bid for or purchase Trust Preferred Securities for the purpose of
stabilizing its market price. The Underwriters also may create a short
position for the account of the Underwriters by selling more Trust Preferred
Securities in connection with this Offering than they are committed to purchase
from the Trust, and in such case may purchase Trust Preferred Securities in the
open market following completion of the Offering to cover all or a portion of
such Trust Preferred Securities or may exercise the Underwriters'
over-allotment option referred to above. In addition, the Representative, on
behalf of the Underwriters, may impose "penalty bids" under contractual
arrangements with the Underwriters whereby they may reclaim from an Underwriter
(or dealer participating in the Offering), for the account of the other
Underwriters, the selling concession with respect to Trust Preferred Securities
that are distributed in this Offering but subsequently purchased for the
account of the Underwriters in the open market.
LEGAL MATTERS
The validity of the Guarantee and the Junior Subordinated Debentures will be
passed upon for the Company by Cooley Godward LLP, counsel to the Company.
Certain legal matters relating to the Offering will be passed upon for the
Underwriters by Gibson, Dunn & Crutcher LLP. Certain matters of Delaware law
relating to the validity of the Trust Preferred Securities, the enforceability
of the Trust Agreement and the creation of the Trust will be passed upon by
Richards, Layton & Finger, P.A., Wilmington, Delaware, special Delaware counsel
to the Company and the Trust. Richard, Layton & Finger, P.A., will also pass on
certain matters on behalf of Wilmington Trust Company in connection with the
Offering. Cooley Godward LLP and Gibson, Dunn & Crutcher LLP will rely on the
opinions of Richards, Layton & Finger, P.A. as to certain matters of Delaware
law. Certain matters relating to United States federal income tax
considerations will be passed upon for the Company by Cooley Godward LLP.
EXPERTS
The financial statements of the Company as of December 31, 1996 and 1997 and
for each of the years in the three-year period ended December 31, 1997 have
been included herein and in the registration statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
The Combined Balance Sheets of Suncoast Toys, Inc., NW Toys Co. and Oregon
Coin Company as of December 31, 1996 and 1997 and the Combined Statements of
Income, Stockholders' Equity and Cash Flows for each of the three years in the
period ended December 31, 1997 included in the Prospectus Supplement have been
included herein in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
S-82
<PAGE> 88
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Pro forma balance sheet as of March 31, 1998 . . . . . . . . . . . . . . . . . . . . . . . . F-3
Pro forma statements of earnings for the year ended
December 31, 1997 and for the three months ended March 31, 1998 . . . . . . . . . . . . . . . F-4
Notes to pro forma financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
AMERICAN COIN MERCHANDISING, INC.
Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . . . . . . . F-8
Financial Statements:
Balance sheets as of December 31, 1996 and 1997 and
March 31, 1998 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9
Statements of earnings for the years ended December 31, 1995, 1996
and 1997 and for the three months ended March 31, 1997 and 1998 (unaudited) . . . . . . F-10
Statements of stockholders' equity for the years ended December 31, 1995,
1996 and 1997 and for the three months ended March 31, 1998 (unaudited) . . . . . . . . F-11
Statements of cash flows for the years ended December 31, 1995, 1996
and 1997 and for the three months ended March 31, 1996 and 1997 (unaudited) . . . . . . F-12
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-13
SUNCOAST TOYS, INC., NW TOYS CO., OREGON COIN COMPANY
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . F-25
Combined Financial Statements:
Combined balance sheets as of December 31, 1996 and 1997 and March 31, 1998 (unaudited) F-26
Combined statements of income for the years ended December 31, 1995, 1996 and 1997
and for the three months ended March 31, 1997 and 1998 (unaudited) . . . . . . . . . . . F-27
Combined statements of stockholders' equity for the years ended December 31, 1995,
1996 and 1997 and for the three months ended March 31, 1998 (unaudited) . . . . . . . . F-28
Combined statements of cash flows for the years ended December 31, 1995, 1996
and 1997 and for the three months ended March 31, 1997 and 1998 (unaudited) . . . . . . F-29
Notes to Combined Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . F-30
</TABLE>
F-1
<PAGE> 89
<TABLE>
<S> <C>
Report of Independent Accountants on Supplemental Information . . . . . . . . . . . . . . . . F-33
Combining balance sheet as of December 31, 1997 . . . . . . . . . . . . . . . . . . F-34
Combining statement of income for the year ended December 31, 1997 . . . . . . . . F-35
</TABLE>
F-2
<PAGE> 90
PRO FORMA FINANCIAL DATA
The pro forma data set forth below have been derived from the Company's
financial statements. The unaudited pro forma financial data set forth below
gives effect to the Suncoast Acquisition, accounted for as a purchase, as if it
had occurred (i) on January 1, 1997 for the year ended December 31, 1997
statement of earnings data and January 1, 1998 for the three months ended March
31, 1998 statement of earnings data, and (ii) on March 31, 1998 for balance
sheet data. The summary pro forma data is not necessarily indicative of the
results that would have been achieved had such transaction been consummated on
such dates and should not be construed as representative of future operations.
Such pro forma data is subject to the assumptions set forth in the notes to the
unaudited pro forma financial statements appearing elsewhere in this Prospectus
Supplement. The information presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical and pro forma financial statements, and the notes
thereto, set forth elsewhere in this Prospectus Supplement.
F-3
<PAGE> 91
AMERICAN COIN MERCHANDISING, INC.
PRO FORMA FINANCIAL STATEMENTS
BALANCE SHEET
MARCH 31, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
COMBINED ADJUSTMENTS
SUNCOAST FOR THE
TOYS, INC., ACQUISITION
NW TOYS OF SUNCOAST
HISTORICAL CO. AND TOYS, INC.,
AMERICAN COIN OREGON NW TOY CO.
MERCHANDISING, TOY AND OREGON
INC. COMPANY TOY COMPANY PRO FORMA
-------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................ $ 2,251 8,577 (8,577)(a) 2,251
Trade accounts and other receivables..... 643 140 (140)(a) 643
Inventories.............................. 6,433 1,713 (170)(a) 7,976
Note receivable.......................... -- 350 (350)(a) --
Prepaid expenses and other assets........ 687 262 (262)(a) 687
----------- ------ ------ ------
Total current assets................. 10,014 11,042 (9,499) 11,557
----------- ------ ------ ------
Property and equipment, at cost:
Vending machines......................... 26,236 4,405 (4,405)(b) 28,655
2,419 (b)
Vehicles ................................ 5,314 412 (412)(b) 5,531
217 (b)
Office equipment, furniture and
fixtures................................ 1,481 93 (93)(b) 1,499
18 (b)
----------- ------ ------ ------
33,031 4,910 (2,256) 35,685
Less: accumulated depreciation........... (8,637) (3,180) 3,180 (b) (8,637)
----------- ------ ------ ------
Property and equipment, net.......... 24,394 1,730 924 27,048
Placement fees, net of accumulated
amortization........................... 285 -- 285
Cost in excess of assets acquired, net
of accumulated amortization............ 9,478 -- 25,846 (c) 35,324
Other assets............................. 54 43 (43)(a) 54
----------- ------ ------ ------
Total assets......................... $ 44,225 12,815 17,228 74,268
=========== ====== ====== ======
Current liabilities:
Current portion of long-term debt........ $ 1,277 -- 1,277
Notes payable to Control Group........... 337 -- 337
Income taxes payable..................... 465 -- 465
Accounts payable......................... 2,636 1,211 (1,211)(a) 2,636
Accrued commissions...................... 1,011 -- 1,011
Other accrued expenses................... 602 251 (251)(a) 602
----------- ------ ------ ------
Total current liabilities............ 6,328 1,462 (1,462) 6,328
Long-term debt, net of current portion... 6,602 -- 30,043 (d) 36,645
Deferred income taxes.................... 421 -- 421
----------- ------ ------ ------
Total liabilities.................... 13,351 1,462 28,581 43,394
Stockholders' equity:
Preferred stock........................... -- --
Common stock.............................. 65 53 (53)(e) 65
Additional paid in capital................ 21,943 20 (20)(e) 21,943
Unearned stock option compensation........ (15) -- (15)
Retained earnings......................... 8,881 11,280 (11,280)(e) 8,881
---------- ------ ------ ------
Total stockholders' equity................ 30,874 11,353 (11,353) 30,874
---------- ------ ------ ------
Commitments
Total liabilities and stockholders'
equity ................................. $ 44,225 12,815 17,228 74,268
=========== ====== ====== ======
</TABLE>
F-4
<PAGE> 92
AMERICAN COIN MERCHANDISING, INC.
PRO FORMA FINANCIAL STATEMENTS
STATEMENT OF EARNINGS
DECEMBER 31, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
COMBINED
SUNCOAST ADJUSTMENTS
TOYS, INC., FOR THE
NW TOYS ACQUISITION OF
HISTORICAL CO. AND SUNCOAST TOYS,
AMERICAN COIN OREGON INC., NW TOY
MERCHANDISING, TOY CO. AND OREGON
INC. COMPANY TOY COMPANY PRO FORMA
-------------- ----------- -------------- ---------
<S> <C> <C> <C> <C>
Revenue:
Vending .................................. $52,866 18,726 71,592
Franchise and other ...................... 6,218 1,156 7,374
------- ------ ------ ------
Total revenue .......................... 59,084 19,882 -- 78,966
------- ------ ------ ------
Cost of revenue:
Vending .................................. 37,506 12,795 (792)(f) 50,040
531 (f)
Franchise and other ...................... 3,967 491 4,458
------- ------ ------ ------
Total cost of revenue .................. 41,473 13,286 (261) 54,498
Gross profit ........................... 17,611 6,596 261 24,468
General and administrative expenses ........ 10,314 2,523 1,292(g) 14,129
------- ------ ------ ------
Operating earnings ..................... 7,297 4,073 (1,031) 10,339
Interest expense, related parties .......... 76 -- 76
Interest expense (income), other, net ...... 536 (336) 2,554(h) 2,754
------- ------ ------ ------
Earnings before taxes .................. 6,685 4,409 (3,585) 7,509
Provision for income taxes ................. 2,256 -- 278(i) 2,534
------- ------ ------ ------
Net earnings ........................... $ 4,429 4,409 (3,863) 4,975
======= ====== ====== ======
</TABLE>
F-5
<PAGE> 93
AMERICAN COIN MERCHANDISING, INC.
PRO FORMA FINANCIAL STATEMENTS
STATEMENT OF EARNINGS
THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
COMBINED
SUNCOAST ADJUSTMENTS
TOYS, INC., FOR THE
NW TOYS ACQUISITION OF
HISTORICAL CO. AND SUNCOAST TOYS,
AMERICAN COIN OREGON INC., NW TOY
MERCHANDISING, TOY CO. AND OREGON
INC. COMPANY TOY COMPANY PRO FORMA
-------------- ----------- -------------- ---------
<S> <C> <C> <C> <C>
Revenue:
Vending ................................... $17,615 5,266 22,881
Franchise and other ....................... 1,146 85 1,231
------- ----- ------ ------
Total revenue ........................... 18,761 5,351 24,112
Cost of revenue:
Vending ................................... 12,614 3,570 (198)(f) 16,119
133 (f)
Franchise and other ....................... 680 64 744
------- ----- ------ ------
Total cost of revenue ................... 13,294 3,634 (65) 16,863
Gross profit ............................ 5,467 1,717 65 7,249
General and administrative expenses ......... 3,526 521 323 (g) 4,370
------- ----- ------ ------
Operating earnings ...................... 1,941 1,196 (258) 2,879
Interest expense, related parties ........... 11 -- 11
Interest expense (income), other, net ....... 107 (112) 638 (h) 633
------- ----- ------ ------
Earnings before taxes ................... 1,823 1,308 (896) 2,235
Provisions for income taxes ................. 638 -- 144 (i) 782
------- ----- ------ ------
Net earnings ............................ $ 1,185 1,308 (1,040) 1,453
======= ===== ====== ======
</TABLE>
- ----------
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(a) Represents the elimination of certain historical working capital items of
the Companies, as the purchase excluded working capital, except for
inventory, which was $1,543,000 at the purchase date. The calculation of
inventory acquired is based on an estimate of the fair value of the
inventory acquired.
(b) Represents the elimination of historical property and equipment items of
the Companies, and the recording of the fair value of such property and
equipment acquired, is based on management's estimates of the fair value.
(c) Represents the purchase price in excess of the fair value of the net assets
acquired.
(d) Represents borrowings under the Company's credit facility to finance the
purchase.
(e) Represents the elimination of the historical equity accounts of the
Companies, as a result of the acquisition.
(f) Represents adjustments to depreciation expense as a result of the
impacts of presenting the property and equipment at fair value and
conforming the method of depreciation from an accelerated method used
by the Companies to the straight-line method used by the Company.
F-6
<PAGE> 94
(g) Represents the amortization of costs in excess of assets acquired.
Amortization expense is computed on a straight- line basis over 20 years.
(h) Represents interest expense as a result of the increased borrowings under
the Company's line of credit to finance the purchase. Interest expense on
such borrowings is calculated using an assumed interest rate of 8.5%
(i) Represents additional income tax expense for: (i) the income of the
Companies, as no income tax expense has historically been included in the
financial statements of the Companies as the Companies are S Corporations,
and (ii) the tax effects of the pro forma adjustments above. Income tax
expense is computed using the Company's statutory income tax rate.
F-7
<PAGE> 95
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
American Coin Merchandising, Inc.:
We have audited the accompanying balance sheets of American Coin
Merchandising, Inc. (formerly American Coin Merchandising, Inc. and affiliates
through August 31, 1995) as of December 31, 1997 and 1996, and the related
statements of earnings, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Coin Merchandising,
Inc. as of December 31, 1997 and 1996, and the results of its operations and
its cash flows for each of the years in the three-year period ended December
31, 1997, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Boulder, Colorado
February 20, 1998
F-8
<PAGE> 96
AMERICAN COIN MERCHANDISING, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997 1998
(UNAUDITED)
-------- -------- ----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents ................................. $ 771 $ 1,929 $ 2,251
Trade accounts and other receivables ...................... 673 979 643
Inventories ............................................... 4,329 5,625 6,433
Prepaid expenses and other assets ......................... 164 365 687
-------- -------- --------
Total current assets .................................. 5,937 8,898 10,014
-------- -------- --------
Property and equipment, at cost:
Vending machines .......................................... 12,446 22,829 26,236
Vehicles .................................................. 2,095 4,652 5,314
Office equipment, furniture and fixtures .................. 527 1,242 1,481
-------- -------- --------
15,068 28,723 33,031
Less accumulated depreciation ............................. (4,697) (7,557) (8,637)
-------- -------- --------
Property and equipment, net ........................... 10,371 21,166 24,394
-------- -------- --------
Placement fees, net of accumulated amortization ............. 183 281 285
Deferred income taxes ....................................... 42 -- --
Cost in excess of assets acquired, net of accumulated
amortization .............................................. 3,209 6,682 9,478
Other assets ................................................ 16 50 54
-------- -------- --------
Total assets .......................................... $ 19,758 $ 37,077 $ 44,225
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ......................... $ 435 $ 945 $ 1,277
Current portion of notes payable to Control Group ......... 674 674 337
Income taxes payable ...................................... 279 317 465
Accounts payable .......................................... 544 1,680 2,636
Accrued commissions ....................................... 747 1,001 1,011
Other accrued expenses .................................... 344 655 602
-------- -------- --------
Total current liabilities ............................. 3,023 5,272 6,328
Long-term debt, net of current portion ...................... 4,384 1,292 6,602
Notes payable to Control Group, net of current portion ...... 675 -- --
Deferred Income Taxes ....................................... -- 421 421
-------- -------- --------
Total liabilities ..................................... 8,082 6,985 13,351
-------- -------- --------
Stockholders' equity:
Preferred stock, $.10 par value (Authorized 500,000 shares;
none issued) ............................................ -- -- --
Common stock, $.01 par value (Authorized 20,000,000 shares;
issued and outstanding 5,123,274 and 6,452,904 in 1996
and 1997, respectively, 6,467,903 at March 31, 1998) .... 51 65 65
Additional paid-in-capital ................................ 8,407 22,352 21,943
Unearned stock option compensation ........................ (49) (21) (15)
Retained earnings ......................................... 3,267 7,696 8,881
-------- -------- --------
Total stockholders' equity ............................ 11,676 30,092 30,874
-------- -------- --------
Commitments
Total liabilities and stockholders' equity ............ $ 19,758 $ 37,077 $ 44,225
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-9
<PAGE> 97
AMERICAN COIN MERCHANDISING, INC. (a)
STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- -------------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Vending ........................................ $17,031 $30,439 $52,866 $10,756 $17,615
Franchise and other ............................ 8,683 7,828 6,218 1,601 1,146
------- ------- ------- ------- -------
Total revenue .............................. 25,714 38,267 59,084 12,357 18,761
------- ------- ------- ------- -------
Cost of revenue:
Vending ........................................ 11,701 21,283 37,506 7,599 12,614
Franchise and other ............................ 6,054 5,659 3,967 952 680
------- ------- ------- ------- -------
Total cost of revenue ...................... 17,755 26,942 41,473 8,551 13,294
------- ------- ------- ------- -------
Gross profit ............................... 7,959 11,325 17,611 3,806 5,467
General and administrative expenses .............. 4,218 7,053 10,314 2,296 3,526
Commissions and royalties, related parties ....... 347 -- -- -- --
------- ------- ------- ------- -------
Operating earnings ......................... 3,394 4,272 7,297 1,510 1,941
------- ------- ------- ------- -------
Interest expense, related parties ................ 224 108 76 25 11
Interest expense, other .......................... 159 267 536 86 107
Minority interest in income of combined affiliates 80 -- -- -- --
Share of loss of equity affiliate ................ 27 -- -- -- --
------- ------- ------- ------- -------
Earnings before taxes ...................... 2,904 3,897 6,685 1,399 1,823
Provision for income taxes ....................... 329 1,311 2,256 518 638
------- ------- ------- ------- -------
Net earnings ............................... $ 2,575 $ 2,586 $ 4,429 $ 881 $ 1,185
======= ======= ======= ======= =======
Basic earnings per share of common stock ......... $ 0.51 $ 0.80 $ 0.17 $ 0.18
Diluted earnings per share of common stock ....... 0.48 0.78 0.16 0.18
Basic weighted average of common shares .......... 5,092 5,565 5,251 6,457
Diluted weighted average of common shares......... 5,417 5,694 5,425 6,649
Pro forma information:
Historical earnings before taxes....... $ 2,904
Pro forma adjustments to earnings
before taxes.......................... 1,207
-------
Pro forma earnings before taxes......... 4,111
Pro forma income tax expense............ (1,562)
-------
Pro forma net earnings.................. $ 2,549
=======
Pro forma earnings per common and
common equivalent share:
Pro forma basic earnings per share...... $ 0.59
Pro forma diluted earnings per share.... 0.55
Pro forma basic weighted average
common share.......................... 4,299
Pro forma diluted weighted average
common share.......................... 4,669
</TABLE>
- ----------
(a) Through August 31, 1995, represents combined financial statements of
American Coin Merchandising, Inc. and the Affiliates Entities (see note 1).
See accompanying notes to financial statements.
F-10
<PAGE> 98
AMERICAN COIN MERCHANDISING, INC. (a)
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
TOTAL
ADDITIONAL UNEARNED STOCK-
COMMON PAID-IN STOCK OPTION RETAINED EQUITY OF HOLDERS'
STOCK CAPITAL COMPENSATION EARNINGS AFFILIATES EQUITY
------ ---------- ------------ -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1994 ........................... $ 31 $ 34 $ -- $ 443 $ 706 $ 1,214
Issuance of 1,700,000 common stock in
public offering, net....................... 17 10,034 -- -- -- 10,051
Issuance of employee stock options .......... -- 80 (80) -- -- --
Exercise of employee stock options .......... 2 3 -- -- -- 5
Conversion of stockholder loans ............. 1 675 -- -- -- 676
Net earnings ................................ -- -- -- 2,072 503 2,575
Distributions ............................... -- -- -- (634) (420) (1,054)
Distribution to Control Group in
conjunction with Reorganization ........... -- -- -- (4,162) (789) (4,951)
Deferred tax asset established in
Reorganization ............................ -- 491 -- -- -- 491
Termination of S corporation tax
status..................................... -- (2,962) -- 2,962 -- --
---- -------- ------ ------- ------- --------
December 31, 1995 ........................... 51 8,355 (80) 681 -- 9,007
Amortization of deferred compensation ....... -- -- 26 -- -- 26
Tax benefit related to employee stock
options ................................... -- 57 -- -- -- 57
Exercise of employee stock options .......... -- 1 -- -- -- 1
Termination of employee stock options ....... -- (6) 5 -- -- (1)
Net earnings ................................ -- -- -- 2,586 -- 2,586
---- -------- ------ ------- ------- --------
December 31, 1996 ........................... 51 8,407 (49) 3,267 -- 11,676
Issuance of 1,000,000 common stock in
public offering, net....................... 10 13,915 -- -- -- 13,925
Amortization of deferred compensation ....... -- -- 22 -- -- 22
Exercise of employee stock options .......... 4 39 -- -- -- 43
Termination of employee stock options ....... -- (9) 6 -- -- (3)
Net earnings ................................ -- -- -- 4,429 -- 4,429
---- -------- ------ ------- ------- --------
December 31, 1997 ........................... 65 22,352 (21) 7,696 -- 30,092
Acquisition of 70,000 warrants to
purchase common stock ..................... -- (492) -- -- -- (492)
Amortization of deferred compensation ....... -- -- 5 -- -- 5
Exercise of employee stock options .......... -- 84 -- -- -- 84
Termination of employee stock options ....... -- (1) 1 -- -- --
Net earnings ................................ -- -- -- 1,185 -- 1,185
---- -------- ------ ------- ------- --------
March 31, 1998 (unaudited) .................. 65 21,943 (15) 8,881 -- 30,874
==== ======== ====== ======= ======= ========
</TABLE>
- ----------
(a) Through August 31, 1995, represents combined financial statements of
American Coin Merchandising, Inc. and the Affiliates Entities (see note 1).
See accompanying notes to financial statements.
F-11
<PAGE> 99
AMERICAN COIN MERCHANDISING, INC. (a)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------- --------------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net earnings ......................................... $ 2,575 $ 2,586 $ 4,429 $ 881 $ 1,185
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization ...................... 930 1,891 3,292 623 1,282
Affiliate losses ................................... 72 -- -- -- --
Compensation expense related to stock
options .......................................... -- 25 19 5 5
Deferred income tax expense ........................ 141 308 463 -- --
Changes in operating assets and liabilities,
net of Reorganization and acquisitions:
Trade accounts and other receivables,
net .......................................... (206) 53 (332) (23) 336
Inventories .................................... (1,650) (756) (1,026) 222 (557)
Prepaid expenses and other assets .............. (182) 10 (233) (160) (307)
Income taxes payable ........................... 188 148 38 194 148
Accounts payable and accrued expenses .......... 994 (49) 1,701 1,226 913
------- ------- ------- ------- -------
Net cash provided by operating
activities ................................ 2,862 4,216 8,351 2,968 3,005
------- ------- ------- ------- -------
Investing activities:
Acquisitions of property and equipment, net .......... (2,234) (6,052) (12,168) (2,866) (3,747)
Acquisitions of franchisees and other................. (160) (1,224) (3,669) -- (2,600)
Acquisition of non-Control Group interests in
Reorganization ..................................... (3,125) -- -- -- --
Placement fees ....................................... (20) (192) (242) (156) (33)
Change in notes receivable ........................... 31 20 -- -- --
------- ------- ------- ------- -------
Net cash used in investing activities ....... (5,508) (7,448) (16,079) (3,022) (6,380)
------- ------- ------- ------- -------
Financing activities:
Net borrowings (payments) on revolving line of
credit ............................................. (121) 3,381 (3,787) 340 4,714
Principal payments on notes payable to related
parties ............................................ (167) -- -- -- --
Proceeds from issuance of notes payable to
related parties .................................... 22 -- -- -- --
Principal payments on long-term debt ................. (1,172) (1,559) (620) (110) (272)
Principal payments on notes payable to Control
Group .............................................. -- -- (675) (338) (337)
Proceeds from issuance of long-term debt ............. 516 1,224 -- -- --
Distributions ........................................ (420) (634) -- -- --
Payments to Control Group in Reorganization .......... (4,509) -- -- -- --
Cash retained by combined affiliates in
Reorganization ..................................... (326) -- -- -- --
Acquisition of warrants .............................. -- -- -- -- (492)
Issuance of common stock, net of offering
costs .............................................. 10,056 1 13,968 4 84
------- ------- ------- ------- -------
Net cash provided by (used in)
financing activities ...................... 3,879 2,413 8,886 (104) 3,697
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents .......................................... 1,233 (819) 1,158 (158) 322
Cash and cash equivalents at beginning of period ....... 357 1,590 771 771 1,929
------- ------- ------- ------- -------
Cash and cash equivalents at end of period ............. $ 1,590 $ 771 $ 1,929 $ 613 $ 2,251
======= ======= ======= ======= =======
</TABLE>
- ----------
(a) Through August 31, 1995, represents combined financial statements of
American Coin Merchandising, Inc. and the Affiliates Entities (see Note 1).
See accompanying notes to financial statements.
F-12
<PAGE> 100
AMERICAN COIN MERCHANDISING, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1998 IS UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
American Coin Merchandising, Inc., d/b/a Sugarloaf Creations, Inc. (the
"Company") and its franchisees own and operate coin-operated skill-crane
machines ("Shoppes") that dispense stuffed animals, plush toys, watches,
jewelry and other items. The Company's Shoppes are placed in supermarkets, mass
merchandisers, bowling centers, bingo halls, bars, restaurants, warehouse clubs
and similar locations. The Company also operates bulk vending equipment and
kiddie rides that are located primarily in supermarkets and mass merchandisers.
At March 31, 1998, the Company has 34 field offices operating in 40 states. The
Company also sells products to franchisees. At December 31, 1997 there were 20
Company franchises in operation.
Prior to August 31, 1995, the date of the Reorganization described below,
certain stockholders of the Company, who collectively owned a controlling
interest in the Company at such time (the "Control Group"), owned interests in
the eight affiliated entities (the "Affiliated Entities") which were
franchisees of the Company. Except as noted below, each of the Affiliated
Entities began operations prior to January 1, 1993. The Control Group owned
greater than 50% of the outstanding common stock or partnership interests of
seven of the Affiliated Entities and less than 50% of the eighth, as follows:
Affiliated Entities:
Combined affiliates:
Chicago Toy Company
Georgia Toy Company
Inland Merchandising, Inc. (began operations in June 1993)
Lehigh Valley Toy Company
Performance Merchandising, Inc.
Southwest Coin Company
Sugarloaf, Ltd. (began operations in January 1993)
Equity affiliate:
Sugarloaf Marketing, Inc.
Due to the common controlling ownership, the accompanying financial
statements include the accounts of the Company and the combined affiliates
(collectively referred to as the "Combined Companies") through August 31, 1995.
All material intercompany balances and transactions have been eliminated.
Through August 31, 1995 the Control Group's interest has been accounted for as
equity of affiliates and the other stockholders' interests have been reflected
as a minority interest. As such, the assets and liabilities of the Combined
Companies have been accounted for in the financial statements based upon their
historical costs through August 31, 1995. The financial statements account for
the Control Group ownership interest in Sugarloaf Marketing, Inc. using the
equity method of accounting through August 31, 1995.
On August 31, 1995, the Company acquired substantially all of the
inventories, property and equipment, and assumed certain facilities leases,
which are operating leases, and contracts of the Affiliated Entities in
exchange for promissory notes in the principal amount of $8,983,000 (the
"Reorganization"), of which $7,634,000 was paid from the proceeds of the
Company's initial public offering in October 1995. The remaining promissory
notes in the principal amount of $674,000 are payable in 1998. As a result of
the Reorganization, assets attributable to the Control Group's interest have
been accounted for similar to the pooling-of-interests method of accounting for
business combinations. Assets and liabilities included in the financial
statements which were retained by the combined affiliates in the Reorganization
have been accounted for as distributions to the combined affiliates. Amounts
paid to the combined affiliates attributed to the Control Group interest have
been accounted for as a distribution for financial reporting purposes. Assets
transferred attributable to the non-Control Group members (the minority
interest in the combined affiliates and the majority interest in the equity
affiliate) have been accounted for using the purchase method of accounting for
business combinations. The Company has recorded approximately
F-13
<PAGE> 101
$1,964,000 of costs in excess of assets acquired as a result of the transfer of
assets attributable to the non-Control Group. The Reorganization was a taxable
transaction for income tax purposes, and accordingly, the Company has a tax
basis in the transferred assets in excess of that for financial reporting.
2. ACQUISITIONS
During the three months ended March 31, 1998, the Company acquired certain
assets and the operations of one of its franchisees, the operating assets of a
bulk vending company and certain assets of a kiddie ride company for
approximately $3,783,000. Of this amount, $2,583,000 was paid in cash with the
balance to be paid over a three-year period in accordance with the terms of the
promissory notes issued in connection with the acquisition. The Company has
recorded approximately $2,903,000 of cost in excess of assets acquired as a
result of the acquisitions that were accounted for using the purchase method of
accounting.
During 1997, the Company acquired in July, October and December certain
assets and the business operations of three of its franchisees and also
acquired the operating assets of a bulk vending and kiddie ride company in
November for approximately $5,494,000. Of this amount, $3,669,000 was paid in
cash with the balance to be paid over a three-year periods in accordance with
the terms of the promissory notes issued in connection with the acquisitions.
The Company has recorded approximately $3,685,000 of costs in excess of assets
acquired as a result of these acquisitions that were accounted for using the
purchase method of accounting.
During 1996, the Company acquired in January, July and August certain assets
and the business operations of three of its franchisees and also acquired the
operating assets of a skill-crane service company in May for approximately
$2,103,000. Of this amount, $1,224,000 was paid in cash with the balance to be
paid over two to three year periods in accordance with the terms of the
promissory notes issued in connection with the acquisitions. The Company has
recorded approximately $1,239,000 of costs in excess of assets acquired as a
result of these acquisitions that were accounted for using the purchase method
of accounting.
In September 1995, the Company acquired certain assets and the business
operation of one of its franchisees for approximately $346,000. Of this amount,
$158,000 was paid in cash with the balance to be paid over a three-year period
in accordance with the terms of a promissory note issued in connection with the
acquisition. The Company has recorded approximately $187,000 of costs in excess
of assets acquired as a result of this acquisition that was accounted for using
the purchase method of accounting.
The pro forma effect of these acquisitions is not material to assets,
revenue or net earnings for the three months ended March 31, 1998 and the years
ended December 31, 1995, 1996 and 1997.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
VENDING
Vending revenue represents cash receipts from customers using vending
machines and is recognized when collected. The cost of vending is comprised
primarily of the cost of products vended through the machines, the servicing of
machines and commissions paid to retail locations.
FRANCHISE ROYALTIES AND FEES
Typically, franchisees are required to pay continuing royalties ranging from
2% to 5% of gross machine revenue. Franchisees are required to pay an initial
nonrefundable franchise fee. Initial franchise fees are recognized as revenue
when the franchise opens. Included in franchise and other revenue are
continuing franchise royalties and initial franchise fee revenue of $86,000 for
1995.
INCOME TAXES
Prior to October 13, 1995 the Company had elected tax treatment as an S
corporation, and the combined affiliates were each organized as S corporations,
except for Southwest Coin Company which was organized as a partnership.
Accordingly, through October 12, 1995, no provisions were made for income taxes
since all income, deductions, gains, losses and credits were reported on the
tax returns of the stockholders or partners. The S corporation status of the
Company terminated on October 12, 1995 and, accordingly, the Company became a
taxable entity.
Effective October 13, 1995, the Company adopted the provisions of Statement
of Financial Accounting Standards Statement No. 109, "Accounting for Income
Taxes" (SFAS 109). Under the asset and liability method of
F-14
<PAGE> 102
accounting for income taxes, as prescribed by SFAS 109, deferred income taxes
reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and amounts
used for income tax purposes. Deferred tax assets and liabilities are measured
using enacted tax rates expected to be in effect for the year in which those
temporary differences are expected to be recovered or settled. The effects on
deferred tax assets and liabilities of a change in tax rates are recognized in
income in the period that includes the enactment date.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers as cash equivalents all highly liquid investments with
an original maturity of three months or less.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method. Inventories consist of purchased items
ready for resale or use in vending operations.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is calculated on the
straight-line and accelerated methods over the estimated useful lives of the
assets that range from 3 to 7 years.
COST IN EXCESS OF ASSETS ACQUIRED
Cost in excess of assets acquired represents the purchase amount paid in
excess of the fair market value of the tangible net assets acquired and is
amortized using the straight-line method over a 20-year period.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company reviews its long-lived assets and intangibles for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of the asset to the
future net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceed the fair value of the
assets.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share (Statement No.
128) effective for periods ending after December 15, 1997. Statement No. 128
changes the computation, presentation and disclosure requirements for earnings
per share for entities with publicly held common stock or potential common
stock. Under such requirements the Company is required to present both basic
earnings per share and diluted earnings per share. Basic earnings and diluted
earnings per share are computed by dividing earnings available to common
stockholders by the weighted average number of common shares outstanding during
the period and by all dilutive potential common shares outstanding during the
period, respectively. The Company adopted the provisions of Statement No. 128
as of December 31, 1997. As prescribed by Statement No. 128, the Company has
restated prior periods' earnings per share of common stock, including interim
earnings per share of common stock, in the period of adoption. Such amounts are
as follows:
F-15
<PAGE> 103
<TABLE>
<CAPTION>
YEAR
ENDED QUARTER ENDED (UNAUDITED)
-------- ---------------------------------------------------------------------------
DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30
1996 1996 1996 1996 1996 1997 1997 1997
-------- -------- ------- -------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings per share of
common stock as
previously reported............ $ 0.48 $ 0.09 $ 0.07 $ 0.11 $ 0.21 $ 0.16 $ 0.16 $ 0.18
Basic earnings per
share of common stock.......... $ 0.51 $ 0.10 $ 0.07 $ 0.11 $ 0.22 $ 0.17 $ 0.16 $ 0.18
Diluted earnings per
share of common stock.......... $ 0.48 $ 0.09 $ 0.07 $ 0.11 $ 0.21 $ 0.16 $ 0.16 $ 0.18
</TABLE>
Net earnings per share have been omitted for 1995 because through August 31,
1995 the Combined Companies were not a single entity with its own capital
structure.
INTERIM FINANCIAL STATEMENTS
The financial statements as of March 31, 1998 and for the three months ended
March 31, 1997 and 1998 are unaudited but, in the opinion of management,
include all adjustments, consisting of normal recurring adjustments, which are
necessary for a fair presentation of the financial condition, results of
operations, and cash flows. The operating results for the three months ended
March 31, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998.
RECLASSIFICATIONS
Certain amounts for prior periods have been reclassified to conform to the
March 31, 1998 presentation.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
A schedule of supplemental cash flow information follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash paid during the year:
Interest paid............................................ 370,000 372,000 640,000 143,000 119,000
Income taxes paid........................................ -- 858,000 1,755,000 323,000 490,000
Significant noncash investing and financing
activities:
Equipment purchases financed with debt................... 241,000 54,000 -- -- --
Notes payable issued for acquisitions of franchisees .... 188,000 879,000 1,825,000 -- 1,200,000
Distribution payable..................................... 634,000 -- -- -- --
Deferred tax asset established in Reorganization......... 491,000 -- -- -- --
Conversion of stockholder loans into common stock........ 676,000 -- -- -- --
Cash paid in Reorganization:
Value of tangible assets acquired........................ 983,000
Costs in excess of assets acquired....................... 1,964,000
Net liabilities retained by combined affiliates,
excluding cash retained................................. 1,310,000
Notes payable to Control Group........................... (1,349,000)
Net elimination of investment in equity
affiliate and minority interest......................... 101,000
Distribution to Control Group............................ 4,951,000
Cash paid and retained (1)........................... 7,960,000
</TABLE>
- ----------
(1) Includes $326,000 of cash retained by the combined affiliates.
F-16
<PAGE> 104
4. INVESTMENT IN EQUITY AFFILIATE
Prior to the Reorganization, investment in equity affiliate consisted of a
48% interest in 1995 in Sugarloaf Marketing, Inc. (Sugarloaf Marketing) which
was accounted for using the equity method (see note 1). On August 31, 1995, in
connection with the Reorganization, the Company acquired the remaining 52%
ownership in Sugarloaf Marketing. The acquisition has been accounted for using
the purchase method of accounting for business combinations. The operating
results of Sugarloaf Marketing are included in the Company's earnings statement
from the date of the acquisition. Pro forma results of operations for 1995 as
if the Reorganization, including the acquisition of Sugarloaf Marketing, had
occurred on January 1, 1995 are presented in note 14.
For the eight months ended August 31, 1995, Sugarloaf Marketing had revenue
and a net loss of $3,941,000 and $57,000, respectively. Included in 1995
franchise and other revenue is $712,000 representing product and service sales
and franchise royalties for the eight months ended August 31, 1995.
Transactions with Sugarloaf Marketing were conducted on a basis consistent with
that of unaffiliated franchisees.
5. BANK REVOLVING LINE OF CREDIT
Under its current revolving credit agreement, the Company may borrow up to
$15.0 million at the bank's prime interest rate (8.5% at December 31, 1997 and
8.5% at March 31, 1998) or, at the Company's option, an interest rate based on
the current LIBOR rate. The revolving line of credit is available through July
5, 1999. At December 31, 1997 there was no principal amount outstanding. At
March 31, 1998, there was a principal amount of approximately $4,714,000
outstanding on this facility that is reflected in long-term debt on the
accompanying balance sheet. The credit agreement provides that certain
financial ratios be met and places restrictions on, among other things, the
occurrence of additional debt financing and the payment of dividends. The
Company was in compliance with such financial ratios and restrictions at March
31, 1998.
At December 31, 1997 and March 31, 1998, approximately $161,000 and $89,000,
respectively, of the credit facility was committed on open letters of credit
for inventory on order but not yet received.
F-17
<PAGE> 105
6. LONG-TERM DEBT AND NOTES PAYABLE TO CONTROL GROUP
Long-term debt and notes payable to control group consists of the following:
<TABLE>
DECEMBER 31,
---------------------- MARCH 31,
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Long-term debt:
Bank revolving line of credit (see note 5) ........................... $3,787,000 -- 4,714,000
Notes payable to former franchisees and others, due in monthly and
quarterly installments with interest ranging from 8% to 8.5%;
final payments at various dates through October 2000, secured
by certain property and equipment ................................. 871,000 2,181,000 3,131,000
Notes payable to banks, due in monthly installments with interest
ranging from 8.25% to 12.95%; final payments at various dates
through August 2000; secured by certain property and equipment .... 161,000 56,000 17,000
--------- --------- ---------
Total long-term debt .............................................. 4,819,000 2,237,000 7,862,000
Less current portion ................................................. (435,000) (945,000) (1,277,000)
--------- --------- ---------
Long-term debt, net of current portion ............................ 4,384,000 1,292,000 6,585,000
========= ========= =========
Notes payable to Control Group:
Promissory notes to Affiliated Entities, due in semi-annual
principal payments with interest at 8%; notes are secured by
assets exchanged (see note 1) ..................................... 1,349,000 674,000 337,155
Less current portion ................................................. (674,000) (674,000) (337,155)
--------- --------- ---------
Notes payable to Control Group, net of current portion ............ 675,000 -- --
========= ========= =========
</TABLE>
The carrying amount of long-term debt and notes payable to control group
approximates its fair value.
Maturities of long-term debt and notes payable to Control Group as of December
31, 1997 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1998 . . . . . . . . . . . . . . . . . . . . . . $ 1,619,000
1999 . . . . . . . . . . . . . . . . . . . . . . 793,000
2000 . . . . . . . . . . . . . . . . . . . . . . 499,000
------------
$ 2,911,000
============
</TABLE>
7. INCOME TAXES
Prior to October 13, 1995, the Company was an S corporation and was not
subject to income taxes. The S corporation status of the Company terminated on
October 12, 1995. As a result of the termination of the Company's S corporation
status, the Company incurred a one-time deferred tax expense of $141,000.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1996 1997
---- ---- ----
Current
<S> <C> <C> <C>
Federal . . . . . . . . . . . . . . . . . $160,000 $ 869,000 $ 1,507,000
State . . . . . . . . . . . . . . . . . . 28,000 134,000 286,000
-------- ---------- -----------
188,000 1,003,000 1,793,000
-------- ---------- -----------
Deferred
Federal . . . . . . . . . . . . . . . . . 119,000 267,000 393,000
State . . . . . . . . . . . . . . . . . . 22,000 41,000 70,000
-------- ---------- -----------
141,000 308,000 463,000
-------- ---------- -----------
$329,000 $1,311,000 $ 2,256,000
======== ========== ===========
</TABLE>
F-18
<PAGE> 106
A reconciliation of the expected tax expense, assuming income before taxes is
taxed at the statutory federal tax rate of 34%, and the Company's actual
provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1996 1997
-------- ---------- ----------
<S> <C> <C> <C>
Expected tax expense at the federal statutory rate ................. $987,000 $1,325,000 $2,273,000
State income taxes, net of federal taxes ........................... 33,000 116,000 265,000
Change in valuation allowance ...................................... -- (171,000) (292,000)
Termination of S corporation status ................................ 141,000 -- --
S corporation income ............................................... (811,000) -- --
Other .............................................................. (21,000) 41,000 10,000
-------- ---------- ----------
$329,000 $1,311,000 $2,256,000
======== ========== ==========
</TABLE>
The sources and tax effects of temporary differences between financial
statement carrying amounts and the tax bases of assets and liabilities are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Costs in excess of assets acquired-basis
and amortization differences .................. $ 1,157,000 $ 1,034,000
Valuation allowance ............................... 832,000 540,000
----------- -----------
325,000 494,000
Deferred tax liabilities:
Property and equipment-basis and
depreciation differences ...................... (283,000) (915,000)
----------- -----------
$ 42,000 $ (421,000)
=========== ===========
</TABLE>
8. COMMISSIONS AND ROYALTIES TO RELATED PARTIES
The Company recognized commission expense of $232,000 in 1995 for services
provided by two other corporations whose stockholders were the majority
stockholders of the Company. In addition, the Company recognized royalty
expense of $115,000 in 1995 to a trust controlled by a stockholder of one of
the combined affiliates.
9. RETIREMENT PLAN
The Company maintains a 401(k) profit sharing plan, which covers
substantially all employees. Employees are permitted to contribute up to 15% of
their eligible compensation. The Company makes contributions to the plan
matching 50% of the employees' contribution up to 10% of compensation. The
Company's matching contributions totaled $17,000, $49,000 and $113,000 in 1995,
1996 and 1997, and totaled $25,000 and $43,000 for the three months ended March
31, 1997 and 1998, respectively.
10. COMMITMENTS
Leases
The Company has several noncancelable operating leases, primarily for office
and warehouse facilities and certain types of equipment. These leases expire at
various times over the next five years. Rent expense under these leases totaled
$190,000, $275,000 and $489,000 for the years ended December 31, 1995, 1996 and
1997, and totaled $122,000 and $192,000 for the three months ended March 31,
1997 and 1998, respectively.
F-19
<PAGE> 107
Future minimum commitments under operating leasing arrangements as of
December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998 . . . . . . . . . . . . . . . . . . . . . . . . $ 599,000
1999 . . . . . . . . . . . . . . . . . . . . . . . . 452,000
2000 . . . . . . . . . . . . . . . . . . . . . . . . 332,000
2001 . . . . . . . . . . . . . . . . . . . . . . . . 215,000
2002 and thereafter . . . . . . . . . . . . . . . . 250,000
-----------
Total . . . . . . . . . . . . . . . . . . . . . . $ 1,848,000
===========
</TABLE>
11. STOCK OPTIONS
The Company has two fixed option plans. Under the terms of the amended and
restated stock option plan (the "Option Plan"), the Company may grant to
employees, consultants and advisors up to 1,400,000 shares of common stock.
Under the Option Plan, the Company may grant both incentive stock options and
non-statutory stock options, and the maximum term is ten years. Non-statutory
options may be granted at no less than 85% of the fair market value of the
common stock at the date of grant. Stock options granted under the Option Plan
vest over a three to five year period.
Under terms of the amended 1995 Non-Employee Directors' Stock Option Plan
(the "Directors Plan"), the Company may grant to non-employee directors options
to purchase up to 100,000 shares of common stock. Under the Directors Plan,
options granted vest over a three-year period and have a maximum term of ten
years.
The Company applies APB Opinion No. 25 and the related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
for options granted at fair market value under the plans. The compensation cost
that has been charged against income for options granted at a price less than
fair market value was $25,000 in 1996 and $19,000 in 1997. Had compensation
cost for the Company's stock-based compensation plans been determined
consistent with SFAS No. 123, the Company's net earnings and diluted earnings
per share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------ -----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net earnings As reported $2,575,000 $2,586,000 $4,429,000 $ 881,000 $1,185,000
Pro forma 2,559,000 2,489,000 4,234,000 849,000 1,099,000
Diluted earnings per share As reported N/A 0.48 0.78 0.16 0.18
As restated N/A 0.48 N/A N/A N/A
Pro forma N/A 0.46 0.74 0.18 0.17
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1995, 1996 and 1997: no dividend yield; expected
volatility of 60 percent for 1997 and 81 percent for 1995 and 1996; risk-free
interest rates of 6.0 percent; and expected lives of six years.
The effect of applying SFAS No. 123, in the above pro forma disclosure, does
not purport to be representative of the effect on net earnings for future
years.
F-20
<PAGE> 108
A summary of the status of the Company's two fixed stock option plans and
changes during the related periods is presented below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED
----------------------------------------------------------------------- MARCH 31,
1995 1996 1997 1998
--------------------- --------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
FIXED OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
- ----------------------- --------- --------- -------- --------- ------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding
at beginning
of period ........... 548,132 $ .02 488,463 $ 1.44 440,797 $ 1.51 316,000 $ 7.75
Granted .............. 123,500 5.61 -- -- 215,500 8.73 -- --
Exercised ............ (183,169) .02 (41,666) .02 (329,630) .13 (14,999) 5.53
Forfeited ............ -- -- (6,000) 5.53 (10,667) 5.53 (3,500) 8.50
--------- --------- -------- --------- ------- ----------- ------- -----------
Outstanding
at end of period..... 488,463 1.44 440,797 1.51 316,000 7.75 297,501 7.85
========= ========= ======== ========= ======= =========== ======= ===========
Options
exercisable at
end of period ....... 364,943 360,797 63,667 53,001
Weighted average fair
value of options
granted during
period............... $ 4.68 -- $ 5.38 --
</TABLE>
The following table summarizes information about fixed stock options
outstanding:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------- --------------------------------
WEIGHTED AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$4.00 to 7.00 100,500 7.8 $5.63 63,667 $5.69
7.50 to 10.00 215,500 9.4 8.73 -- --
----------- -----------
4.00 to 10.00 316,000 8.9 7.75 63,667 5.69
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------- --------------------------------
WEIGHTED AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$4.00 to 7.00 84,501 7.6 $5.65 53,001 $5.72
7.50 to 10.00 213,000 9.2 8.72 -- --
----------- -----------
4.00 to 10.00 297,501 8.7 7.85 53,001 5.72
=========== ===========
</TABLE>
12. STOCKHOLDERS' EQUITY
Common stock
The Company was originally incorporated in Colorado in 1988 and was
reincorporated in Delaware effective July 1995. In October 1995, the Company
completed a public offering of 1,700,000 shares of its common stock at $7.00
per share. Total proceeds, net of underwriting commission and other offering
costs of $1,849,000, were $10,051,000. In November 1997, the Company completed
a follow-on public offering of its common stock, whereby the Company sold
1,000,000 shares at $15 per share. Total proceeds, net of underwriting
commission and other expenses of $1,075,000, were $13,925,000.
Preferred stock
The Board of Directors has the authority to issue up to 500,000 shares of
$.10 par value preferred stock in one or more series and to fix the rights,
preferences, privileges and distributions thereof, including dividend rights,
F-21
<PAGE> 109
conversion rights, voting rights, terms of redemption, liquidation preferences,
sinking fund terms and the number of shares constituting any series or the
designation of such series, without any further vote or action by stockholders.
No shares of preferred stock have been issued.
WARRANTS
In March 1998, the Company repurchased for $492,000, including acquisition
costs, warrants exercisable for 70,000 shares of its Common Stock from an
underwriter. The Company initially issued warrants to purchase 125,000 shares
of its Common Stock with an exercise price of $8.40 per share as partial
compensation for acting as the Company's underwriter in its initial public
offering in October 1995. After this purchase, the underwriter retains
warrants exercisable for 55,000 shares of the Company's Common Stock. The
warrant expires on October 18, 1999.
13. CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
CERTAIN SIGNIFICANT ESTIMATES
At December 31, 1997 the Company has recorded a deferred tax asset of
$494,000, net of a $540,000 valuation allowance, as a result of the benefit
associated with the difference between the tax and financial statement basis of
assets acquired by the Company on August 31, 1995 in connection with the
Reorganization. Realization is dependent on generating sufficient taxable
income prior to the expiration of the benefit. Although realization is not
assured, management believes it is more likely than not that a portion of the
deferred tax asset will be realized. The amount of the deferred tax asset
considered realizable, however, could be increased in the near term if
estimates of future taxable income are increased.
CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS
SUPPLIERS
Substantially all of the plush toys and other products dispensed from the
Shoppes are produced by foreign manufacturers. A majority are purchased
directly by the Company from manufacturers in China. The Company purchases its
other products indirectly from vendors who obtain a significant percentage of
such products from foreign manufacturers. As a result, the Company is subject
to changes in governmental policies, the imposition of tariffs, import and
export controls, transportation delays and interruptions, political and
economic disruptions and labor strikes which could disrupt the supply of
products from such manufacturers. Among other things, the loss of China's "most
favored nation" status under U.S. tariff laws could result in a substantial
increase in the import duty of certain products manufactured in China, which
could result in substantially increased costs for certain products purchased by
the Company which could have a material adverse effect on the Company's
financial performance.
CUSTOMERS
The Company has made available to its franchisees a fee reduction program
whereby a franchisee is entitled to a reduction in the royalty rate on gross
revenue from the Sugarloaf Toy and Treasure Shoppes of one percentage point on
gross revenue for a future six-month period based upon the franchisee meeting
certain performance standards during the most recently completed six-month
period. One of the performance standards relates to the purchase of 30%, up to
a maximum of $250,000, of product used in the Sugarloaf Toy Shoppe program from
the Company. Three franchisees represent 17.7% of the Company's product sales
to franchisees, which is included in franchise and other revenue in 1997.
During the year ended December 31, 1997, one customer accounted for 33.5% of
the Company's revenue.
F-22
<PAGE> 110
14. UNAUDITED PRO FORMA INFORMATION
The computation of pro forma total revenue, net earnings and earnings per
share for the year ended December 31, 1995 were prepared on the basis as if the
Reorganization had occurred on January 1, 1995 with an adjustment in the level
of commissions and royalties to related parties that were not paid after the
Reorganization, an adjustment for interest expense related to shareholder loans
converted to common stock in conjunction with the Company's initial public
offering of common stock on October 12, 1995 and the recording of income tax
expense to reflect the conversion of the Company from an S corporation to a
taxable entity on October 12, 1995 follows:
<TABLE>
<S> <C>
Historical total revenue . . . . . . . . . . . . . . . . . $ 25,714,000
Revenue of Sugarloaf Marketing through
the date of acquisition . . . . . . . . . . . . . . . . 3,941,000
Pro forma adjustment to eliminate intercompany revenue . . (712,000)
------------
Pro forma total revenue . . . . . . . . . . . . . . . . . $ 28,943,000
============
Historical earnings before income taxes . . . . . . . . . $ 2,904,000
Pro forma adjustments:
Net loss of Sugarloaf Marketing through
the date of acquisition . . . . . . . . . . . . . . . (57,000)
Adjust for change in level of commissions and
royalties to related parties . . . . . . . . . . . . 1,182,000
Adjust for interest related to stockholder loans
converted to equity . . . . . . . . . . . . . . . . . 61,000
Eliminate minority interest and equity interest through
the date of acquisition as a result of acquiring
remaining ownership interest in affiliated entities. . 107,000
Record amortization of cost in excess of
assets acquired . . . . . . . . . . . . . . . . . . . (68,000)
Increase depreciation for assets acquired from
non-control group . . . . . . . . . . . . . . . . . . (18,000)
------------
Total adjustments to earnings before taxes . . . . . 1,207,000
------------
Pro forma earnings before income taxes . . . . . . . . . . 4,111,000
Pro forma earnings tax expense at 38% . . . . . . . . . . 1,562,000
------------
Pro forma net earnings . . . . . . . . . . . . . . . . . . $ 2,549,000
============
Pro forma basic earnings per share . . . . . . . . . . . . $ 0.59
============
Pro forma diluted earnings per share . . . . . . . . . . . $ 0.55
============
Pro forma basic weighted average shares outstanding(1) . . 4,299,000
Pro forma diluted weighted average shares outstanding (1) 4,669,000
</TABLE>
- -----------------
(1) Shares used in computing pro forma earnings per share are based upon
3,503,120 weighted average shares outstanding, common equivalent shares of
370,332, and 96,571 shares issued in connection with the conversion of
certain stockholder loans at the initial public offering price of $7.00 per
share and 699,149 shares issued to pay distributions in conjunction with
the Reorganization. Common equivalent shares consist of stock options,
determined using the treasury stock method. Pursuant to the Securities and
Exchange Commission Staff Accounting Bulletins, common and common
equivalent shares issued at prices below the anticipated public offering
price during a 12-month period prior to the proposed offering have been
included in the calculation as if they were outstanding for the entire year
(using the treasury stock method and the average price of the common stock
from October 16, 1995 through December 31, 1995) and the shares issued in
the initial public offering whose proceeds were used to pay distributions
to Control Group stockholders in connection with the Reorganization have
been included in the calculation (using the initial public offering price)
as if they were outstanding for the entire year.
F-23
<PAGE> 111
15. UNAUDITED QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30
1996 1996 1996 1996 1997 1997
------- ------- -------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Total revenue ................. $8,014 $8,403 $9,634 $12,216 $12,357 $13,790
Total cost of revenue ......... 5,625 6,085 6,743 8,489 8,551 9,800
------ ------ ------ ------- ------- -------
Gross profit ................ 2,389 2,318 2,891 3,727 3,806 3,990
General and
administrative
expenses .................... 1,532 1,671 1,827 2,023 2,296 2,429
------ ------ ------ ------- ------- -------
Operating earnings .......... 857 647 1,064 1,704 1,510 1,561
Interest expense .............. 46 45 136 148 111 156
------ ------ ------ ------- ------- -------
Earnings before
income Taxes .............. 811 602 928 1,556 1,399 1,405
Provision for income
Taxes ....................... 308 229 352 422 518 521
------ ------ ------ ------- ------- -------
Net earnings ................ $ 503 $ 373 $ 576 $ 1,134 $ 881 $ 884
====== ====== ====== ======= ======= =======
Basic earnings per
share ....................... $ 0.10 $ 0.07 $ 0.11 $ 0.22 $ 0.17 $ 0.16
Diluted earnings per
share ....................... 0.09 0.07 0.11 0.21 0.16 0.16
Basic weighted average
common shares ............... 5,082 5,082 5,094 5,123 5,251 5,394
Diluted weighted
average common shares ....... 5,449 5,449 5,459 5,449 5,425 5,452
<CAPTION>
SEPT. 30 DEC. 31 MAR. 31
1997 1997 1998
-------- ------- --------
<S> <C> <C> <C>
Total revenue ................. $14,676 $18,261 $18,761
Total cost of revenue ......... 10,342 12,780 13,294
------- ------- -------
Gross profit ................ 4,334 5,481 5,467
General and
administrative
expenses .................... 2,523 3,066 3,526
------- ------- -------
Operating earnings .......... 1,811 2,415 1,941
Interest expense .............. 217 128 118
------- ------- -------
Earnings before
income Taxes .............. 1,594 2,287 1,823
Provision for income
Taxes ....................... 588 629 638
------- ------- -------
Net earnings ................ $ 1,006 $ 1,658 $ 1,185
======= ======= =======
Basic earnings per
share ....................... $ 0.18 $ 0.27 $ 0.18
Diluted earnings per
share ....................... 0.18 0.26 0.18
Basic weighted average
common shares ............... 5,450 6,158 6,457
Diluted weighted
average common shares ....... 5,633 6,388 6,649
</TABLE>
F-24
<PAGE> 112
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Suncoast Toys, Inc., NW Toys Co., and Oregon Coin Company
We have audited the accompanying combined balance sheets of Suncoast Toys,
Inc., NW Toys Co., and Oregon Coin Company as of December 31, 1996 and 1997,
and the related combined statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Suncoast
Toys, Inc., NW Toys Co., and Oregon Coin Company as of December 31, 1996 and
1997, and the combined results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
As discussed in Note 8 to the combined financial statements, in May 1998 the
Companies and their stockholders entered into an agreement with American Coin
Merchandising, Inc. providing for the sale of certain assets and the business
operations of the Companies to American Coin Merchandising, Inc.
PricewaterhouseCoopers LLP
Tampa, Florida
May 20, 1998
F-25
<PAGE> 113
SUNCOAST TOYS, INC., NW TOYS CO., AND OREGON COIN COMPANY
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------- MARCH 31,
1996 1997 1998
------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,334,872 $ 5,916,750 $ 8,577,348
Trade accounts and other receivables 491,673 254,100 139,610
Inventories 3,006,576 2,264,543 1,712,720
Prepaid expenses and other current assets 261,635 267,198 262,560
Note receivable 0 500,000 350,000
------------- ------------- ------------
Total current assets 7,094,756 9,202,591 11,042,238
Property and equipment, net 1,938,690 1,857,354 1,729,661
Other assets 43,015 43,015 43,015
------------- ------------- ------------
Total assets $ 9,076,461 $ 11,102,960 $ 12,814,914
============= ============= ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 46,930 $ 605,750 $ 1,211,188
Accrued expenses 488,855 452,364 250,805
------------- ------------- ------------
Total current liabilities 535,785 1,058,114 1,461,993
------------- ------------- ------------
Commitments (Note 5)
Stockholders' equity:
Common stock 53,200 53,200 53,200
Additional paid-in capital 19,800 19,800 19,800
Retained earnings 8,467,676 9,971,846 11,279,921
------------- ------------- ------------
Total stockholders' equity 8,540,676 10,044,846 11,352,921
------------- ------------- ------------
Total liabilities and stockholders' equity $ 9,076,461 $ 11,102,960 $ 12,814,914
============= ============= ============
</TABLE>
The accompanying notes are an integral part of these
combined financial statements.
F-26
<PAGE> 114
SUNCOAST TOYS, INC., NW TOYS CO., AND OREGON COIN COMPANY
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTH ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Vending $18,462,142 $18,714,470 $18,725,699 $ 5,235,605 $ 5,266,078
Other 778,721 1,964,667 1,155,842 417,803 84,457
----------- ----------- ----------- ----------- -----------
Total revenues 19,240,863 20,679,137 19,881,541 5,653,408 5,350,535
----------- ----------- ----------- ----------- -----------
Cost of revenues:
Vending 12,224,715 12,985,261 12,795,243 3,566,912 3,569,667
Other 528,868 354,844 490,352 180,375 64,251
----------- ----------- ----------- ----------- -----------
Total cost of revenues 12,753,583 13,340,105 13,285,595 3,747,287 3,633,918
----------- ----------- ----------- ----------- -----------
Gross profit 6,487,280 7,339,032 6,595,946 1,906,121 1,716,617
Selling, general and administrative
expenses 1,990,110 2,381,848 2,522,954 529,755 521,150
----------- ----------- ----------- ----------- -----------
Income from operations 4,497,170 4,957,184 4,072,992 1,376,366 1,195,467
Interest income 168,212 189,427 336,178 64,861 112,608
----------- ----------- ----------- ----------- -----------
Net income $ 4,665,382 $ 5,146,611 $ 4,409,170 $ 1,441,227 $ 1,308,075
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
these combined financial statements.
F-27
<PAGE> 115
SUNCOAST TOYS, INC., NW TOYS CO., AND OREGON COIN COMPANY
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
--------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Balance, January 1, 1995 $ 53,200 $ 19,800 $ 4,205,683 $ 4,278,683
Net income 0 0 4,665,382 4,665,382
Stockholder distributions 0 0 (1,580,000) (1,580,000)
--------- ---------- ------------ ------------
Balance, December 31, 1995 53,200 19,800 7,291,065 7,364,065
Net income 0 0 5,146,611 5,146,611
Stockholder distributions 0 0 (3,970,000) (3,970,000)
--------- ---------- ------------ ------------
Balance, December 31, 1996 53,200 19,800 8,467,676 8,540,676
Net income 0 0 4,409,170 4,409,170
Stockholder distributions 0 0 (2,905,000) (2,905,000)
--------- ---------- ------------ ------------
Balance, December 31, 1997 53,200 19,800 9,971,846 10,044,846
Net income 0 0 1,308,075 1,308,075
--------- ---------- ------------ ------------
Balance, March 31, 1998 (unaudited) $ 53,200 $ 19,800 $ 11,279,921 $ 11,352,921
========= ========== ============ ============
</TABLE>
The accompanying notes are an integral part of
these combined financial statements.
F-28
<PAGE> 116
SUNCOAST TOYS, INC., NW TOYS CO., AND OREGON COIN COMPANY
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
1995 1996 1997 1997 1998
(UNAUDITED)
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ................................... $24,665,382 $5,146,611 $4,409,170 $1,441,227 $1,308,075
Adjustments to reconcile net income to
net cash provided by Operating
activities:
Depreciation ............................... 667,754 795,074 791,824 156,540 170,818
Changes in operating assets and
liabilities:
Trade accounts and other
receivables............................. 630,373 (296,821) 237,573 37,776 114,490
Inventories .............................. (1,238,644) (612,582) 742,033 74,295 551,823
Prepaid expenses and other current
assets.................................. 14,157 (249,918) (5,563) 14,497 4,638
Accounts payable ......................... (326,914) (4,660) 558,820 83,543 605,438
Accrued expenses ......................... 92,570 (127,476) (36,491) (342,663) (201,559)
----------- ---------- ---------- ---------- ----------
Net cash provided by operating
activities............................. 4,504,678 4,650,228 6,697,366 1,465,215 2,553,723
----------- ---------- ---------- ---------- ----------
Cash flows from investing activities:
Purchases of property and equipment,
net ........................................ (1,321,173) (743,084) (710,488) (92,632) (43,125)
(Additions) payments note receivable ......... 16,740 0 (500,000) 0 150,000
----------- ---------- ---------- ---------- ----------
Net cash used in investing
activities ............................ (1,304,433) (743,084) (1,210,488) (92,632) 106,875
----------- ---------- ---------- ---------- ----------
Cash flows from financing activities:
Stockholder distributions .................... (1,580,000) (3,970,000) (2,905,000) (320,000) 0
Payment of note payable ...................... (136,472) 0 0 0 0
----------- ---------- ---------- ---------- ----------
Net cash used in financing
activities ............................ (1,716,472) (3,970,000) (2,905,000) (320,000) 0
----------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents................................... 1,483,773 (62,856) 2,581,878 1,052,583 2,660,598
Cash and cash equivalents, beginning of
period.......................................... 1,913,955 3,397,728 3,334,872 3,334,872 5,916,750
----------- ---------- ---------- ---------- ----------
Cash and cash equivalents, end of period ....... $3,397,728 $3,334,872 $5,916,750 $4,387,455 $8,577,348
=========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of
these combined financial statements.
F-29
<PAGE> 117
SUNCOAST TOYS, INC., NW TOYS CO., AND OREGON COIN COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION:
DESCRIPTION OF BUSINESS - Suncoast Toys, Inc., NW Toys Co., and Oregon Coin
Company (the Companies) own and operate coin-operated skill-crane machines that
dispense stuffed animals, plush toys, watches, jewelry and other items. The
Companies' machines are placed in supermarkets, mass merchandisers, bars,
restaurants, warehouse clubs and similar locations in franchised territories in
Florida, Washington, and Oregon.
BASIS OF PRESENTATION - The accompanying financial statements present the
combined financial statements of the Companies. The Companies operate under
common ownership and their financial statements have been combined to provide a
more meaningful presentation of the financial position, results of operations
and cash flows of these entities. All significant intercompany balances and
transactions have been eliminated in combination.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
REVENUES - Vending revenue represents cash receipts from customers using
vending machines and is recognized when collected. The cost of vending is
comprised primarily of the cost of products vended through the machines, the
servicing of machines and commissions and royalties paid to retail locations
and the Companies' franchisor. Other revenue represents bulk product sales to
third parties which are recognized upon shipment.
FRANCHISE EXPENSES - The Companies are required to pay continuing royalties
of 2.5-3.5% of gross machine revenues (subject to certain maximums and other
adjustments as provided in the franchise agreement) to the franchisor.
Royalties were approximately $300,000, $318,000, and $350,000 for the years
ended December 31, 1995, 1996, and 1997, respectively. In addition, the
Companies purchased from the franchisor vending products of approximately
$1,102,000, $689,000, and $610,000 during the years ended December 31, 1995,
1996, and 1997, respectively.
CASH AND CASH EQUIVALENTS - The Companies consider all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
INVENTORIES - Inventories are stated at the lower of cost or market. Cost
is determined using the first-in, first- out method. Inventories consist of
purchased items ready for resale or use in vending operations.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Depreciation is computed using accelerated methods, based upon estimated useful
lives of five to seven years. Expenditures for maintenance and repairs are
charged to expense as incurred, whereas major betterments are capitalized.
Gains and losses on sales and retirements are included in other income and
expense, respectively.
INCOME TAXES - The Companies have each elected to be taxed as an "S"
corporation for federal and state income tax purposes. Accordingly, the
stockholders are liable for federal and state income taxes.
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 reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of income and expenses during
the reporting period. Actual results could differ from those estimates.
INTERIM FINANCIAL INFORMATION - The financial statements of the Companies as
of March 31, 1998 and for the three months ended March 31, 1997 and 1998 are
unaudited. All adjustments and accruals (consisting only of normal recurring
adjustments) have been recorded that, in the opinion of management, are
necessary for a fair presentation. Results of operations for the interim period
are not necessarily indicative of the results for the full year.
F-30
<PAGE> 118
3. NOTE RECEIVABLE:
The note receivable consists of a $500,000 demand note entered into in 1997
with one of the Companies' suppliers. Interest is accrued at 10% and the
principal balance is payable on demand.
4. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at the following dates:
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1997
------------ ------------
<S> <C> <C>
Vending equipment $ 3,868,046 $ 4,360,896
Vehicles 277,142 412,138
Furniture, fixtures and equipment 80,564 92,791
------------ ------------
4,225,752 4,865,825
Less accumulated depreciation (2,287,062) (3,008,471)
------------ ------------
$ 1,938,690 $ 1,857,354
============ ============
</TABLE>
Depreciation expense was approximately $668,000, $795,000, and $792,000 for
the years ended December 31, 1995, 1996, and 1997, respectively.
5. COMMITMENTS:
Certain properties used in the Companies' operations are leased under
operating leases. Total rent expense under operating leases was approximately
$90,000, $84,000, and $70,000 for the years ended December 31, 1995, 1996, and
1997, respectively. Future minimum rentals under operating leases with terms
of more than one year as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998 ................................. $ 75,213
1999 ................................. 29,835
2000 ................................. 9,235
</TABLE>
6. CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES:
Concentrations of Credit Risk - Financial instruments which potentially
subject the Companies to concentrations of credit risk consist principally of
cash and cash equivalents and trade accounts and note receivables.
The Companies place substantially all of their cash and cash equivalents
with Wells Fargo Bank. At December 31, 1997, the Companies had approximately
$5,349,000, including amounts representing outstanding checks, deposited with
Wells Fargo Bank.
Concentrations of credit risk with respect to trade accounts and note
receivables exist as a result of transactions with a small number of entities
in the same business as the Companies. Accordingly, management evaluates each
entity's credit worthiness before extending them credit.
CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS SUPPLIERS -
Substantially all of the plush toys and other products dispensed from the
machines are produced by foreign manufacturers. A majority are purchased
directly by the Companies from manufacturers in the People's Republic of China
(China). The Companies purchase their other products indirectly from vendors
and the Companies' franchisor who obtain a significant percentage of such
products from foreign manufacturers. As a result, the Companies are subject to
changes in governmental policies, the imposition of tariffs, import and export
controls, transportation delays and interruptions, political and economic
disruptions and labor strikes which could disrupt the supply of products from
such manufacturers.
F-31
<PAGE> 119
Among other things, the loss of China's "most favored nation" status under U.S.
tariff laws could result in a substantial increase in the import duty of
certain products manufactured in China, which could result in substantially
increased costs for certain products purchased by the Companies which could
have a material adverse effect on the Companies' financial performance.
7. COMMON STOCK:
Common stock consisted of the following at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
SHARES SHARES
AUTHORIZED ISSUED
---------- ------
<S> <C> <C>
Suncoast Toys, Inc., $1.00 par 1,000 200
NW Toys Co., no par 10,000 100
Oregon Coin Company, no par 500 100
</TABLE>
8. SUBSEQUENT EVENT:
In May 1998, the Companies and their stockholders entered into an agreement
with American Coin Merchandising, Inc. providing for the sale of certain
assets and the business operations of the Companies to American Coin
Merchandising, Inc. The sale is expected to close in June 1998.
F-32
<PAGE> 120
REPORT OF INDEPENDENT ACCOUNTANTS ON SUPPLEMENTAL INFORMATION
Our report on the audits of the combined financial statements of Suncoast
Toys, Inc., NW Toys Co., and Oregon Coin Company as of December 31, 1996 and
1997 and for each of the three years in the period ended December 31, 1997
appears on page F-25. These audits were conducted for the purpose of forming an
opinion on the basic financial statements taken as a whole. The combining
balance sheet and combining statement of income as of and for the year ended
December 31, 1997 are presented for purposes of additional analysis and are not
a required part of the basic combined financial statements. Such information
has been subjected to the auditing procedures applied in the audit of the basic
combined financial statements and, in our opinion, is fairly stated, in all
material respects, in relation to the basic combined financial statements taken
as a whole. This information should be read in conjunction with the last
paragraph of our report on page F-25.
/s/ PricewaterhouseCoopers LLP
Tampa, Florida
May 20, 1998
F-33
<PAGE> 121
SUNCOAST TOYS, INC., NW TOYS CO., AND OREGON COIN COMPANY
COMBINING BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
OREGON
SUNCOAST COIN ELIMINATION
TOYS, INC. NW TOYS CO. COMPANY ENTRIES COMBINED
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................. $ 660,903 $ 4,017,814 $ 1,238,033 $ 0 $ 5,916,750
Trade accounts and other receivables ...... 863,021 57,933 1,427 (668,281) 254,100
Inventories ............................... 1,854,138 269,950 157,169 (16,714) 2,264,543
Prepaid expenses and other current assets . 17,218 227,628 22,352 0 267,198
Note receivable ........................... 500,000 0 0 0 500,000
----------- ----------- ----------- ----------- -----------
Total current assets .................... 3,895,280 4,573,325 1,418,981 (684,995) 9,202,591
Property and equipment, net .................. 703,079 736,446 417,829 0 1,857,354
Other assets ................................. 43,015 0 0 0 43,015
----------- ----------- ----------- ----------- -----------
Total assets ............................ $ 4,641,374 $ 5,309,771 $ 1,836,810 $ (684,995) $11,102,960
=========== =========== =========== =========== ===========
Current liabilities:
Accounts payable .......................... $ 433,456 $ 492,360 $ 333,959 $ (654,025) $ 605,750
Accrued expenses .......................... 419,564 17,291 15,509 0 452,364
----------- ----------- ----------- ----------- -----------
Total current liabilities ............... 853,020 509,651 349,468 (654,025) 1,058,114
----------- ----------- ----------- ----------- -----------
Stockholders' equity:
Common stock .............................. 200 1,000 52,000 0 53,200
Additional paid-in capital ................ 19,800 0 0 0 19,800
Retained earnings ......................... 3,768,354 4,799,120 1,435,342 (30,970) 9,971,846
----------- ----------- ----------- ----------- -----------
Total stockholders' equity .............. 3,788,354 4,800,120 1,487,342 (30,970) 10,044,846
----------- ----------- ----------- ----------- -----------
Total liabilities and stockholders'
equity................................. $ 4,641,374 $ 5,309,771 $ 1,836,810 $ (684,995) $11,102,960
=========== =========== =========== =========== ===========
</TABLE>
F-34
<PAGE> 122
SUNCOAST TOYS, INC., NW TOYS CO., AND OREGON COIN COMPANY
COMBINING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
OREGON
SUNCOAST COIN ELIMINATION
TOYS, INC. NW TOYS CO. COMPANY ENTRIES COMBINED
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Vending ................................... $ 4,563,364 $ 9,759,035 $ 4,403,300 $ 0 $18,725,699
Other ..................................... 7,525,617 6,411 2,116 (6,378,302) 1,155,842
----------- ----------- ----------- ----------- -----------
Total revenues .......................... 12,088,981 9,765,446 4,405,416 (6,378,302) 19,881,541
----------- ----------- ----------- ----------- -----------
Cost of revenues:
Vending ................................... 3,330,448 6,395,942 3,068,853 0 12,795,243
Other ..................................... 5,005,419 0 0 4,515,067 490,352
----------- ----------- ----------- ----------- -----------
Total cost of revenues .................. 8,335,867 6,395,942 3,068,853 4,515,067 13,285,595
----------- ----------- ----------- ----------- -----------
Gross profit ............................ 3,753,114 3,369,504 1,336,563 (1,863,235) 6,595,946
Selling, general and administrative expenses . 1,730,716 1,652,263 1,014,614 1,874,639 2,522,954
----------- ----------- ----------- ----------- -----------
Income from operations .................. 2,022,398 1,717,241 321,949 11,404 4,072,992
Interest income .............................. 119,404 172,947 43,827 0 336,178
----------- ----------- ----------- ----------- -----------
Net income .............................. $ 2,141,802 $ 1,890,188 $ 365,776 $ 11,404 $ 4,409,170
=========== =========== =========== =========== ===========
</TABLE>
F-35
<PAGE> 123
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Subject to Completion dated July 31, 1998
PROSPECTUS
$100,000,000
AMERICAN COIN MERCHANDISING, INC.
JUNIOR SUBORDINATED DEBENTURES
------------------------------
AMERICAN COIN MERCHANDISING TRUST I
AMERICAN COIN MERCHANDISING TRUST II
AMERICAN COIN MERCHANDISING TRUST III
AMERICAN COIN MERCHANDISING TRUST IV
TRUST PREFERRED SECURITIES
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
AMERICAN COIN MERCHANDISING, INC.
------------------------------
American Coin Merchandising, Inc., a Delaware corporation (the
"Company"), may from time to time offer its junior subordinated debt securities
(the "Junior Subordinated Debentures") in one or more series and in amounts, at
prices and on terms to be determined at the time of the offering. The Junior
Subordinated Debentures when issued will be unsecured obligations of the
Company. The Company's obligations under the Junior Subordinated Debentures
will be subordinate and junior in right of payment to certain other
indebtedness of the Company, as may be described in an accompanying Prospectus
Supplement (the "Prospectus Supplement").
American Coin Merchandising Trust I, American Coin Merchandising Trust
II, American Coin Merchandising Trust III and American Coin Merchandising Trust
IV, (each, an "ACMI Trust"), each a statutory business trust formed under the
laws of Delaware, may from time to time offer trust preferred securities
evidencing undivided beneficial interests in the assets of the respective ACMI
Trust ("Trust Preferred Securities"). The payment of periodic cash
distributions ("distributions") with respect to Trust Preferred Securities of
each of the ACMI Trusts, out of monies held by each of the ACMI Trusts, and
payments on liquidation, redemption or otherwise with respect to such Trust
Preferred Securities will be guaranteed by the Company to the extent described
herein (each, a "Trust Preferred Securities Guarantee"). The Company's
obligations under the Guarantees will be subordinate and junior in right of
payment to all Senior Debt and Subordinated Debt (each as defined in an
accompanying Prospectus Supplement) of the Company. Junior Subordinated
Debentures may be issued and sold from time to time in one or more series by
the Company to an ACMI Trust in connection with the investment of the proceeds
from the Offering of Trust Preferred Securities and Common Securities (as
defined herein) of such ACMI Trust. The Junior Subordinated Debentures
subsequently may be distributed pro rata to holders of Trust Preferred
Securities and Common Securities in connection with the termination of such
ACMI Trust upon the occurrence of certain events as may be described in the
Prospectus Supplement.
Specific terms of the particular Junior Subordinated Debentures of any
series, the Trust Preferred Securities of any ACMI Trust and the related
Guarantee in respect of which this Prospectus is being delivered (the "Offered
Securities") will be set forth in the accompanying Prospectus Supplement with
respect to such series of Junior Subordinated Debentures or such Trust
Preferred Securities, which will describe, without limitation and where
applicable, the following: (i) in the case of Junior Subordinated Debentures,
the specific designation, aggregate principal amount, denomination, maturity,
premium, if any, interest rate (or the method of determining such rate), dates
on which premium, if any, and interest, if any, will be payable, any redemption
provisions, any sinking fund provisions, the initial public offering price, the
subordination terms, any listing on a securities exchange and any other terms
and (ii) in the case of Trust Preferred Securities, the specific designation,
number of Trust Preferred Securities, distribution rate (or the method of
determining such rate), dates on which distributions will be payable,
liquidation amount, voting rights, any redemption provisions, terms for any
conversion into or exchange for other securities, the initial public offering
price, any listing on a securities exchange and any other rights, preferences,
privileges, limitations and restrictions.
The Offered Securities may be offered in amounts, at prices and on
terms to be determined at the time of offering; provided, however, that the
aggregate initial public offering price of all Offered Securities shall not
exceed $100,000,000. The Prospectus Supplement relating to any series of
Offered Securities will contain information concerning certain United States
federal income tax considerations applicable to such Offered Securities.
------------------------------
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. THIS PROSPECTUS MAY NOT BE USED TO
CONSUMMATE SALES OF SECURITIES UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
The date of this Prospectus is , 1998
<PAGE> 124
The Offered Securities will be sold directly or through agents, underwriters
or dealers as designated from time to time, or through a combination of such
methods. If agents or any underwriters or dealers are involved in the sale of
the Offered Securities in respect of which this Prospectus is being delivered,
the names of such agents, underwriters or dealers and any applicable
commissions or discounts will be set forth in or may be calculated from the
Prospectus Supplement related to such Offered Securities.
No dealer, salesperson or any other individual has been authorized by the
Company or any of the ACMI Trusts to give any information or to make any
representation other than those contained or incorporated by reference in this
Prospectus or any accompanying Prospectus Supplement and, if given or made,
such information or representation must not be relied upon as having been
authorized. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company or any of the ACMI
Trusts since the date hereof.
AVAILABLE INFORMATION
The ACMI Trusts and the Company have filed with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"), a combined
registration statement on Form S-3 (herein, together with all amendments and
exhibits, referred to as the "Registration Statement") relating to the Junior
Subordinated Debentures, the Trust Preferred Securities and the Guarantees.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information,
reference is hereby made to the Registration Statement. Statements or extracts
presented in this Prospectus from financial statements, contracts, agreements
or other documents included as exhibits to the Registration Statement are not
necessarily complete. With respect to each such financial statement, contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is hereby made to such exhibit for a more complete description of the
matter involved.
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"). Such reports, proxy
statements and other information concerning the Company can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's
Regional Offices at Seven World Trade Center, 13th Floor, New York, New York
10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained from the Public
Reference Room of the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates. The SEC maintains a World Wide
Website that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC. The
address of the SEC's World Wide Website is http://www.sec.gov.
No separate financial statements of the ACMI Trusts have been included
herein. The Company does not believe that such financial statements would be
material to holders of the Trust Preferred Securities because the ACMI Trusts
are newly-formed special purpose entities, have no operating history, have no
independent operations and are not engaged in, and do not propose to engage in,
any activity other than the issuance of the Trust Securities (as defined
herein) and holding as trust assets the Junior Subordinated Debentures of the
Company. The ACMI Trusts are not currently subject to the informational
reporting requirements of the Exchange Act. The ACMI Trusts will become
subject to such requirements upon the effectiveness of the Registration
Statement of which this Prospectus forms a part, and will seek and expect to
receive exemptions therefrom.
INCORPORATION OF DOCUMENTS BY REFERENCE
The Company hereby incorporates in this Prospectus by reference the
following documents filed by the Company with the Commission (Commission File
No. 000-26580): (i) its Definitive Proxy Statement filed with the Commission on
March 31, 1998; (ii) its Annual Report on Form 10-K for the year ended December
31, 1997; (iii) its Quarterly Report on Form 10-Q for the quarter ended March
31, 1998; and (iv) its Current Reports on Form
2
<PAGE> 125
8-K dated June 2, 1998 and July 10, 1998. All documents filed by the Company
with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date hereof and prior to the termination of the Offering
of the securities offered hereby shall be deemed to be incorporated herein by
reference and to be a part hereof from the respective dates of the filing of
such documents. Any statement contained in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a Prospectus
is delivered, on the written or oral request of any such person, a copy of any
or all of the documents incorporated by reference herein, other than certain
exhibits to such documents. Such requests should be addressed to W. John Cash,
Vice President and Chief Financial Officer, American Coin Merchandising, Inc.,
5660 Central Avenue, Boulder, Colorado 80301; telephone (303) 444-2559.
3
<PAGE> 126
THE COMPANY
The Company is engaged in the ownership, placement, operation and
acquisition of skill-crane machines ("Shoppes") that dispense stuffed animals,
plush toys, watches, jewelry and other items. The Company is a leading owner,
operator and franchiser of Shoppes through a national network of skill-crane
machines operated by the Company and its franchisees. For up to 50c. a play,
customers maneuver the skill-crane into position and attempt to retrieve the
desired item in the machine's enclosed display area before play is ended. The
Shoppes are located, in order of prevalence, in supermarkets, mass
merchandisers, restaurants, bowling centers, bingo halls, bars and similar
locations to take advantage of the regular customer traffic at these locations.
The Company has expanded into complementary vending businesses, including
kiddie rides, bulk vending (candy, gum, novelty items, etc.) and video games.
The Company was incorporated in Colorado in July 1988 and was reincorporated
in Delaware in July 1995. The Company's principal executive offices are located
at 5660 Central Avenue, Boulder, Colorado 80301 and its telephone number is
(303) 444-2559.
THE AMERICAN COIN MERCHANDISING TRUSTS
Each of American Coin Merchandising Trust I, American Coin Merchandising
Trust II, American Coin Merchandising Trust III and American Coin Merchandising
Trust IV is a statutory business trust formed under Delaware law pursuant to
(i) a separate trust agreement, dated as of July 22, 1998, executed by the
Company, as depositor and the ACMI Trustees (as defined herein) as of the date
of such trust and (ii) the filing of a separate certificate of trust with the
Delaware Secretary of State on July 22, 1998. Prior to the offering of any
Trust Preferred Securities by any ACMI Trust, the trust agreement of each ACMI
Trust will be amended and restated in its entirety (as so amended and restated,
the "Trust Agreement") substantially in a form to be filed (prior to any such
offering) as an exhibit to the Registration Statement of which this Prospectus
forms a part. Each ACMI Trust exists for the exclusive purposes of (i) issuing
the Trust Preferred Securities and Common Securities representing undivided
beneficial interests in the assets of such Trust (the "Common Securities" and,
together with the Trust Preferred Securities, the "Trust Securities"), (ii)
investing the gross proceeds of the Trust Securities in a series of Junior
Subordinated Debentures and (iii) engaging in only those other activities
necessary or incidental thereto. All of the Common Securities will be directly
or indirectly owned by the Company. The Common Securities will rank pari
passu, and payments will be made thereon pro rata, with the Trust Preferred
Securities except that upon the event of default under the Trust Agreement
resulting from an event of default under the indenture governing a particular
series of subordinated Debentures (an "Indenture"), the rights of the holders
of the Common Securities to payment in respect of distributions and payments
upon liquidation, redemption and otherwise will be subordinated to the rights
of the holders of the Trust Preferred Securities. The Company will, directly
or indirectly, acquire Common Securities in an aggregate liquidation amount
equal to 3% of the total capital of each ACMI Trust. Each ACMI Trust has a
perpetual existence but may be terminated as provided in the applicable Trust
Agreement. Each ACMI Trust's business and affairs will be conducted by the
trustees (the "ACMI Trustees") appointed by the Company as the direct or
indirect holder of all the Common Securities. The holder of the Common
Securities will be entitled to appoint, remove or replace any of, or increase
or reduce the number of, the ACMI Trustees of a ACMI Trust. The duties and
obligations of such ACMI Trustees shall be governed by the Trust Agreement of
such ACMI Trust. A majority of the ACMI Trustees (the "Regular Trustees") of
each ACMI Trust will be persons who are employees or officers of or affiliated
with the Company. One ACMI Trustee of each ACMI Trust will be a financial
institution which will be unaffiliated with the Company and which shall act as
property trustee and as indenture trustee for purposes of the Trust Indenture
Act of 1939 (the "Trust Indenture Act"), pursuant to the terms set forth in a
Prospectus Supplement (the "Property Trustee"). In addition, unless the
Property Trustee maintains a principal place of business in the State of
Delaware, and otherwise meets the requirements of applicable law, another ACMI
Trustee of each ACMI Trust will have its principal place of business or reside
in the State of Delaware (the "Delaware Trustee"). The Company will pay all
fees and expenses related to the ACMI Trusts and the offering of Trust
Securities. The office of the Delaware Trustee for each ACMI Trust in the
State of Delaware is c/o Wilmington Trust Company, Rodney Square North, 1100
North Market Street, Wilmington, Delaware 19890-0001, Attn: Corporate Trust
Administration. The principal place of business of each ACMI Trust shall be
c/o American Coin Merchandising, 5660 Central Avenue, Boulder, Colorado 80301
(Telephone: (303) 444-2559).
4
<PAGE> 127
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth the ratio of earnings to combined fixed
charges and preferred stock dividends of the Company for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------- -------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges and
preferred stock dividends(1) 3.5x 5.1x 7.6x 9.3x 9.6x 10.2x 11.6x
</TABLE>
- --------------------------
(1) For the ratio calculations, earnings available for combined fixed charges
and preferred stock dividends consists of earnings (losses) before income
taxes plus combined fixed charges and preferred stock dividends,
distributions from and (earnings) loss of less than 50%-owned affiliates
with debt not guaranteed by the Company (net of earnings not distributed of
less than 50%-owned affiliates. Combined fixed charges and preferred stock
dividends consist of (i) interest and (ii) that portion of rental expense
the Company believes to be representative of interest (one- third of rental
expense).
5
<PAGE> 128
USE OF PROCEEDS
Each ACMI Trust will invest all proceeds received from the sale of its Trust
Securities in Junior Subordinated Debentures.
The Company will use the net proceeds from the sale of the Junior
Subordinated Debentures for general corporate purposes, including the
repayment of outstanding indebtedness, acquisitions or for such other purposes
as may be specified in an accompanying Prospectus Supplement.
DESCRIPTION OF THE TRUST PREFERRED SECURITIES
Each ACMI Trust may issue, from time to time, only one series of Trust
Preferred Securities having terms described in the Prospectus Supplement
relating thereto. The Trust Agreement of each ACMI Trust authorizes the
Administrative Trustees of such ACMI Trust to issue on behalf of such ACMI
Trust one series of Trust Preferred Securities. Each Trust Agreement will be
qualified as an indenture under the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"). The Trust Preferred Securities will have such
terms, including distributions, redemption, voting, liquidation rights and such
other preferred, deferred or other special rights or such restrictions as shall
be set forth in each Trust Agreement or made part of each Trust Agreement by
the Trust Indenture Act. Reference is made to the Prospectus Supplement
relating to the Trust Preferred Securities of an ACMI Trust for specific terms,
including (i) the distinctive designation of such Trust Preferred Securities;
(ii) the number of Trust Preferred Securities issued by such ACMI Trust; (iii)
the annual distribution rate (or method of determining such rate) for Trust
Preferred Securities issued by such ACMI Trust and the date or dates upon which
such distributions shall be payable; provided, however, that distributions on
such Trust Preferred Securities shall be payable on a quarterly basis to
holders of such Trust Preferred Securities as of a record date in each quarter
during which such Trust Preferred Securities are outstanding; (iv) whether
distributions on Trust Preferred Securities issued by such ACMI Trust shall be
cumulative, and, in the case of Trust Preferred Securities having such
cumulative distribution rights, the date or dates or method of determining the
date or dates from which distributions on Trust Preferred Securities issued by
such ACMI Trust shall be cumulative; (v) the amount or amounts which shall be
paid out of the assets of such ACMI Trust to purchase or redeem Trust Preferred
Securities issued by such ACMI Trust and the price or prices at which, the
period or periods within which, and the terms and conditions upon which, Trust
Preferred Securities issued by such ACMI Trust shall be purchased or redeemed,
in whole or in part, pursuant to such obligation; (vi) the voting rights, if
any, of Trust Preferred Securities issued by such ACMI Trust in addition to
those required by law, including any requirement for the approval by the
holders of Trust Preferred Securities, or of Trust Preferred Securities issued
by one or more ACMI Trusts, or of both, as a condition to specified action or
amendments to the Trust Agreement of such ACMI Trust; and (vii) any other
relevant rights, preferences, privileges, limitations or restrictions of Trust
Preferred Securities issued by such ACMI Trust not inconsistent with the Trust
Agreement of such ACMI Trust or with applicable law. All Trust Preferred
Securities offered hereby will be guaranteed by the Company to the extent set
forth below under "Description of the Guarantees." Any applicable United
States federal income tax considerations applicable to any offering of Trust
Preferred Securities will be described in the Prospectus Supplement relating
thereto.
In connection with the issuance of the Trust Preferred Securities, each ACMI
Trust will issue one series of Common Securities. The Trust Agreement of each
ACMI Trust authorizes the Administrative Trustees of such trust to issue on
behalf of such ACMI Trust one series of Common Securities having such terms
including distributions, redemption, voting, liquidation rights or such
restrictions as shall be set forth therein. The terms of the Common Securities
issued by an ACMI Trust will be substantially identical to the terms of the
Trust Preferred Securities issued by such ACMI Trust and the Common Securities
will rank pari passu, and payments will be made thereon pro rata, with the
Trust Preferred Securities except that, upon an event of default under the
Trust Agreement resulting from an event of default under the Indenture, the
rights of the holders of the Common Securities to payment in respect of
distributions and payments upon liquidation, redemption and otherwise will be
subordinated to the rights of the holders of the Trust Preferred Securities.
All of the Common Securities of an ACMI Trust will be directly or indirectly
owned by the Company.
6
<PAGE> 129
DESCRIPTION OF THE GUARANTEES
Set forth below is a summary of information concerning the Guarantees which
will be executed and delivered by the Company for the benefit of the holders
from time to time of Trust Preferred Securities. Each Guarantee will be
qualified as an indenture under the Trust Indenture Act. Wilmington Trust
Company will act as indenture trustee under each Guarantee (the "Guarantee
Trustee"). The terms of each Guarantee will be those set forth in the
Guarantee and those made part of such Guarantee by the Trust Indenture Act.
The following summary does not purport to be complete and is subject in all
respects to the provisions of, and is qualified in its entirety by reference
to, the form of Guarantee, which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part, and the Trust Indenture Act.
Each Guarantee will be held by the Guarantee Trustee for the benefit of the
holders of the Trust Preferred Securities of the applicable ACMI Trust.
GENERAL
Pursuant to each Guarantee, the Company will irrevocably unconditionally
agree to pay in full on a subordinated basis, to the extent set forth therein,
the Guarantee Payments (as defined below) to the holders of the Trust Preferred
Securities, as and when due, regardless of any defense, right of set-off or
counterclaim that the Trust may have or assert, other than the defense of
payment. The following payments with respect to the Trust Preferred
Securities, to the extent not paid by or on behalf of the Trust (the "Guarantee
Payment"), will be subject to the Guarantee: (i) any accumulated and unpaid
Distributions required to be paid on the Trust Preferred Securities, to the
extent that the Trust has funds on hand available therefor at such time, (ii)
the redemption price with respect to any Trust Preferred Securities called for
redemption, to the extent that the Trust has funds on hand available therefor
at such time, and (iii) upon a voluntary or involuntary dissolution, winding up
or liquidation of the Trust (unless the Junior Subordinated Debentures are
distributed to holders of the Trust Preferred Securities), the lesser of (a)
the Liquidation Distribution and (b) the amount of assets of the Trust
remaining available for distribution to holders of Trust Preferred Securities,
after satisfaction of liabilities to creditors of the Trust as required by law.
The Company's obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by the Company to the holders of the Trust
Preferred Securities or by causing the Trust to pay such amounts to such
holders.
Each Guarantee will be an irrevocable guarantee on a subordinated basis of
each ACMI Trust's obligations under the Trust Preferred Securities, but will
apply only to the extent that the applicable ACMI Trust has funds sufficient to
make such payments, and is not a guarantee of collection. If the Company does
not make interest payments on the Junior Subordinated Debentures held by an
ACMI Trust, such ACMI Trust will not be able to pay Distributions on the Trust
Preferred Securities and will not have funds legally available therefor. See
"Description of the Junior Subordinated Debentures-Certain Covenants."
Status of the Guarantees
The Guarantees will constitute unsecured obligations of the Company and will
rank subordinate and junior in right of payment to all Senior Debt and
Subordinated Debt in the same manner as the Junior Subordinated Debentures.
The Guarantees will constitute a guarantee of payment and not of collection.
For example, the guaranteed party may institute a legal proceeding directly
against the Company to enforce its rights under a Guarantee without first
instituting a legal proceeding against any other person or entity. Each
Guarantee will be held for the benefit of the holders of the Trust Preferred
Securities of a particular ACMI Trust. A Guarantee will not be discharged
except by payment of the Guarantee Payment in full to the extent not paid by
the particular ACMI Trust or upon distribution of the Junior Subordinated
Debentures related to a particular ACMI Trust to the holders of the Trust
Preferred Securities of such ACMI Trust. The Guarantees do not place a
limitation on the amount of additional Senior Debt and Subordinated Debt that
may be incurred by the Company. The Company expects from time to time to incur
additional indebtedness constituting Senior Debt and Subordinated Debt.
7
<PAGE> 130
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the Trust Preferred Securities (in which case no vote
will be required), each Guarantee may not be amended without the prior approval
of the holders of not less than a majority of the aggregate Liquidation Amount
of such outstanding Trust Preferred Securities issued by the applicable ACMI
Trust. The manner of obtaining such approval of holders of such Trust
Preferred Securities will be as set forth in an accompanying Prospectus
Supplement. All guarantees and agreements contained in a Guarantee shall bind
the successors, assigns, receivers, trustees and representatives of the Company
and shall inure to the benefit of the holders of the Trust Preferred Securities
then outstanding of the applicable ACMI Trust.
Events of Default
An Event of Default under a Guarantee Agreement will occur upon the failure
of the Company to perform any of its payment or other obligations thereunder
and, except for a default in payment of a Guarantee Payment, the Guarantor shall
have received notice of default and shall not have cured such default within 90
days after receipt of such notice.
The holders of not less than a majority in aggregate Liquidation Amount of
the Trust Preferred Securities relating to such Guarantee have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Guarantee Trustee in respect of such Guarantee or to direct the
exercise of any trust or power conferred upon the Guarantee Trustee under such
Guarantee. Any holder of the Trust Preferred Securities relating to such
Guarantee may institute a legal proceeding directly against the Company to
enforce its rights under such Guarantee without first instituting a legal
proceeding against the relevant ACMI Trust, the Guarantee Trustee or any other
person or entity.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of a
default with respect to a Guarantee, and after curing all Events of Default
that have occurred under a Guarantee, has undertaken to perform only such
duties as are specifically set forth in a Guarantee and, after the occurrence
of an event of default under a Guarantee, must exercise the same degree of care
and skill as a prudent person would exercise or use in the conduct of his or
her own affairs. Subject to this provision, the Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by a Guarantee at the
request of any holder of Trust Preferred Securities unless it is offered
adequate security and indemnity as would satisfy a reasonable person in the
position of the Guarantee Trustee against the costs, expenses and liabilities
that might be incurred thereby.
TERMINATION OF THE GUARANTEE
Each Guarantee will terminate as to the Trust Preferred Securities issued by
the applicable ACMI Trust and be of no further force and effect upon full
payment of the Redemption Price of all Trust Preferred Securities of such ACMI
Trust, upon full payment of the amounts payable upon liquidation of such ACMI
Trust or upon distribution of Junior Subordinated Debentures held by such ACMI
Trust to the holders of the Trust Preferred Securities of such ACMI Trust. Each
Guarantee will continue to be effective or will be reinstated, as the case may
be, if at any time any holder of the Trust Preferred Securities issued by the
applicable ACMI Trust must restore payment of any sums paid under such Trust
Preferred Securities or such Guarantee.
GOVERNING LAW
The Guarantee Agreement will be governed by and construed in accordance with
the laws of the State of California.
8
<PAGE> 131
EXPENSE AGREEMENT
Pursuant to the Expense Agreement to be entered into between the Company and
each ACMI Trust under the applicable ACMI Trust Agreements, the Company will
irrevocably and unconditionally guarantee to each person or entity to whom such
ACMI Trust becomes indebted or liable, the full payment of any costs, expenses
or liabilities of such ACMI Trust (including, without limitation, expenses
relating to the Offering of the Trust Preferred Securities of such ACMI Trust
and any expenses the Property Trustee may incur relating to the enforcement of
the rights of the holders of the Trust Preferred Securities or the Junior
Subordinated Debentures related to such ACMI Trust pursuant to the applicable
Trust Agreement and the Indenture, respectively), other than obligations of an
ACMI Trust to pay to the holders of the Trust Preferred Securities or other
similar interests in such ACMI Trust the amounts due such holders pursuant to
the terms of the Trust Preferred Securities or such other similar interest, as
the case may be. The Expense Agreement may be enforced against the Company by
any person or entity to whom an ACMI Trust is or becomes indebted or liable.
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
Junior Subordinated Debentures may be issued from time to time in one or more
series under an Indenture, dated as of _______, 1998 (the "Indenture"), between
the Company and Wilmington Trust Company, as Indenture Trustee. The terms of
the Junior Subordinated Debentures will include those stated in the Indenture
and in a Supplemental Indenture (as defined below) and those made part of the
Indenture by reference to the Trust Indenture Act. The following summary does
not purport to be complete and is subject in all respects to the provision of,
and is qualified in its entirety by reference to, the Indenture, which is filed
as an exhibit to the Registration Statement of which this Prospectus is a part,
and the Trust Indenture Act. Whenever particular provisions or defined terms
in the Indenture are referred to herein, such provisions or defined terms are
incorporated by reference herein.
GENERAL
The Junior Subordinated Debentures will be unsecured and will rank junior and
be subordinate in right of payment to all Senior Debt and Subordinated Debt of
the Company. The Indenture does not limit the incurrence or issuance of other
secured or unsecured debt of the Company, including Senior Debt and
Subordinated Debt, whether under the Indenture or any existing or other
indenture that the Company may enter into in the future or otherwise. The
Indenture does not limit the aggregate principal amount of Junior Subordinated
Debentures which may be issued thereunder and provides that the Junior
Subordinated Debentures may be issued from time to time in one or more series.
The Junior Subordinated Debentures are issuable in one or more series pursuant
to an indenture supplemental to the Indenture or a resolution of the Company's
Board of Directors or a special committee thereof (each, a "Supplemental
Indenture").
In the event Junior Subordinated Debentures are issued to an ACMI Trust or a
trustee of such trust in connection with the issuance of Trust Preferred
Securities by such AMCI Trust, such Junior Subordinated Debentures subsequently
may be distributed pro rata to the holders of such Trust Preferred Securities
in connection with termination of such ACMI Trust upon the occurrence of
certain events described in the Prospectus Supplement relating to such Trust
Preferred Securities. Only one series of Junior Subordinated Debentures will
be issued to an ACMI Trust or a trustee of such trust in connection with the
issuance of Trust Preferred Securities by such ACMI Trust.
Reference is made to the accompanying Prospectus Supplement for the following
terms of the series of Junior Subordinated Debentures being offered thereby:
(i) the specific title of such Junior Subordinated Debentures; (ii) any limit
on the aggregate principal amount of such Junior Subordinated Debentures; (iii)
the date or dates on which the principal of such Junior Subordinated Debentures
is payable and the right, if any, to extend such date or dates; (iv) the rate
or rates at which such Junior Subordinated Debentures will bear interest or the
method of determination of such rate or rates; (v) the date or dates from which
such interest shall accrue, the interest payment dates on which such interest
will be payable or the manner of determination of such interest payment dates
and the record dates for the determination of holders to whom interest is
payable on any such interest payment dates; (vi) the right, if any, to extend
the interest payment periods and the duration of such extension; (vii) the
period or
9
<PAGE> 132
periods within which, the price or prices at which, and the terms and conditions
upon which, such Junior Subordinated Debentures may be redeemed, in whole or in
part, at the option of the Company; (viii) the right and/or obligation, if any,
of the Company to redeem or purchase such Junior Subordinated Debentures
pursuant to any sinking fund or analogous provisions or at the option of the
holder thereof and the period or periods during which, the price or prices at
which, and the terms and conditions upon which, such Junior Subordinated
Debentures shall be redeemed or purchased, in whole or in part, pursuant to such
right and/or obligation; (ix) the terms of subordination; (x) if other than
denominations of $10 or any integral multiple thereof, the denominations in
which such Junior Subordinated Debentures are issuable in a global security, and
in such case, the identity of the depositary.
The Indenture does not contain any provisions that afford holders of Junior
Subordinated Debentures protection in the event of a highly leveraged
transaction involving the Company.
SUBORDINATION
The Junior Subordinated Debentures will be subordinated and junior in right
of payment to certain other indebtedness of the Company to the extent set forth
in the accompanying Prospectus Supplement.
REGISTRATION, DENOMINATION AND TRANSFER
Junior Subordinated Debentures of each series will be issued in registered
form and in either certificated form or represented by one or more global
securities. Junior Subordinated Debentures of each series will initially be
registered in the name of the Property Trustee. If the Junior Subordinated
Debentures are distributed to holders of Trust Preferred Securities of an ACMI
Trust, it is anticipated that the depository arrangements for such series of
Junior Subordinated Debentures will be substantially identical to those in
effect for the Trust Preferred Securities of such ACMI Trust set forth in an
accompanying Prospectus Supplement.
Payments on any series of Junior Subordinated Debentures, whether represented
by a global certificate or issued in certificated form, will be made in the
manner described in the accompanying Prospectus Supplement relating to such
series of Junior Subordinated Debentures, as described under "Description of
the Trust Preferred Securities--Global Trust Preferred Securities."
Junior Subordinated Debentures will be exchangeable for other Junior
Subordinated Debentures of like tenor, of any authorized denominations and of a
like aggregate principal amount.
Junior Subordinated Debentures of each series may be presented for exchange
as provided above, and may be presented for registration of transfer (with the
form of transfer endorsed thereon, or a satisfactory written instrument of
transfer, duly executed), at the office of the securities registrar (the
"Securities Registrar") appointed under the applicable Indenture or at the
office of any transfer agent designated by the Company for such purpose without
service charge and upon payment of any taxes and other governmental charges as
described in the applicable Indenture. The Company will appoint the Indenture
Trustee under the Indenture as the Securities Registrar for each series of
Junior Subordinated Debentures. The Company may at any time designate
additional transfer agents with respect to any series of Junior Subordinated
Debentures.
In the event of any redemption, neither the Company nor the Indenture Trustee
shall be required to (i) issue, register the transfer of or exchange Junior
Subordinated Debentures of such series during a period beginning at the opening
of business 15 days before the day of selection for redemption of the Junior
Subordinated Debentures of such series to be redeemed and ending at the close
of business on the date of mailing of the relevant notice of redemption or (ii)
transfer or exchange any Junior Subordinated Debentures so selected for
redemption, except in the case of any Junior Subordinated Debentures being
redeemed in part, any portion thereof not to be redeemed.
10
<PAGE> 133
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in an applicable Prospectus Supplement, payment of
principal of and premium, if any, on any Junior Subordinated Debentures will be
made at the office of the Indenture Trustee, except that at the option of the
Company payment of any interest may be made (i) except in the case of Global
Junior Subordinated Debentures, by check mailed to the address of the person
entitled thereto as such address shall appear in the Securities Register, (ii)
by transfer to an account maintained by the person entitled thereto as
specified in the Securities Register, provided that proper transfer
instructions have been received by the regular record date or (iii) if the
Junior Subordinated Debentures are held by the Property Trustee, by agreement
between the Company and the Property Trustee. Payment of any interest on any
Junior Subordinated Debentures will be made to the person in whose name such
Junior Subordinated Debenture is registered at the close of business on the
regular record date for such interest. The Company may at any time designate
additional Paying Agents or rescind the designation of any Paying Agent;
however, the Company will at all times be required to maintain a Paying Agent
in each place of payment for the Junior Subordinated Debentures of each series.
Any monies deposited with the Indenture Trustee or any Paying Agent, or then
held by the Company in trust, for the payment of the principal of (and premium,
if any) or interest on any Junior Subordinated Debentures and remaining
unclaimed for two years after such principal, premium or interest has become
due and payable shall, at the request of the Company, be repaid to the Company
and the holder of such Junior Subordinated Debenture shall thereafter look, as
a general unsecured creditor, only to the Company for payment thereof.
GLOBAL SECURITIES
If any Junior Subordinated Debentures of a series are represented by one or
more global securities (each, a "Global Security"), the applicable Prospectus
Supplement will describe the circumstances, if any, under which beneficial
owners of interests in any such Global Security may exchange such interests for
Junior Subordinated Debentures of such series and of like tenor and principal
amount in any authorized form and denomination. Principal of and premium, if
any, and interest on a Global Security will be payable in the manner described
in the applicable Prospectus Supplement.
The specific terms of the depositary arrangement with respect to any portion
of a series of Junior Subordinated Debentures to be represented by a Global
Security will be described in the applicable Prospectus Supplement.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Indenture
Trustee, with the consent of the holders of not less than a majority in
principal amount of the Junior Subordinated Debentures of each series which are
affected by the modification, to modify the Indenture or any supplemental
indenture affecting that series or the rights of the holders of that series of
Junior Subordinated Debentures; provided that no such modification may, without
the consent of the holder of each outstanding Junior Subordinated Debenture
affected thereby, (i) change or extend the fixed maturity of any Junior
Subordinated Debentures of any series, or reduce the principal amount thereof,
or reduce the rate or extend the time of payment of interest thereon, or reduce
any premium payable upon the redemption thereof, without the consent of the
holder of each Junior Subordinated Debenture so affected or (ii) reduce the
percentage of principal amount of Junior Subordinated Debentures the holders of
which are required to consent to any such supplemental indenture.
In addition, the Company and the Indenture Trustee may execute, without the
consent of any holder of Junior Subordinated Debentures, amend, waive or
supplement the Indenture for certain other specified purposes, including the
creation of any new series of Junior Subordinated Debentures.
DEBENTURE EVENTS OF DEFAULT
With respect to a particular series of Junior Subordinated Debentures, the
Indenture provides (or the Supplemental Indenture for such series will provide)
that any one or more of the following described events which
11
<PAGE> 134
has occurred and is continuing constitutes a "Debenture Event of Default," with
respect to such series of Junior Subordinated Debentures:
(i) failure for 30 days to pay any interest on the Junior Subordinated
Debentures of that series, when due (subject to the deferral of any due date in
the case of an Extension Period); or
(ii) failure to pay any principal on the Junior Subordinated Debentures of
that series when due whether at maturity, upon redemption, by declaration or
otherwise; or
(iii) failure to observe or perform in any material respect certain other
covenants contained in the Indenture (other than those specifically relating to
another series) for 90 days after written notice to the Company from the
Indenture Trustee or to the Company and the Indenture Trustee by the holders of
at least 25% in aggregate outstanding principal amount of the Junior
Subordinated Debentures of that series; or
(iv) certain events in bankruptcy, insolvency or reorganization of the
Company.
The holders of a majority in aggregate outstanding principal amount of any
series of Junior Subordinated Debentures have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Indenture Trustee for the series. The Indenture Trustee or the holders of not
less than 25% in aggregate outstanding principal amount of the Junior
Subordinated Debentures of that series may declare the principal due and
payable immediately upon a Debenture Event of Default. If the Indenture
Trustee or the holders of the Junior Subordinated Debentures of that series
fail to make such declaration, the holders of at least 25% in aggregate
Liquidation Amount of the Trust Preferred Securities of that series shall have
such right. The holders of a majority in aggregate outstanding principal
amount of the Junior Subordinated Debentures of that series may annul such
declaration and waive the default if the default (other than the non-payment of
the principal of the Junior Subordinated Debentures of that series which has
become due solely by such acceleration) has been cured and a sum sufficient to
pay all matured installments of interest and principal due otherwise than by
acceleration has been deposited with the Indenture Trustee. Should the holders
of the Junior Subordinated Debentures of that series fail to annul such
declaration and waive such default, the holders of a majority in aggregate
Liquidation Amount of the Trust Preferred Securities of the ACMI Trust related
to that series of Junior Subordinated Debentures shall have such right.
The holders of a majority in aggregate outstanding principal amount of any
series of Junior Subordinated Debentures affected thereby may, on behalf of the
holders of all the Junior Subordinated Debentures of that series, waive any
past default, except a default in the payment of principal or interest (unless
such default has been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Indenture Trustee) or a default in respect of a
covenant or provision which under the Indenture cannot be modified or amended
without the consent of the holder of each outstanding Junior Subordinated
Debenture of such series.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF TRUST PREFERRED SECURITIES
If a Debenture Event of Default has occurred and is continuing and such event
is attributable to the failure of the Company to pay interest, principal or
premium (if any) on a series of Junior Subordinated Debentures on the date such
interest, principal or premium is otherwise payable, a holder of Trust
Preferred Securities of the ACMI Trust related to that series of Junior
Subordinated Debentures may institute a legal proceeding directly against the
Company for enforcement of payment to such holder of the principal of or
interest on such Junior Subordinated Debentures having a principal amount equal
to the aggregate premium (if any) or Liquidation Amount of the Trust Preferred
Securities of such holder (a "Direct Action"). The Company may not amend the
Indenture to remove the foregoing right to bring a Direct Action without the
prior written consent of the holders of all of the Trust Preferred Securities
outstanding. The Company shall have the right under the Indenture to set off
any payment made to such holder of Trust Preferred Securities by the Company in
connection with a Direct Action.
12
<PAGE> 135
The holders of the Trust Preferred Securities will not be able to exercise
directly any remedies other than those set forth in the preceding paragraph
available to the holders of the Junior Subordinated Debentures unless there
shall have been an event of default under the Trust Agreement.
CONSOLIDATION, MERGER AND SALE
The Indenture provides that the Company shall not consolidate with or merge
into any other Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, and no Person shall consolidate
with or merge into the Company or convey, transfer or lease its properties and
assets substantially as an entirety to the Company, unless (i) in case the
Company consolidates with or merges into another Person or conveys, transfers
or leases its properties and assets substantially as an entirety to any Person,
the successor Person is organized under the laws of the United States or any
state or the District of Columbia, and such successor Person expressly assumes
the Company's obligations on the Junior Subordinated Debentures of any series
issued under the Indenture; (ii) immediately after giving effect thereto, no
Debenture Event of Default, and no event which, after notice or lapse of time
or both, would become a Debenture Event of Default, shall have occurred and be
continuing; and (iii) certain other conditions as prescribed in the Indenture
are met.
The general provisions of the Indenture do not afford holders of the Junior
Subordinated Debentures protection in the event of a highly leveraged or other
similar transaction involving the Company that may adversely affect holders of
the Junior Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all Junior Subordinated
Debentures of a series not previously delivered to the Indenture Trustee for
cancellation (i) have become due and payable or (ii) will become due and
payable at their Stated Maturity within one year, and the Company deposits or
causes to be deposited with the Indenture Trustee funds, in trust, for the
purpose and in an amount in the currency or currencies in which the Junior
Subordinated Debentures of such series are payable sufficient to pay and
discharge the entire indebtedness on the Junior Subordinated Debentures of such
series not previously delivered to the Indenture Trustee for cancellation, for
the principal and interest to the date of the deposit or to the Stated
Maturity, as the case may be, then the Indenture will cease to be of further
effect (except as to the Company's obligations to pay all other sums due
pursuant to the Indenture with respect to such series of Junior Subordinated
Debentures and to provide the officers' certificates and opinions of counsel
described therein) and the Company will be deemed to have satisfied and
discharged the Indenture with respect to such series.
COVENANTS OF THE COMPANY
The Company will covenant in the Indenture, as to the Junior Subordinated
Debentures of a series, that if and so long as (i) the Property Trustee on
behalf of an ACMI Trust is the holder of all such Junior Subordinated
Debentures, (ii) a Tax Event in respect of such ACMI Trust has occurred and is
continuing and (iii) the Company has elected, and has not revoked such
election, to pay Additional Sums in respect of the Trust Preferred Securities
of such ACMI Trust, the Company will pay to such ACMI Trust such Additional
Sums. The Company also will covenant, as to the Junior Subordinated Debentures
of each series, (i) to maintain directly or indirectly 100% ownership of the
Common Securities of such ACMI Trust to which any series of Junior Subordinated
Debentures have been issued, provided that certain successors which are
permitted to do so pursuant to the Indenture may succeed to the Company's
ownership of the Common Securities, (ii) not to voluntarily dissolve, wind up
or liquidate such ACMI Trust, except (a) in connection with a distribution of
Junior Subordinated Debentures to the holders of the Trust Preferred Securities
of such ACMI Trust in liquidation of such ACMI Trust or (b) in connection with
certain mergers, consolidations, or amalgamations permitted by the Trust
Indenture and (iii) to use its reasonable efforts, consistent with the terms
and provisions of the Trust Indenture, to cause such ACMI Trust to remain
classified as a grantor trust and not an association taxable as a corporation
for United States federal income tax purposes.
13
<PAGE> 136
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be governed by and
construed in accordance with the laws of the State of California, except that
the immunities and standard of care of the Indenture Trustee will be governed
by Delaware law.
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The Indenture Trustee shall have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the Trust
Indenture Act. Subject to such provisions, the Indenture Trustee is under no
obligation to exercise any of the powers vested in it by the Indenture at the
request of any holder of Junior Subordinated Debentures of a series, unless
offered reasonable indemnity by such holder against the costs, expenses and
liabilities which might be incurred thereby. The Indenture Trustee is not
required to expend or risk its own funds or otherwise incur personal financial
liability in the performance of its duties if the Indenture Trustee reasonably
believes that repayment or adequate indemnity is not reasonably assured to it.
PLAN OF DISTRIBUTION
The Company may sell any series of Junior Subordinated Debentures and the ACMI
Trusts may sell the Trust Preferred Securities in one or more of the following
ways from time to time: (i) to or through underwriters or dealers, (ii)
directly to purchasers or (iii) through agents. The Prospectus Supplement with
respect to any Offered Securities will set forth (i) the terms of the offering
of such Offered Securities, including the name or names of any underwriters,
dealers or agents, (ii) the purchase price of such Offered Securities and the
proceeds to the Company or the applicable ACMI Trust, as the case may be, from
such sale, (iii) any underwriting discounts and commissions or agency fees and
other items constituting underwriters' or agents' compensation, (iv) any
initial public offering prices, (v) any discounts or concessions allowed or
reallowed or paid to dealers and (vi) any securities exchange or other
securities market on which such Offered Securities may be listed.
If underwriters are used in the sale, the Offered Securities will be acquired
by the underwriters for their own account and may be resold from time to time
in one or more transactions, including negotiated transactions, at a fixed
public offering price or at varying prices determined at the time of sale. The
Offered Securities may be offered to the public either through underwriting
syndicates represented by one or more managing underwriters or directly by one
or more firms acting as underwriters. The underwriter or underwriters with
respect to a particular underwritten offering of Offered Securities will be
named in the Prospectus Supplement relating to such offering and, if any
underwriting syndicate is used, the managing underwriter or underwriters will
be set forth on the cover of the Prospectus Supplement. Unless otherwise set
forth in the Prospectus Supplement relating thereto, the obligations of the
underwriters to purchase the Offered Securities will be subject to certain
conditions precedent, and the underwriters will be obligated to purchase all
the Offered Securities if any are purchased.
If dealers are utilized in the sale of Offered Securities, the Company or the
applicable ACMI Trust will sell such Offered Securities to the dealers as
principals. The dealers may then resell such Offered Securities to the public
at varying prices to be determined by such dealers at the time of resale. The
names of the dealers and the terms of the transaction will be set forth in the
Prospectus Supplement relating thereto.
Any series of Junior Subordinated Debentures may be sold from time to time
either directly by the Company or through agents designated by the Company.
Any series of Trust Preferred Securities may be sold from time to time either
directly by the applicable ACMI Trust or by agents of the applicable ACMI Trust
designated by such ACMI Trust. Any agent involved in the offer or sale of the
Offered Securities in respect to which this Prospectus is delivered will be
named, and any commissions payable by the Company or the applicable ACMI Trust
to such agent will be set forth, in the Prospectus Supplement relating thereto.
Unless otherwise indicated in the Prospectus Supplement, any such agent will be
acting on a best efforts basis for the period of its appointment.
The Junior Subordinated debentures may be sold directly by the Company and the
Trust Preferred Securities may be sold directly by the applicable ACMI Trust to
institutional investors or others who may be
14
<PAGE> 137
deemed to be underwriters within the meaning of the Securities Act with respect
to any resale thereof. The terms of any such sales will be described in the
Prospectus Supplement relating thereto.
If so indicated in the Prospectus Supplement, the Company or the applicable
ACMI Trust will authorize agents, underwriters or dealers to solicit offers
from certain types of institutions to purchase Offered Securities from the
Company or such ACMI Trust at the public offering price set forth in the
Prospectus Supplement pursuant to delayed delivery contracts providing for
payment and delivery on a specified date in the future. Such contracts will be
subject only to those conditions set forth in the Prospectus Supplement, and
the Prospectus Supplement will set forth the commission payable for
solicitation of such contracts.
Underwriters, dealers and agents may be entitled under agreements entered into
with the Company or the applicable ACMI Trust (or both) to indemnification by
the Company or such ACMI Trust (or both) against certain civil liabilities,
including liabilities under the Securities Act, or to contribution with respect
to payments which such underwriters, dealers or agents may be required to make
in respect thereof. Underwriters, dealers and agents may be customers of,
engage in transactions with, or perform services for the Company and its
affiliates in the ordinary course of business.
Each series of Offered Securities will be a new issue of securities and will
have no established trading market. Any underwriters to whom Offered
Securities are sold by the Company or by an ACMI Trust for public offering and
sale may make a market in such Offered Securities, but such underwriters will
not be obligated to do so and may discontinue any market making at any time
without notice. The Offered Securities may or may not be listed on a national
securities exchange. No assurance can be given that there will be a market for
the Offered Securities.
LEGAL MATTERS
The validity of the Guarantees and the Junior Subordinated Debentures will be
passed upon for the Company by Cooley Godward LLP, counsel to the Company.
Certain matters of Delaware law relating to the validity of the Trust Preferred
Securities, the enforceability of the Trust Agreement and the creation of the
Trust will be passed upon by Richards, Layton & Finger, P.A., Wilmington,
Delaware, special Delaware counsel to the Company and the Trust. Richards,
Layton & Finger, P.A., will also pass on certain matters on behalf of
Wilmington Trust Company in connection with the offering. Cooley Godward LLP
will rely on the opinions of Richards, Layton & Finger, P.A. as to certain
matters of Delaware law. Certain matters relating to United States federal
income tax considerations will be passed upon for the Company by Cooley Godward
LLP.
EXPERTS
The financial statements of the Company as of December 31, 1996 and 1997,
and for each of the years in the three- year period ended December 31, 1997
have been included herein and in the registration statement in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
The Combined Balance Sheets of Suncoast Toys, Inc., NW Toys Co. and Oregon
Coin Company as of December 31, 1996 and 1997 and the Combined Statements of
Income, Stockholders' Equity and Cash Flows for each of the three years in the
period ended December 31, 1997 included in the Prospectus Supplement have been
included herein in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
15
<PAGE> 138
Inside back cover: American Coin Merchandising, Inc. logo; caption "Kiddie
Rides" over a picture of a kiddie ride shaped like an apple and a picture of
another kiddie ride shaped like Spiderman over the caption "Examples of the
Company's Licensed Kiddie Rides."
Picture of a bulk vending machine with various items inside the machines over
the caption "Electronic Bulk Vending Machines."
16
<PAGE> 139
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY AMERICAN COIN MERCHANDISING, INC., AMERICAN COIN MERCHANDISING
TRUST I OR THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY
SECURITY OTHER THAN THE SECURITIES OFFERED BY THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF ANY
OFFER TO BUY THE SECURITIES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
-------------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary ...................................................... S-4
Risk Factors ............................................................ S-13
Use of Proceeds ......................................................... S-23
Accounting Treatment .................................................... S-23
Capitalization .......................................................... S-24
Selected Financial and Operating Data ................................... S-25
Management's Discussion and Analysis of
Financial Condition and Results of Operations ........................ S-28
Business ................................................................ S-35
Management .............................................................. S-45
Principal Stockholders .................................................. S-48
Description of the Trust Preferred Securities ........................... S-50
Description of the Junior Subordinated Debentures ....................... S-61
Book-Entry Issuance ..................................................... S-69
Description of Guarantee ................................................ S-71
Expense Agreement ....................................................... S-73
Relationship among the Trust Preferred Securities,
the Junior Subordinated Debentures and the Guarantee ................. S-74
Material Federal Income Tax Consequences ................................ S-75
ERISA Considerations .................................................... S-79
Underwriting ............................................................ S-81
Legal Matters ........................................................... S-82
Experts ................................................................. S-82
Index to Financial Statements ........................................... F-1
PROSPECTUS
Available Information ................................................... 2
Incorporation of Documents by Reference ................................. 2
The Company ............................................................. 4
The American Coin Merchandising Trusts .................................. 4
Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends ............................................ 5
Use of Proceeds ......................................................... 6
Description of the Trust Preferred Securities............................ 6
Description of the Guarantees............................................ 7
Expense Agreement........................................................ 9
Description of Junior Subordinated Debentures............................ 9
Plan of Distribution..................................................... 14
Legal Matters............................................................ 15
Experts.................................................................. 15
</TABLE>
================================================================================
5,000,000 Trust Preferred Securities
American Coin Merchandising
Trust I
_____% Cumulative Trust
Trust Preferred Securities
(Liquidation Amount
$10 Per
Trust Preferred Security)
Fully and Unconditionally
Guaranteed By
[ACMI Logo]
-------------------------------
Prospectus Supplement
-------------------------------
EVEREN Securities, Inc.
____________, 1998
================================================================================
<PAGE> 140
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. Other Expenses of Issuance and Distribution.
<TABLE>
<S> <C>
Registration fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29,500
American Stock Exchange listing fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,500
Blue sky qualification fee and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
NASD filing fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,250
Printing and engraving expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000
Legal fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000
Accounting fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,000
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,750
--------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $550,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Under Section 145 of the Delaware General Corporation Law, the Company has
broad powers to indemnify its directors and officers against liabilities they
may incur in such capacities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act"). The Company's Bylaws also provide that
the Company will indemnify its directors and officers and may indemnify its
employees and other agents to the fullest extent not prohibited by Delaware
law.
The Company's Certificate of Incorporation provides for the elimination of
liability for monetary damages for breach of the directors' fiduciary duty of
care to the Company and its stockholders. These provisions do not eliminate the
directors' duty of care and, in appropriate circumstances, equitable remedies
such an injunctive or other forms of non- monetary relief will remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Company, for acts
or omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for any transaction from which the director derived an
improper personal benefit, and for payment of dividends or approval of stock
repurchases or redemptions that are unlawful under Delaware law. The provision
does not affect a director's responsibilities under any other laws, such as the
federal securities laws or state or federal environmental laws.
The Company has entered into agreements with its directors and executive
officers that require the Company to indemnify such persons against expenses,
judgments, fines, settlements and other amounts actually and reasonably
incurred (including expenses of a derivative action) in connection with any
proceeding, whether actual or threatened, to which any such person may be made
a party by reason of the fact that such person is or was a director or officer
of the Company or any of its affiliated enterprises, provided such person acted
in good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Company and, with respect to any criminal
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The indemnity agreements also set forth certain procedures that will apply in
the event of a claim for indemnification thereunder.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrants
and its officers and directors for certain liabilities arising under the
Securities Act or otherwise.
ITEM 16. EXHIBITS.
<TABLE>
<S> <C>
1+ Form of Underwriting Agreement.
4.1 Certificate of Trust of ACMI Merchandising Trust I.
4.2 Certificate of Trust of ACMI Merchandising Trust II.
4.3 Certificate of Trust of ACMI Merchandising Trust III.
4.4 Certificate of Trust of ACMI Merchandising Trust IV.
4.5 Trust Agreement of ACMI Merchandising Trust I.
</TABLE>
II-1
<PAGE> 141
<TABLE>
<S> <C>
4.6 Trust Agreement of ACMI Merchandising Trust II.
4.7 Trust Agreement of ACMI Merchandising Trust III.
4.8 Trust Agreement of ACMI Merchandising Trust IV.
4.9+ Amended and Restated Trust Agreement of ACMI Merchandising Trust I.
4.10+ Form of Indenture between the Registrant and Wilmington Trust Company, as Trustee.
4.11+ Form of First Supplemental Indenture to Indenture to be used in connection with the issuance of
the Junior Subordinated Debentures.
4.12+ Form of Guarantee Agreement with respect to Trust Preferred Securities of ACMI Merchandising
Trust I.
4.13+ Form of Guarantee Agreement with respect to Trust Preferred Securities of ACMI Merchandising
Trust II.
4.14+ Form of Guarantee Agreement with respect to Trust Preferred Securities of ACMI Merchandising
Trust III.
4.15+ Form of Guarantee Agreement with respect to Trust Preferred Securities of ACMI Merchandising
Trust IV.
4.16+ Form of Agreement as to Expenses and Liabilities between the Registrant and ACMI Merchandising
Trust I.
5.1+ Opinion of Cooley Godward LLP regarding the legality of the securities being registered.
5.2+ Opinion of Richards, Layton & Finger, P.A. regarding the validity under Delaware law of the
securities being registered.
8+ Opinion of Cooley Godward LLP regarding certain tax matters.
10.36 Reducing Revolving Loan Agreement between the Registrant and Wells Fargo Bank, N.A., dated as
of June 10, 1998.
10.37 Amendment No. 1 to the Reducing Revolving Loan Agreement, dated June 30, 1998.
12 Calculation of Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends of
the Company.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consents of Cooley Godward LLP and Richards, Layton & Finger, P.A. (included in Exhibit 5.1 and
Exhibit 5.2).
24 Powers of Attorney (included on pages II-6, II-7, II-8, II-9 and II-10.
25.1+ Statement of Eligibility of Wilmington Trust Company, as Trustee for the Indenture, on Form T-1.
25.2+ Statement of Eligibility of Wilmington Trust Company, as Trustee for Trust Preferred Securities
of ACMI Merchandising Trust I, on Form T-1.
25.3+ Statement of Eligibility of Wilmington Trust Company, as Trustee for Trust Preferred Securities
of ACMI Merchandising Trust II, on Form T-1.
25.4+ Statement of Eligibility of Wilmington Trust Company, as Trustee for Trust Preferred Securities
of ACMI Merchandising Trust III, on Form T-1.
25.5+ Statement of Eligibility of Wilmington Trust Company, as Trustee for Trust Preferred Securities
of ACMI Merchandising Trust IV, on Form T-1.
25.6+ Statement of Eligibility of Wilmington Trust Company, as Trustee for Guarantee of Trust
Preferred Securities of ACMI Merchandising Trust I, on Form T-1.
25.7+ Statement of Eligibility of Wilmington Trust Company, as Trustee for Guarantee of Trust
Preferred Securities of ACMI Merchandising Trust II, on Form T-1.
25.8+ Statement of Eligibility of Wilmington Trust Company, as Trustee for Guarantee of Trust
Preferred Securities of ACMI Merchandising Trust III, on Form T-1.
25.9+ Statement of Eligibility of Wilmington Trust Company, as Trustee for Guarantee of Trust
Preferred Securities of ACMI Merchandising Trust IV, on Form T-1.
</TABLE>
- ----------
+ To be filed by Amendment
II-2
<PAGE> 142
ITEM 17. UNDERTAKINGS.
THE UNDERSIGNED REGISTRANTS HEREBY UNDERTAKE:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post- effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
section 13 or section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities Act
of 1933, each filing of the Registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(5) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
(6) 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)(i) 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.
(7) 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 provisions described under Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 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 Securities Act of 1933 and will be
governed by the final adjudication of such issue.
II-3
<PAGE> 143
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Boulder, State of Colorado, on July 31, 1998.
AMERICAN COIN MERCHANDISING, INC.
By /s/ Jerome M. Lapin
------------------------------------------
Name: Jerome M. Lapin
Title: Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Boulder, State of Colorado, on July 31, 1998.
AMERICAN COIN MERCHANDISING TRUST I
By /s/ Jerome M. Lapin
------------------------------------------
Name: Jerome M. Lapin
Title: Trustee
By /s/ W. John Cash
------------------------------------------
Name: W. John Cash
Title: Trustee
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Boulder, State of Colorado, on July 31, 1998.
AMERICAN COIN MERCHANDISING TRUST II
By /s/ Jerome M. Lapin
------------------------------------------
Name: Jerome M. Lapin
Title: Trustee
By /s/ W. John Cash
------------------------------------------
Name: W. John Cash
Title: Trustee
II-4
<PAGE> 144
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Boulder, State of Colorado, on July 31, 1998.
AMERICAN COIN MERCHANDISING TRUST III
By /s/ Jerome M. Lapin
------------------------------------------
Name: Jerome M. Lapin
Title: Trustee
By /s/ W. John Cash
------------------------------------------
Name: W. John Cash
Title: Trustee
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Boulder, State of Colorado, on July 31, 1998.
AMERICAN COIN MERCHANDISING TRUST IV
By /s/ Jerome M. Lapin
------------------------------------------
Name: Jerome M. Lapin
Title: Trustee
By /s/ W. John Cash
-------------------------------------------
Name: W. John Cash
Title: Trustee
II-5
<PAGE> 145
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Jerome M. Lapin and W. John Cash and
each of them, his true and lawful attorneys-in-fact and agents with full power
of substitution and re-substitution for him and in his name, place and stead,
in any and all capacities, to sign any or all amendments (including
post-effective amendments or any abbreviated registration statement, and any
amendments thereto, filed pursuant to Rule 462(b) increasing the amount of
securities for which registration is being sought) to this Registration
Statement and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents and each of them full power and
authority, to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, to all intents and purposes as
fully as they might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or their substitutes may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons
in the capacities and on the dates indicated:
<TABLE>
<S> <C> <C>
Signature Title Date
--------- ----- ----
/s/ Jerome M. Lapin Chairman of the Board, July 31, 1998
- ------------------------------------------- President and Chief Executive Officer,
Jerome M. Lapin American Coin Merchandising, Inc.
/s/ W. John Cash Vice President, Chief Financial July 31, 1998
- ------------------------------------------- Officer and Treasurer (Principal
W. John Cash Financial and Accounting
Officer)
/s/ Randall J. Fagundo Vice President of Operations July 31, 1998
- ------------------------------------------- Secretary and Director
Randall J. Fagundo
/s/ Abbe M. Stutsman Vice President of Product July 31, 1998
- ------------------------------------------- Development and Purchasing
Abbe M. Stutsman and Director
/s/ J. Gregory Theisen Director July 31, 1998
- -------------------------------------------
J. Gregory Theisen
/s/ Richard D. Jones Director July 31, 1998
- -------------------------------------------
Richard D. Jones
/s/ Jim D. Baldwin Director July 31, 1998
- -------------------------------------------
Jim D. Baldwin
/s/ John A. Sullivan Director July 31, 1998
- -------------------------------------------
John A. Sullivan
</TABLE>
II-6
<PAGE> 146
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Jerome M. Lapin and W. John Cash and
each of them, his true and lawful attorneys-in-fact and agents with full power
of substitution and re-substitution for him and in his name, place and stead,
in any and all capacities, to sign any or all amendments (including
post-effective amendments or any abbreviated registration statement, and any
amendments thereto, filed pursuant to Rule 462(b) increasing the amount of
securities for which registration is being sought) to this Registration
Statement and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents and each of them full power and
authority, to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, to all intents and purposes as
fully as they might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or their substitutes may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons
in the capacities and on the dates indicated:
<TABLE>
<S> <C> <C>
Signature Title Date
--------- ----- ----
/s/ Jerome M. Lapin Trustee of July 31, 1998
- -------------------------------------- American Coin Merchandising Trust I
Jerome M. Lapin
/s/ W. John Cash Trustee of July 31, 1998
- -------------------------------------- American Coin Merchandising Trust I
W. John Cash
</TABLE>
II-7
<PAGE> 147
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Jerome M. Lapin and W. John Cash and
each of them, his true and lawful attorneys-in-fact and agents with full power
of substitution and re-substitution for him and in his name, place and stead,
in any and all capacities, to sign any or all amendments (including
post-effective amendments or any abbreviated registration statement, and any
amendments thereto, filed pursuant to Rule 462(b) increasing the amount of
securities for which registration is being sought) to this Registration
Statement and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents and each of them full power and
authority, to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, to all intents and purposes as
fully as they might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or their substitutes may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons
in the capacities and on the dates indicated:
<TABLE>
<S> <C> <C>
Signature Title Date
--------- ----- ----
/s/ Jerome M. Lapin Trustee of July 31, 1998
- -------------------------------------- American Coin Merchandising Trust II
Jerome M. Lapin
/s/ W. John Cash Trustee of July 31, 1998
- -------------------------------------- American Coin Merchandising Trust II
W. John Cash
</TABLE>
II-8
<PAGE> 148
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John M. Lapin and W. John Cash and each
of them, his true and lawful attorneys-in-fact and agents with full power of
substitution and re-substitution for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments (including post-effective
amendments or any abbreviated registration statement, and any amendments
thereto, filed pursuant to Rule 462(b) increasing the amount of securities for
which registration is being sought) to this Registration Statement and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents and each of them full power and authority, to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, to all intents and purposes as fully as they might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or their substitutes may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons
in the capacities and on the dates indicated:
<TABLE>
<S> <C> <C>
Signature Title Date
--------- ----- ----
/s/ Jerome M. Lapin Trustee of July 31, 1998
- -------------------------------------- American Coin Merchandising Trust III
Jerome M. Lapin
/s/ W. John Cash Trustee of July 31, 1998
- -------------------------------------- American Coin Merchandising Trust III
W. John Cash
</TABLE>
II-9
<PAGE> 149
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Jerome M. Lapin and W. John Cash and
each of them, his true and lawful attorneys-in-fact and agents with full power
of substitution and re-substitution for him and in his name, place and stead,
in any and all capacities, to sign any or all amendments (including
post-effective amendments or any abbreviated registration statement, and any
amendments thereto, filed pursuant to Rule 462(b) increasing the amount of
securities for which registration is being sought) to this Registration
Statement and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents and each of them full power and
authority, to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, to all intents and purposes as
fully as they might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or their substitutes may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons
in the capacities and on the dates indicated:
<TABLE>
<S> <C> <C>
Signature Title Date
--------- ----- ----
/s/ Jerome M. Lapin Trustee of July 31, 1998
- -------------------------------------- American Coin Merchandising Trust IV
Jerome M. Lapin
/s/ W. John Cash Trustee of July 31, 1998
- -------------------------------------- American Coin Merchandising Trust IV
W. John Cash
</TABLE>
II-10
<PAGE> 150
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
1+ Form of Underwriting Agreement.
4.1 Certificate of Trust of ACMI Merchandising Trust I.
4.2 Certificate of Trust of ACMI Merchandising Trust II.
4.3 Certificate of Trust of ACMI Merchandising Trust III.
4.4 Certificate of Trust of ACMI Merchandising Trust IV.
4.5 Trust Agreement of ACMI Merchandising Trust I.
4.6 Trust Agreement of ACMI Merchandising Trust II.
4.7 Trust Agreement of ACMI Merchandising Trust III.
4.8 Trust Agreement of ACMI Merchandising Trust IV.
4.9+ Amended and Restated Trust Agreement of ACMI Merchandising Trust I.
4.10+ Form of Indenture between the Registrant and Wilmington Trust Company, as Trustee.
4.11+ Form of First Supplemental Indenture to Indenture to be used in connection with the issuance of
the Junior Subordinated Debentures.
4.12+ Form of Guarantee Agreement with respect to Trust Preferred Securities of ACMI Merchandising
Trust I.
4.13+ Form of Guarantee Agreement with respect to Trust Preferred Securities of ACMI Merchandising
Trust II.
4.14+ Form of Guarantee Agreement with respect to Trust Preferred Securities of ACMI Merchandising
Trust III.
4.15+ Form of Guarantee Agreement with respect to Trust Preferred Securities of ACMI Merchandising
Trust IV.
4.16+ Form of Agreement as to Expenses and Liabilities between the Registrant and ACMI Merchandising
Trust I.
5.1+ Opinion of Cooley Godward LLP regarding the legality of the securities being registered.
5.2+ Opinion of Richards, Layton & Finger, P.A. regarding the validity under Delaware law of the
securities being registered.
8+ Opinion of Cooley Godward LLP regarding certain tax matters.
10.36 Reducing Revolving Loan Agreement between the Registrant and Wells Fargo Bank, N.A., dated as
of June 10, 1998.
10.37 Amendment No. 1 to the Reducing Revolving Loan Agreement, dated June 30, 1998.
12 Calculation of Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends of
the Company.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consents of Cooley Godward LLP and Richards, Layton & Finger, P.A. (included in Exhibit 5.1 and
Exhibit 5.2).
24 Powers of Attorney (included on pages II-6, II-7, II-8, II-9 and II-10.
25.1+ Statement of Eligibility of Wilmington Trust Company, as Trustee for the Indenture, on Form T-1.
25.2+ Statement of Eligibility of Wilmington Trust Company, as Trustee for Trust Preferred Securities
of ACMI Merchandising Trust I, on Form T-1.
25.3+ Statement of Eligibility of Wilmington Trust Company, as Trustee for Trust Preferred Securities
of ACMI Merchandising Trust II, on Form T-1.
25.4+ Statement of Eligibility of Wilmington Trust Company, as Trustee for Trust Preferred Securities
of ACMI Merchandising Trust III, on Form T-1.
25.5+ Statement of Eligibility of Wilmington Trust Company, as Trustee for Trust Preferred Securities
of ACMI Merchandising Trust IV, on Form T-1.
25.6+ Statement of Eligibility of Wilmington Trust Company, as Trustee for Guarantee of Trust
Preferred Securities of ACMI Merchandising Trust I, on Form T-1.
25.7+ Statement of Eligibility of Wilmington Trust Company, as Trustee for Guarantee of Trust
Preferred Securities of ACMI Merchandising Trust II, on Form T-1.
25.8+ Statement of Eligibility of Wilmington Trust Company, as Trustee for Guarantee of Trust
Preferred Securities of ACMI Merchandising Trust III, on Form T-1.
25.9+ Statement of Eligibility of Wilmington Trust Company, as Trustee for Guarantee of Trust
Preferred Securities of ACMI Merchandising Trust IV, on Form T-1.
</TABLE>
- ----------
+ To be filed by Amendment
<PAGE> 1
Exhibit 4.1
CERTIFICATE OF TRUST OF
AMERICAN COIN MERCHANDISING TRUST I
THIS Certificate of Trust of American Coin Merchandising Trust I
(the "Trust"), is being duly executed and filed by Wilmington Trust Company, a
Delaware banking corporation, and Jerome M. Lapin and W. John Cash as trustees,
to form a business trust under the Delaware Business Trust Act (12 Del.C.
Section 3801 et seq.).
1. Name. The name of the business trust formed by this
Certificate of Trust is American Coin Merchandising Trust I.
2. Delaware Trustee. The name and business address of the
trustee of the Trust in the State of Delaware is Wilmington Trust Company,
Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001,
Attn: Corporate Trust Administration.
3. Effective Date. This Certificate of Trust shall be effective
upon filing with the Secretary of State.
IN WITNESS WHEREOF, the undersigned have duly executed this
Certificate of Trust in accordance with Section 3811(a)(1) of the Act.
WILMINGTON TRUST COMPANY,
as trustee
By: /s/ Norma P. Closs
------------------------
Name: Norma P. Closs
Title: Vice President
as trustees
/s/ Jerome M. Lapin
---------------------------
Name: Jerome M. Lapin
/s/ W. John Cash
---------------------------
Name: W. John Cash
<PAGE> 1
Exhibit 4.2
CERTIFICATE OF TRUST OF
AMERICAN COIN MERCHANDISING TRUST II
THIS Certificate of Trust of American Coin Merchandising Trust
II (the "Trust"), is being duly executed and filed by Wilmington Trust Company,
a Delaware banking corporation, and Jerome M. Lapin and W. John Cash as
trustees, to form a business trust under the Delaware Business Trust Act (12
Del.C. Section 3801 et seq.).
1. Name. The name of the business trust formed by this
Certificate of Trust is American Coin Merchandising Trust II.
2. Delaware Trustee. The name and business address of
the trustee of the Trust in the State of Delaware is Wilmington Trust Company,
Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001,
Attn: Corporate Trust Administration.
3. Effective Date. This Certificate of Trust shall be
effective upon filing with the Secretary of State.
IN WITNESS WHEREOF, the undersigned have duly executed this
Certificate of Trust in accordance with Section 3811(a)(1) of the Act.
WILMINGTON TRUST COMPANY,
as trustee
By:/s/ Norma P. Closs
------------------------------
Name: Norma P. Closs
Title: Vice President
as trustees
/s/ Jerome M. Lapin
---------------------------------
Name: Jerome M. Lapin
/s/ W. John Cash
---------------------------------
Name: W. John Cash
<PAGE> 1
Exhibit 4.3
CERTIFICATE OF TRUST OF
AMERICAN COIN MERCHANDISING TRUST III
THIS Certificate of Trust of American Coin Merchandising Trust
III (the"Trust"), is being duly executed and filed by Wilmington Trust Company,
a Delaware banking corporation, and Jerome M. Lapin and W. John Cash as
trustees, to form a business trust under the Delaware Business Trust Act
(12 Del.C. Section 3801 et seq.).
1. Name. The name of the business trust formed by this
Certificate of Trust is American Coin Merchandising Trust III.
2. Delaware Trustee. The name and business address of the
trustee of the Trust in the State of Delaware is Wilmington Trust Company,
Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001,
Attn: Corporate Trust Administration.
3. Effective Date. This Certificate of Trust shall be
effective upon filing with the Secretary of State.
IN WITNESS WHEREOF, the undersigned have duly executed
this Certificate of Trust in accordance with Section 3811(a)(1) of the Act.
WILMINGTON TRUST COMPANY,
as trustee
By: /s/ Norma P. Closs
------------------------
Name: Norma P. Closs
Title: Vice President
as trustees
/s/ Jerome M. Lapin
---------------------------
Name: Jerome M. Lapin
/s/ W. John Cash
---------------------------
Name: W. John Cash
<PAGE> 1
Exhibit 4.4
CERTIFICATE OF TRUST OF
AMERICAN COIN MERCHANDISING TRUST IV
THIS Certificate of Trust of American Coin Merchandising Trust
IV (the "Trust"), is being duly executed and filed by Wilmington Trust Company,
a Delaware banking corporation, and Jerome M. Lapin and W. John Cash as
trustees, to form a business trust under the Delaware Business Trust Act (12
Del. C. Section 3801 et seq.).
1. Name. The name of the business trust formed by
this Certificate of Trust is American Coin Merchandising Trust IV.
2. Delaware Trustee. The name and business address of
the trustee of the Trust in the State of Delaware is Wilmington Trust Company,
Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001,
Attn: Corporate Trust Administration.
3. Effective Date. This Certificate of Trust shall be
effective upon filing with the Secretary of State.
IN WITNESS WHEREOF, the undersigned have duly executed this
Certificate of Trust in accordance with Section 3811(a)(1) of the Act.
WILMINGTON TRUST COMPANY,
as trustee
By: /s/ Norma P. Closs
-----------------------------
Name: Norma P. Closs
Title: Vice President
as trustees
/s/ Jerome M. Lapin
-------------------------------
Name: Jerome M. Lapin
/s/ W. John Cash
-------------------------------
Name: W. John Cash
<PAGE> 1
Exhibit 4.5
TRUST AGREEMENT
This TRUST AGREEMENT, dated as of July 22, 1998 (this "Trust
Agreement"), between (i) American Coin Merchandising, Inc., a Delaware
corporation (the "Depositor"), and (ii) WILMINGTON TRUST COMPANY, a Delaware
banking corporation (the "Trustee"). The Depositor and the Trustee hereby
agree as follows:
1. The trust created hereby (the "Trust") shall be known as
"American Coin Merchandising Trust I" in which name the Trustee, or the
Depositor to the extent provided herein, may engage in the transactions
contemplated hereby, make and execute contracts, and sue and be sued.
2. The Depositor hereby assigns, transfers, conveys and sets over
to the Trustee the sum of $10. The Trustee hereby acknowledges receipt of such
amount in trust from the Depositor, which amount shall constitute the initial
trust estate. The Trustee hereby declares that it will hold the trust estate
in trust for the Depositor. It is the intention of the parties hereto that the
Trust created hereby constitute a business trust under Chapter 38 of Title 12
of the Delaware Code, 12 Del. C. Section 3801, et seq. (the "Business Trust
Act"), and that this document constitute the governing instrument of the Trust.
The Trustee is hereby authorized and directed to execute and file a certificate
of trust with the Delaware Secretary of State in accordance with the provisions
of the Business Trust Act.
3. The Depositor and the Trustee will enter into an amended and
restated Trust Agreement, satisfactory to each such party and substantially in
the form included as an exhibit to the 1933 Act Registration Statement (as
defined below), to provide for the contemplated operation of the Trust created
hereby and the issuance of the Capital Securities (the "Securities") referred
to therein. Prior to the execution and delivery of such amended and restated
Trust Agreement, the Trustee shall not have any duty or obligation hereunder or
with respect to the trust estate, except as otherwise required by applicable
law or as may be necessary to obtain prior to such execution and delivery of
any licenses, consents or approvals required by applicable law or otherwise.
4. The Depositor and the Trustee hereby authorize and direct the
Depositor, as the sponsor of the Trust, (i) to file with the Securities and
Exchange Commission (the "Commission") and execute, in each case on behalf of
the Trust, (a) the Registration Statement on an appropriate form (the "1933 Act
Registration Statement"), including any pre-effective or post-effective
amendments to the 1933 Act Registration Statement, relating to the registration
under the Securities Act of 1933, as amended, of the Securities and possibly
certain other securities and (b) a Registration Statement on Form 8-A (the
"1934 Act Registration Statement") (including all pre-effective and
post-effective amendments thereto) relating to the registration of the
Securities under the Securities Exchange Act of 1934, as amended; (ii) to file
with the New York Stock Exchange or any other national stock exchange or The
Nasdaq National Market (each, an "Exchange") and execute on behalf of the Trust
one or more listing applications and all other applications, statements,
certificates, agreements and other instruments as shall be necessary or
desirable to cause the Securities to be listed on any of the Exchanges; (iii)
to file and execute on behalf of the Trust such applications, reports, surety
bonds, irrevocable consents, appointments of attorney for service of process
and other papers and documents as shall be
1.
<PAGE> 2
necessary or desirable to register the Securities under the securities or blue
sky laws of such jurisdictions as the Depositor, on behalf of the Trust, may
deem necessary or desirable and (iv) to execute on behalf of the Trust that
certain Underwriting Agreement relating to the Securities, among the Trust, the
Depositor and the several Underwriters named therein, substantially in the form
included as an exhibit to the 1933 Act Registration Statement. In connection
with the filings referred to above, the Depositor hereby constitutes and
appoints Jerome M. Lapin and W. John Cash, and each of them, as its true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for the Depositor or in the Depositor's name, place and stead,
in any and all capacities, to sign any and all amendments (including
post-effective amendments) to the 1933 Act Registration Statement and the 1934
Act Registration Statement and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Commission, the Exchange and
administrators of state securities or blue sky laws, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as the Depositor might or could
to in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or any of them, or their respective substitute or substitutes, shall
do or cause to be done by virtue hereof.
5. This Trust Agreement may be executed in one or more
counterparts.
6. The number of Trustees initially shall be three (3) and
thereafter the number of Trustees shall be such number as shall be fixed from
time to time by a written instrument signed by the Depositor which may increase
or decrease the number of Trustees; provided, however, that to the extent
required by the Business Trust Act, one Trustee shall either be a natural
person who is a resident of the State of Delaware or, if not a natural person,
an entity which has its principal place of business in the State of Delaware
and otherwise meets the requirements of applicable Delaware law. Subject to
the foregoing, the Depositor is entitled to appoint or remove without cause any
Trustee at any time. The Trustees may resign upon thirty (30) days' prior
notice to the Depositor.
7. This Trust Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware (without regard to conflict
of laws of principles).
8. To the fullest extent permitted by applicable law, the
Depositor shall indemnify and hold harmless the Trustee from and against any
loss, damage or claim incurred by the Trustee by reason of any act or omission
performed or omitted by the Trustee in good faith on behalf of the Trust and in
a matter the Trustee reasonably believed to be within the scope of authority
conferred on the Trustee by this Trust Agreement, except that the Trustee shall
not be entitled to be indemnified in respect of any loss, damage or claim
incurred by the Trustee by reason of gross negligence or willful misconduct
with respect to such acts or omissions.
[SIGNATURE PAGE FOLLOWS]
2.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Trust
Agreement to be duly executed as of the day and year first above written.
AMERICAN COIN MERCHANDISING, INC.,
as Depositor
By:/s/ Jerome M. Lapin
-------------------------
Name: Jerome M. Lapin
Title: President and Chief Executive
Officer
WILMINGTON TRUST COMPANY,
as Trustee
By:/s/ Norma P. Closs
-------------------------
Name: Norma P. Closs
Title: Vice President
3.
<PAGE> 1
Exhibit 4.6
TRUST AGREEMENT
This TRUST AGREEMENT, dated as of July 22, 1998 (this "Trust
Agreement"), between (i) American Coin Merchandising, Inc., a Delaware
corporation (the "Depositor"), and (ii) WILMINGTON TRUST COMPANY, a Delaware
banking corporation (the "Trustee"). The Depositor and the Trustee hereby
agree as follows:
1. The trust created hereby (the "Trust") shall be known as
"American Coin Merchandising Trust II" in which name the Trustee, or the
Depositor to the extent provided herein, may engage in the transactions
contemplated hereby, make and execute contracts, and sue and be sued.
2. The Depositor hereby assigns, transfers, conveys and sets over
to the Trustee the sum of $10. The Trustee hereby acknowledges receipt of such
amount in trust from the Depositor, which amount shall constitute the initial
trust estate. The Trustee hereby declares that it will hold the trust estate
in trust for the Depositor. It is the intention of the parties hereto that the
Trust created hereby constitute a business trust under Chapter 38 of Title 12
of the Delaware Code, 12 Del. C. Section 3801, et seq. (the "Business Trust
Act"), and that this document constitute the governing instrument of the Trust.
The Trustee is hereby authorized and directed to execute and file a certificate
of trust with the Delaware Secretary of State in accordance with the provisions
of the Business Trust Act.
3. The Depositor and the Trustee will enter into an amended and
restated Trust Agreement, satisfactory to each such party and substantially in
the form included as an exhibit to the 1933 Act Registration Statement (as
defined below), to provide for the contemplated operation of the Trust created
hereby and the issuance of the Capital Securities (the "Securities") referred
to therein. Prior to the execution and delivery of such amended and restated
Trust Agreement, the Trustee shall not have any duty or obligation hereunder or
with respect to the trust estate, except as otherwise required by applicable
law or as may be necessary to obtain prior to such execution and delivery of
any licenses, consents or approvals required by applicable law or otherwise.
4. The Depositor and the Trustee hereby authorize and direct the
Depositor, as the sponsor of the Trust, (i) to file with the Securities and
Exchange Commission (the "Commission") and execute, in each case on behalf of
the Trust, (a) the Registration Statement on an appropriate form (the "1933 Act
Registration Statement"), including any pre- effective or post-effective
amendments to the 1933 Act Registration Statement, relating to the registration
under the Securities Act of 1933, as amended, of the Securities and possibly
certain other securities and (b) a Registration Statement on Form 8-A (the
"1934 Act Registration Statement") (including all pre-effective and
post-effective amendments thereto) relating to the registration of the
Securities under the Securities Exchange Act of 1934, as amended; (ii) to file
with the New York Stock Exchange or any other national stock exchange or The
Nasdaq National Market (each, an "Exchange") and execute on behalf of the Trust
one or more listing applications and all other applications, statements,
certificates, agreements and other instruments as shall be necessary or
desirable to cause the Securities to be listed on any of the Exchanges; (iii)
to file and execute on behalf of the Trust such applications, reports, surety
bonds, irrevocable consents, appointments of attorney for service of process
and other papers and documents as shall be
1.
<PAGE> 2
necessary or desirable to register the Securities under the securities or blue
sky laws of such jurisdictions as the Depositor, on behalf of the Trust, may
deem necessary or desirable and (iv) to execute on behalf of the Trust that
certain Underwriting Agreement relating to the Securities, among the Trust, the
Depositor and the several Underwriters named therein, substantially in the form
included as an exhibit to the 1933 Act Registration Statement. In connection
with the filings referred to above, the Depositor hereby constitutes and
appoints Jerome M. Lapin and W. John Cash, and each of them, as its true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for the Depositor or in the Depositor's name, place and stead,
in any and all capacities, to sign any and all amendments (including
post-effective amendments) to the 1933 Act Registration Statement and the 1934
Act Registration Statement and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Commission, the Exchange and
administrators of state securities or blue sky laws, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as the Depositor might or could
to in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or any of them, or their respective substitute or substitutes, shall
do or cause to be done by virtue hereof.
5. This Trust Agreement may be executed in one or more
counterparts.
6. The number of Trustees initially shall be three (3) and
thereafter the number of Trustees shall be such number as shall be fixed from
time to time by a written instrument signed by the Depositor which may increase
or decrease the number of Trustees; provided, however, that to the extent
required by the Business Trust Act, one Trustee shall either be a natural
person who is a resident of the State of Delaware or, if not a natural
person, an entity which has its principal place of business in the State of
Delaware and otherwise meets the requirements of applicable Delaware law.
Subject to the foregoing, the Depositor is entitled to appoint or remove
without cause any Trustee at any time. The Trustees may resign upon thirty
(30) days' prior notice to the Depositor.
7. This Trust Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware (without regard to conflict
of laws of principles).
8. To the fullest extent permitted by applicable law, the
Depositor shall indemnify and hold harmless the Trustee from and against any
loss, damage or claim incurred by the Trustee by reason of any act or omission
performed or omitted by the Trustee in good faith on behalf of the Trust and in
a matter the Trustee reasonably believed to be within the scope of authority
conferred on the Trustee by this Trust Agreement, except that the Trustee shall
not be entitled to be indemnified in respect of any loss, damage or claim
incurred by the Trustee by reason of gross negligence or willful misconduct
with respect to such acts or omissions.
[SIGNATURE PAGE FOLLOWS]
2.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Trust
Agreement to be duly executed as of the day and year first above written.
AMERICAN COIN MERCHANDISING, INC.
as Depositor
By:/s/ Jerome M. Lapin
-------------------------------
Name: Jerome M. Lapin
Title: President and Chief Executive
Officer
WILMINGTON TRUST COMPANY,
as Trustee
By:/s/ Norma P. Closs
-------------------------------
Name: Norma P. Closs
Title: Vice President
3.
<PAGE> 1
Exhibit 4.7
TRUST AGREEMENT
This TRUST AGREEMENT, dated as of July 22, 1998 (this "Trust
Agreement"), between (i) American Coin Merchandising, Inc., a Delaware
corporation (the "Depositor"), and (ii) WILMINGTON TRUST COMPANY, a Delaware
banking corporation (the "Trustee"). The Depositor and the Trustee hereby
agree as follows:
1. The trust created hereby (the "Trust") shall be known
as "American Coin Merchandising Trust III" in which name the Trustee, or the
Depositor to the extent provided herein, may engage in the transactions
contemplated hereby, make and execute contracts, and sue and be sued.
2. The Depositor hereby assigns, transfers, conveys and
sets over to the Trustee the sum of $10. The Trustee hereby acknowledges
receipt of such amount in trust from the Depositor, which amount shall
constitute the initial trust estate. The Trustee hereby declares that it will
hold the trust estate in trust for the Depositor. It is the intention of the
parties hereto that the Trust created hereby constitute a business trust under
Chapter 38 of Title 12 of the Delaware Code, 12 Del. C. Section 3801, et seq.
(the "Business Trust Act"), and that this document constitute the governing
instrument of the Trust. The Trustee is hereby authorized and directed to
execute and file a certificate of trust with the Delaware Secretary of State in
accordance with the provisions of the Business Trust Act.
3. The Depositor and the Trustee will enter into an
amended and restated Trust Agreement, satisfactory to each such party and
substantially in the form included as an exhibit to the 1933 Act Registration
Statement (as defined below), to provide for the contemplated operation of the
Trust created hereby and the issuance of the Capital Securities (the
"Securities") referred to therein. Prior to the execution and delivery of such
amended and restated Trust Agreement, the Trustee shall not have any duty or
obligation hereunder or with respect to the trust estate, except as otherwise
required by applicable law or as may be necessary to obtain prior to such
execution and delivery of any licenses, consents or approvals required by
applicable law or otherwise.
4. The Depositor and the Trustee hereby authorize and
direct the Depositor, as the sponsor of the Trust, (i) to file with the
Securities and Exchange Commission (the "Commission") and execute, in each case
on behalf of the Trust, (a) the Registration Statement on an appropriate form
(the "1933 Act Registration Statement"), including any pre-effective or
post-effective amendments to the 1933 Act Registration Statement, relating to
the registration under the Securities Act of 1933, as amended, of the
Securities and possibly certain other securities and (b) a Registration
Statement on Form 8-A (the "1934 Act Registration Statement") (including all
pre-effective and post-effective amendments thereto) relating to the
registration of the Securities under the Securities Exchange Act of 1934, as
amended; (ii) to file with the New York Stock Exchange or any other national
stock exchange or The Nasdaq National Market (each, an "Exchange") and execute
on behalf of the Trust one or more listing applications and all other
applications, statements, certificates, agreements and other instruments as
shall be necessary or desirable to cause the Securities to be listed on any of
the Exchanges; (iii) to file and execute on behalf of the Trust such
applications, reports, surety bonds, irrevocable consents, appointments of
attorney for service of process and other papers and documents as shall be
1.
<PAGE> 2
necessary or desirable to register the Securities under the securities or blue
sky laws of such jurisdictions as the Depositor, on behalf of the Trust, may
deem necessary or desirable and (iv) to execute on behalf of the Trust that
certain Underwriting Agreement relating to the Securities, among the Trust, the
Depositor and the several Underwriters named therein, substantially in the form
included as an exhibit to the 1933 Act Registration Statement. In connection
with the filings referred to above, the Depositor hereby constitutes and
appoints Jerome M. Lapin and W. John Cash, and each of them, as its true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for the Depositor or in the Depositor's name, place and stead,
in any and all capacities, to sign any and all amendments (including
post-effective amendments) to the 1933 Act Registration Statement and the 1934
Act Registration Statement and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Commission, the Exchange and
administrators of state securities or blue sky laws, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as the Depositor might or could
to in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or any of them, or their respective substitute or substitutes, shall
do or cause to be done by virtue hereof.
5. This Trust Agreement may be executed in one or more
counterparts.
6. The number of Trustees initially shall be three (3)
and thereafter the number of Trustees shall be such number as shall be fixed
from time to time by a written instrument signed by the Depositor which may
increase or decrease the number of Trustees; provided, however, that to the
extent required by the Business Trust Act, one Trustee shall either be a
natural person who is a resident of the State of Delaware or, if not a natural
person, an entity which has its principal place of business in the State of
Delaware and otherwise meets the requirements of applicable Delaware law.
Subject to the foregoing, the Depositor is entitled to appoint or remove
without cause any Trustee at any time. The Trustees may resign upon thirty
(30) days' prior notice to the Depositor.
7. This Trust Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware (without regard
to conflict of laws of principles).
8. To the fullest extent permitted by applicable law,
the Depositor shall indemnify and hold harmless the Trustee from and against
any loss, damage or claim incurred by the Trustee by reason of any act or
omission performed or omitted by the Trustee in good faith on behalf of the
Trust and in a matter the Trustee reasonably believed to be within the scope of
authority conferred on the Trustee by this Trust Agreement, except that the
Trustee shall not be entitled to be indemnified in respect of any loss, damage
or claim incurred by the Trustee by reason of gross negligence or willful
misconduct with respect to such acts or omissions.
[SIGNATURE PAGE FOLLOWS]
2.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Trust
Agreement to be duly executed as of the day and year first above written.
AMERICAN COIN MERCHANDISING, INC.
as Depositor
By:/s/ Jerome M. Lapin
----------------------------
Name: Jerome M. Lapin
Title: President and Chief Executive Officer
WILMINGTON TRUST COMPANY,
as Trustee
By:/s/ Norma P. Closs
---------------------------
Name: Norma P. Closs
Title: Vice President
3.
<PAGE> 1
Exhibit 4.8
TRUST AGREEMENT
This TRUST AGREEMENT, dated as of July 22, 1998 (this "Trust Agreement"),
between (i) American Coin Merchandising, Inc., a Delaware corporation (the
"Depositor"), and (ii) WILMINGTON TRUST COMPANY, a Delaware banking corporation
(the "Trustee"). The Depositor and the Trustee hereby agree as follows:
1. The trust created hereby (the "Trust") shall be known as "American
Coin Merchandising Trust IV" in which name the Trustee, or the Depositor to the
extent provided herein, may engage in the transactions contemplated hereby, make
and execute contracts, and sue and be sued.
2. The Depositor hereby assigns, transfers, conveys and sets over to
the Trustee the sum of $10. The Trustee hereby acknowledges receipt of such
amount in trust from the Depositor, which amount shall constitute the initial
trust estate. The Trustee hereby declares that it will hold the trust estate in
trust for the Depositor. It is the intention of the parties hereto that the
Trust created hereby constitute a business trust under Chapter 38 of Title 12 of
the Delaware Code, 12 Del. C. Section 3801, et seq. (the "Business Trust Act"),
and that this document constitute the governing instrument of the Trust. The
Trustee is hereby authorized and directed to execute and file a certificate of
trust with the Delaware Secretary of State in accordance with the provisions of
the Business Trust Act.
3. The Depositor and the Trustee will enter into an amended and
restated Trust Agreement, satisfactory to each such party and substantially in
the form included as an exhibit to the 1933 Act Registration Statement (as
defined below), to provide for the contemplated operation of the Trust created
hereby and the issuance of the Capital Securities (the "Securities") referred to
therein. Prior to the execution and delivery of such amended and restated Trust
Agreement, the Trustee shall not have any duty or obligation hereunder or with
respect to the trust estate, except as otherwise required by applicable law or
as may be necessary to obtain prior to such execution and delivery of any
licenses, consents or approvals required by applicable law or otherwise.
4. The Depositor and the Trustee hereby authorize and direct the
Depositor, as the sponsor of the Trust, (i) to file with the Securities and
Exchange Commission (the "Commission") and execute, in each case on behalf of
the Trust, (a) the Registration Statement on an appropriate form (the "1933 Act
Registration Statement"), including any pre-effective or post-effective
amendments to the 1933 Act Registration Statement, relating to the registration
under the Securities Act of 1933, as amended, of the Securities and possibly
certain other securities and (b) a Registration Statement on Form 8-A (the "1934
Act Registration Statement") (including all pre-effective and post-effective
amendments thereto) relating to the registration of the Securities under the
Securities Exchange Act of 1934, as amended; (ii) to file with the New York
Stock Exchange or any other national stock exchange or The Nasdaq National
Market (each, an "Exchange") and execute on behalf of the Trust one or more
listing applications and all other applications, statements, certificates,
agreements and other instruments as shall be necessary or desirable to cause the
Securities to be listed on any of the Exchanges; (iii) to file and execute on
behalf of the Trust such applications, reports, surety bonds, irrevocable
consents, appointments of attorney for service of process and other papers and
documents as shall be
1.
<PAGE> 2
necessary or desirable to register the Securities under the securities or blue
sky laws of such jurisdictions as the Depositor, on behalf of the Trust, may
deem necessary or desirable and (iv) to execute on behalf of the Trust that
certain Underwriting Agreement relating to the Securities, among the Trust, the
Depositor and the several Underwriters named therein, substantially in the form
included as an exhibit to the 1933 Act Registration Statement. In connection
with the filings referred to above, the Depositor hereby constitutes and
appoints Jerome M. Lapin and W. John Cash, and each of them, as its true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for the Depositor or in the Depositor's name, place and stead,
in any and all capacities, to sign any and all amendments (including
post-effective amendments) to the 1933 Act Registration Statement and the 1934
Act Registration Statement and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Commission, the Exchange and
administrators of state securities or blue sky laws, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as the Depositor might or could to in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their respective substitute or substitutes, shall do
or cause to be done by virtue hereof.
5. This Trust Agreement may be executed in one or more counterparts.
6. The number of Trustees initially shall be three (3) and thereafter
the number of Trustees shall be such number as shall be fixed from time to time
by a written instrument signed by the Depositor which may increase or decrease
the number of Trustees; provided, however, that to the extent required by the
Business Trust Act, one Trustee shall either be a natural person who is a
resident of the State of Delaware or, if not a natural person, an entity which
has its principal place of business in the State of Delaware and otherwise meets
the requirements of applicable Delaware law. Subject to the foregoing, the
Depositor is entitled to appoint or remove without cause any Trustee at any
time. The Trustees may resign upon thirty (30) days' prior notice to the
Depositor.
7. This Trust Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware (without regard to conflict
of laws of principles).
8. To the fullest extent permitted by applicable law, the Depositor
shall indemnify and hold harmless the Trustee from and against any loss, damage
or claim incurred by the Trustee by reason of any act or omission performed or
omitted by the Trustee in good faith on behalf of the Trust and in a matter the
Trustee reasonably believed to be within the scope of authority conferred on the
Trustee by this Trust Agreement, except that the Trustee shall not be entitled
to be indemnified in respect of any loss, damage or claim incurred by the
Trustee by reason of gross negligence or willful misconduct with respect to such
acts or omissions.
[SIGNATURE PAGE FOLLOWS]
2.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement
to be duly executed as of the day and year first above written.
AMERICAN COIN MERCHANDISING, INC.
as Depositor
By: /s/ Jerome M. Lapin
--------------------------------------------
Name: Jerome M. Lapin
Title: President and Chief Executive Officer
WILMINGTON TRUST COMPANY,
as Trustee
By: /s/ Norma P. Closs
--------------------------------------------
Name: Norma P. Closs
Title: Vice President
3.
<PAGE> 1
EXHIBIT 10.36
REDUCING REVOLVING LOAN AGREEMENT
Dated as of June 10, 1998
among
AMERICAN COIN MERCHANDISING, INC.
THE LENDERS HEREIN NAMED
and
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Administrative Agent
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article 1 DEFINITIONS AND ACCOUNTING TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Use of Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
1.3 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
1.4 Rounding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
1.5 Exhibits and Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
1.6 References to "Borrower and its Subsidiaries" . . . . . . . . . . . . . . . . . . . . . . 29
1.7 Miscellaneous Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Article 2 LOANS AND LETTERS OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.1 Loans-General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.2 Alternate Base Rate Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.3 Eurodollar Rate Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.4 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2.5 Voluntary Reduction of Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.6 Automatic Reduction of Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.7 Specified Reductions of Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.8 Optional Termination of Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
2.9 Administrative Agent's Right to Assume Funds Available for Advances . . . . . . . . . . 37
2.10 Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Article 3 PAYMENTS AND FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
3.1 Principal and Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
3.2 Arrangement Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3.3 Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3.4 Agency Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3.5 Letter of Credit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3.6 Increased Commitment Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
3.7 Eurodollar Costs and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 42
3.8 Late Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
3.9 Computation of Interest and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
3.10 Non-Banking Days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
3.11 Manner and Treatment of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
3.12 Funding Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
3.13 Failure to Charge Not Subsequent Waiver . . . . . . . . . . . . . . . . . . . . . . . . 49
3.14 Administrative Agent's Right to Assume Payments Will be Made . . . . . . . . . . . . . . 49
3.15 Fee Determination Detail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
3.16 Survivability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Article 4 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
4.1 Existence and Qualification; Power; Compliance With Laws . . . . . . . . . . . . . . . . 51
4.2 Authority; Compliance With Other Agreements and Instruments and
Government Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
4.3 No Governmental Approvals Required . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
4.4 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
4.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
4.6 No Other Liabilities; No Material Adverse Changes . . . . . . . . . . . . . . . . . . . . 52
4.7 Title to and Location of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
4.8 Intangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
4.9 Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
4.10 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
4.11 Binding Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
4.12 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
4.13 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
4.14 Regulation U; Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . 54
4.15 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
4.16 Tax Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
4.17 Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
4.18 Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
4.19 Security Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Article 5 AFFIRMATIVE COVENANTS (OTHER THAN INFORMATION
AND REPORTING REQUIREMENTS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
5.1 Payment of Taxes and Other Potential Liens . . . . . . . . . . . . . . . . . . . . . . . 57
5.2 Preservation of Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
5.3 Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
5.4 Maintenance of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
5.5 Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
5.6 Inspection Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
5.7 Keeping of Records and Books of Account . . . . . . . . . . . . . . . . . . . . . . . . . 58
5.8 Compliance With Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
5.9 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
5.10 Hazardous Materials Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
5.11 Future Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
5.12 Future Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
5.13 Future Approved Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
5.14 Year 2000 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
5.15 Subordinated Debt Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
5.16 Syndication Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Article 6 NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
6.1 Payment of Subordinated Obligations . . . . . . . . . . . . . . . . . . . . . . . . . 61
6.2 Disposition of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
6.3 Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
6.4 Hostile Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
6.5 Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
6.6 Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
6.7 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
6.8 Change in Nature of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
6.9 Liens and Negative Pledges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
6.10 Indebtedness and Guaranty Obligations . . . . . . . . . . . . . . . . . . . . . . . . 63
6.11 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
6.12 Current Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
6.13 Senior Funded Debt Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
6.14 Total Funded Debt Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
6.15 Fixed Charge Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
6.16 Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
6.17 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
6.18 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
6.19 Operating Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
6.20 Subsidiary Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
6.21 Amendments to Subordinated Obligations . . . . . . . . . . . . . . . . . . . . . . . . 67
Article 7 INFORMATION AND REPORTING REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
7.1 Financial and Business Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
7.2 Compliance Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Article 8 CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
8.1 Initial Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
8.2 Any Advance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Article 9 EVENTS OF DEFAULT AND REMEDIES UPON EVENT
OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
9.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
9.2 Remedies Upon Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Article 10 THE ADMINISTRATIVE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
10.1 Appointment and Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
10.2 Administrative Agent and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . 82
10.3 Proportionate Interest in any Collateral . . . . . . . . . . . . . . . . . . . . . . . . 82
10.4 Lenders' Credit Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
10.5 Action by Administrative Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
10.6 Liability of Administrative Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
10.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
10.8 Successor Administrative Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
10.9 No Obligations of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Article 11 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
11.1 Cumulative Remedies; No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
11.2 Amendments; Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
11.3 Costs, Expenses and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
11.4 Nature of Lenders' Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
11.5 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . 90
11.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
11.7 Execution of Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
11.8 Binding Effect; Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
11.9 Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
11.10 Sharing of Setoffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
11.11 Indemnity by Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
11.12 Nonliability of the Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
11.13 No Third Parties Benefited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
11.14 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
11.15 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
11.16 Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
11.17 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
11.18 Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
11.19 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
11.20 Time of the Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
11.21 Foreign Lenders and Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
11.22 Hazardous Material Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
11.23 Waiver of Right to Trial by Jury . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
11.24 Purported Oral Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
</TABLE>
Exhibits
- --------
A - Commitment Assignment and Acceptance
B - Compliance Certificate
C - Note
D - Opinion of Counsel
E - Pricing Certificate
F - Request for Letter of Credit
G - Request for Loan
H - Security Agreement
Schedules
- ---------
1.1 Lender Commitments
2.4 Existing Letters of Credit
4.7A Existing Liens, Negative Pledges and Rights of Others
4.7B Location of Property
4.8 Intangible Assets
4.10 Material Litigation
4.18 Hazardous Materials Matters
6.10 Existing Indebtedness and Guaranty Obligations
6.16 Existing Investments
iv
<PAGE> 6
REDUCING REVOLVING LOAN AGREEMENT
Dated as of June 10, 1998
This REDUCING REVOLVING LOAN AGREEMENT ("Agreement") is
entered into by and among American Coin Merchandising, Inc., a Delaware
corporation ("Borrower"), each lender whose name is set forth on the signature
pages of this Agreement and each lender which may hereafter become a party to
this Agreement pursuant to Section 11.8 (collectively, the "Lenders" and
individually, a "Lender"), and Wells Fargo Bank, National Association, as
Administrative Agent.
In consideration of the mutual covenants and agreements herein
contained, the parties hereto covenant and agree as follows:
Article 1
DEFINITIONS AND ACCOUNTING TERMS
1.1 Defined Terms. As used in this Agreement,
the following terms shall have the meanings set forth below:
"Acquisition" means any transaction, or any series of related
transactions, consummated after the Closing Date, by which Borrower
and/or any of its Subsidiaries directly or indirectly (a) acquires any
ongoing business or all or substantially all of the assets of any
Person engaged in any ongoing business, whether through purchase of
assets, merger or otherwise, (b) acquires control of securities of a
Person engaged in an ongoing business representing more than 50% of
the ordinary voting power for the election of directors or other
governing position if the business affairs of such Person are managed
by a board of directors or other governing body or (c) acquires
control of more than 50% of the ownership interest in any partnership,
joint venture, limited liability company, business trust or other
Person engaged in an ongoing business that is not managed by a board
of directors or other governing body.
"Administrative Agent" means Wells Fargo Bank, National
Association, when acting in its capacity as the Administrative Agent
under any of the Loan Documents, or any successor Administrative
Agent.
"Administrative Agent's Office" means the Administrative
Agent's address as set forth on the signature pages of this Agreement,
or such other address as the Administrative Agent hereafter may
designate by written notice to Borrower and the Lenders.
"Advance" means any advance made or to be made by any Lender
to Borrower as provided in Article 2, and includes each Alternate Base
Rate Advance and Eurodollar Rate Advance.
"Affiliate" means, as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or
is controlled by, such Person. As used in this
1
<PAGE> 7
definition, "control" (and the correlative terms, "controlled by" and
"under common control with") shall mean possession, directly or
indirectly, of power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or
other ownership interests, by contract or otherwise); provided that,
in any event, any Person that owns, directly or indirectly, 10% or
more of the securities having ordinary voting power for the election
of directors or other governing body of a corporation that has more
than 100 record holders of such securities, or 10% or more of the
partnership or other ownership interests of any other Person that has
more than 100 record holders of such interests, will be deemed to be
an Affiliate of such corporation, partnership or other Person.
"Agreement" means this Reducing Revolving Loan Agreement,
either as originally executed or as it may from time to time be
supplemented, modified, amended, restated or extended.
"Aggregate Effective Amount" means as of any date of
determination and with respect to all Letters of Credit then
outstanding, the sum of (a) the aggregate effective face amounts of
all such Letters of Credit not then paid by the Issuing Lender plus
(b) the aggregate amounts paid by the Issuing Lender under such
Letters of Credit not then reimbursed to the Issuing Lender by
Borrower pursuant to Section 2.4(d) and not the subject of Advances
made pursuant to Section 2.4(e).
"Alternate Base Rate" means, as of any date of determination,
the rate per annum (rounded upwards, if necessary, to the next 1/100
of 1%) equal to the higher of (a) the Prime Rate in effect on such
date and (b) the Federal Funds Rate in effect on such date plus ? of
1% (50 basis points).
"Alternate Base Rate Advance" means an Advance made hereunder
and specified to be an Alternate Base Rate Advance in accordance with
Article 2.
"Alternate Base Rate Loan" means a Loan made hereunder and
specified to be an Alternate Base Rate Loan in accordance with Article
2.
2
<PAGE> 8
"Applicable Alternate Base Rate Margin" means, for each
Pricing Period, the interest rate margin set forth below (expressed in
basis points per annum) opposite the Applicable Pricing Level for that
Pricing Period:
Applicable
Pricing Level Margin
------------- ------
I 0
II 0
III 0
IV 15
V 50
VI 85
VII 112.5
"Applicable Commitment Fee Rate" means, for each Pricing
Period, the rate set forth below (expressed in basis points per annum)
opposite the Applicable Pricing Level for that Pricing Period:
Applicable
Pricing Level Commitment Fee
------------- --------------
I 25
II 25
III 25
IV 25
V 37.5
VI 37.5
VII 37.5
"Applicable Eurodollar Rate Margin" means, for each Pricing
Period, the interest rate margin set forth below (expressed in basis
points per annum) opposite the Applicable Pricing Level for that
Pricing Period:
Applicable
Pricing Level Margin
------------- ------
I 75
II 100
III 130
IV 165
V 200
VI 235
VII 262.5
3
<PAGE> 9
"Applicable Pricing Level" means (a) for the Pricing Period
commencing on the Closing Date and ending on August 15, 1998, (i)
Pricing Level I for purposes of the Applicable Commitment Fee Rate and
(ii) Pricing Level VII for purposes of the Applicable Alternate Base
Rate Margin, Applicable Eurodollar Rate Margin and Applicable Standby
Letter of Credit Fee and (b) for each subsequent Pricing Period, the
pricing level set forth below opposite the Senior Funded Debt Ratio as
of the last day of the Fiscal Quarter most recently ended prior to the
commencement of that Pricing Period:
<TABLE>
<CAPTION>
Pricing Level Senior Funded Debt Ratio
------------- ------------------------
<S> <C>
I Less than .75 to 1.00
II Equal to or greater than .75 to 1.00,
but less than 1.00 to 1.00
III Equal to or greater than 1.00 to 1.00,
but less than 1.25 to 1.00
IV Equal to or greater than 1.25 to 1.00,
but less than 1.50 to 1.00
V Equal to or greater than 1.50 to 1.00,
but less than 1.75 to 1.00
VI Equal to or greater than 1.75 to 1.00,
but less than 2.00 to 1.00
VII Equal to or greater than 2.00 to 1.00.
</TABLE>
provided that (i) in the event that Borrower does not deliver a
Pricing Certificate with respect to any Pricing Period prior to the
commencement of such Pricing Period, then until (but only until) such
Pricing Certificate is delivered the Applicable Pricing Level for that
Pricing Period shall be Pricing Level VII and (ii) if any Pricing
Certificate is subsequently determined to be in error, then any
resulting change in the Applicable Pricing Level shall be made
retroactively to the beginning of the relevant Pricing Period.
"Applicable Standby Letter of Credit Fee Rate" means, as of
any date of determination, the then effective Applicable Eurodollar
Rate Margin.
"Approved Acquisitions" means the Acquisitions of the capital
stock or assets of the Approved Acquisition Targets pursuant to the
Approved Acquisition Agreements.
"Approved Acquisition Agreements" means the stock purchase
agreements and/or asset purchase agreements provided to the
Administrative Agent pursuant to Section 8.1(a)(7) or provided to the
Administrative Agent and approved by the Requisite Lenders pursuant to
Section 5.13, as in either case the same may be amended or any
provision thereof waived with the written approval of the Requisite
Lenders.
"Approved Acquisition Targets" means (a) Suncoast Toys, Inc.,
NW Toys, Inc. and Oregon Coin Company, (b) Plush 4 Play, Inc., (c)
Chilton Vending, Inc., (d) Rourke Amusement Corp. and (e) R&T
Marketing, Inc.
"Arranger" means Wells Fargo Bank, National Association.
4
<PAGE> 10
"Banking Day" means any Monday, Tuesday, Wednesday, Thursday
or Friday, other than a day on which banks are authorized or required
to be closed in California, New York or Colorado.
"Capital Expenditure" means any expenditure by Borrower or any
of its Subsidiaries for or related to fixed assets or purchased
intangibles that is treated as a capital expenditure under GAAP,
including any amount which is required to be treated as an asset
subject to a Capital Lease Obligation. The amount of Capital
Expenditures in respect of fixed assets purchased or constructed by
Borrower or any of its Subsidiaries in any fiscal period shall be net
of (a) any net sales proceeds received during such fiscal period by
Borrower or such Subsidiary for fixed assets sold by Borrower or such
Subsidiary and (b) any casualty insurance proceeds received during
such fiscal period by Borrower or such Subsidiary for casualties to
fixed assets and applied to the repair or replacement thereof.
"Capital Lease Obligations" means all monetary obligations of
a Person under any leasing or similar arrangement which, in accordance
with GAAP, is classified as a capital lease.
"Cash" means, when used in connection with any Person, all
monetary and non-monetary items owned by that Person that are treated
as cash in accordance with GAAP, consistently applied.
"Cash Equivalents" means, when used in connection with any
Person, that Person's Investments in:
(a) Government Securities due within one year
after the date of the making of the Investment;
(b) readily marketable direct obligations of any
State of the United States of America or any political subdivision of
any such State or any public agency or instrumentality thereof given
on the date of such Investment a credit rating of at least Aa by
Moody's Investors Service, Inc. or AA by Standard & Poor's Rating
Group (a division of McGraw-Hill, Inc.), in each case due within one
year from the making of the Investment;
(c) certificates of deposit issued by, bank
deposits in, Eurodollar deposits through, bankers' acceptances of, and
repurchase agreements covering Government Securities executed by any
Lender or any bank incorporated under the Laws of the United States of
America, any State thereof or the District of Columbia and having on
the date of such Investment combined capital, surplus and undivided
profits of at least $250,000,000, or total assets of at least
$5,000,000,000, in each case due within one year after the date of the
making of the Investment;
(d) certificates of deposit issued by, bank
deposits in, Eurodollar deposits through, bankers' acceptances of, and
repurchase agreements covering Government Securities executed by any
Lender or any branch or office located in the United States of America
of a bank incorporated under the Laws of any jurisdiction outside the
United States
5
<PAGE> 11
of America having on the date of such Investment combined capital,
surplus and undivided profits of at least $500,000,000, or total
assets of at least $15,000,000,000, in each case due within one year
after the date of the making of the Investment;
(e) repurchase agreements covering Government
Securities executed by a broker or dealer registered under Section
15(b) of the Securities Exchange Act of 1934, as amended, having on
the date of the Investment capital of at least $50,000,000, due within
90 days after the date of the making of the Investment; provided that
the maker of the Investment receives written confirmation of the
transfer to it of record ownership of the Government Securities on the
books of a "primary dealer" in such Government Securities or on the
books of such registered broker or dealer, as soon as practicable
after the making of the Investment;
(f) readily marketable commercial paper or other
debt securities issued by corporations doing business in and
incorporated under the Laws of the United States of America or any
State thereof or of any corporation that is the holding company for a
bank described in clause (c) or (d) above given on the date of such
Investment a credit rating of at least P-1 by Moody's Investors
Service, Inc. or A-1 by Standard & Poor's Rating Group (a division of
McGraw-Hill, Inc.), in each case due within one year after the date of
the making of the Investment;
(g) "money market preferred stock" issued by a
corporation incorporated under the Laws of the United States of
America or any State thereof (i) given on the date of such Investment
a credit rating of at least Aa by Moody's Investors Service, Inc. and
AA by Standard & Poor's Rating Group (a division of McGraw-Hill,
Inc.), in each case having an investment period not exceeding 50 days
or (ii) to the extent that investors therein have the benefit of a
standby letter of credit issued by a Lender or a bank described in
clauses (c) or (d) above; provided that (y) the amount of all such
Investments issued by the same issuer does not exceed $5,000,000 and
(z) the aggregate amount of all such Investments does not exceed
$15,000,000;
(h) a readily redeemable "money market mutual
fund" sponsored by a bank described in clause (c) or (d) hereof, or a
registered broker or dealer described in clause (e) hereof, that has
and maintains an investment policy limiting its investments primarily
to instruments of the types described in clauses (a) through (g)
hereof and given on the date of such Investment a credit rating of at
least Aa by Moody's Investors Service, Inc. and AA by Standard &
Poor's Rating Group (a division of McGraw-Hill, Inc.); and
(i) corporate notes or bonds having an original
term to maturity of not more than one year issued by a corporation
incorporated under the Laws of the United States of America, or a
participation interest therein; provided that (i) commercial paper
issued by such corporation is given on the date of such Investment a
credit rating of at least Aa by Moody's Investors Service, Inc. and AA
by Standard & Poor's Rating Group (a division of McGraw-Hill, Inc.),
(ii) the amount of all such Investments issued by the same issuer does
6
<PAGE> 12
not exceed $5,000,000 and (iii) the aggregate amount of all such
Investments does not exceed $15,000,000.
"Cash Income Taxes" means, with respect to any fiscal period,
taxes on or measured by the income of Borrower that are paid or
currently payable in Cash by Borrower during that fiscal period.
"Cash Interest Expense" means Interest Expense that is paid or
currently payable in Cash.
"Certificate" means a certificate signed by a Senior Officer
or Responsible Official (as applicable) of the Person providing the
certificate.
"Change in Control" means (a) any transaction or series of
related transactions in which any Unrelated Person or two or more
Unrelated Persons acting in concert acquire beneficial ownership
(within the meaning of Rule 13d-3(a)(1) under the Securities Exchange
Act of 1934, as amended), directly or indirectly, of 25% or more of
the outstanding Common Stock, (b) Borrower consolidates with or merges
into another Person or conveys, transfers or leases its properties and
assets substantially as an entirety to any Person or any Person
consolidates with or merges into Borrower, in either event pursuant to
a transaction in which the outstanding Common Stock is changed into or
exchanged for cash, securities or other property, with the effect that
any Unrelated Person becomes the beneficial owner, directly or
indirectly, of 25% or more of Common Stock or that the Persons who
were the holders of Common Stock immediately prior to the transaction
hold less than 75% of the common stock of the surviving corporation
after the transaction, (c) during any period of 24 consecutive months,
individuals who at the beginning of such period constituted the board
of directors of Borrower (together with any new or replacement
directors whose election by the board of directors, or whose
nomination for election, was approved by a vote of at least a majority
of the directors then still in office who were either directors at the
beginning of such period or whose election or nomination for
reelection was previously so approved) cease for any reason to
constitute a majority of the directors then in office or (d) a "change
in control" as defined in any document governing Indebtedness of
Borrower in excess of $5,000,000 which gives the holders of such
Indebtedness the right to accelerate or otherwise require payment of
such Indebtedness prior to the maturity date thereof. For purposes of
the foregoing, the term "Unrelated Person" means any Person other
than(i) a Subsidiary of Borrower or (ii) an employee stock ownership
plan or other employee benefit plan covering the employees of Borrower
and its Subsidiaries.
"Change in Management" means (a) the cessation for any reason
of Jerome M. Lapin to hold the office of President and Chief Executive
Officer of Borrower and the failure of Borrower to appoint a successor
acceptable to the Requisite Lenders within the sixty (60) day period
following such cessation (b) the cessation for any reason of W. John
Cash to hold the office of Vice President and Chief Financial Officer
of Borrower and the failure of Borrower to appoint a successor
acceptable to the Requisite Lenders within the sixty (60) day period
following such cessation.
7
<PAGE> 13
"Closing Date" means the time and Banking Day on which the
conditions set forth in Section 8.1 are satisfied or waived. The
Administrative Agent shall notify Borrower and the Lenders of the date
that is the Closing Date.
"Code" means the Internal Revenue Code of 1986, as amended or
replaced and as in effect from time to time.
"Collateral" means all of the collateral covered by the
Collateral Documents.
"Collateral Documents" means, collectively, the Security
Agreement and any other security agreement, pledge agreement, deed of
trust, mortgage, notice to or acknowledgment of a registrar or
depositary institution, control agreement or other collateral security
agreement executed and delivered by Borrower or any of its
Subsidiaries (and executed by any third party whose signature is
necessary) to secure the Obligations.
"Commercial Letter of Credit" means each Letter of Credit
issued to support the purchase of goods by Borrower which is
determined to be a commercial letter of credit by the Issuing Lender.
"Commitment" means, subject to Sections 2.5, 2.6 and 2.7,
$50,000,000. The respective Pro Rata Shares of the Lenders with
respect to the Commitment are set forth in Schedule 1.1.
"Commitment Assignment and Acceptance" means a commitment
assignment and acceptance substantially in the form of Exhibit A.
"Common Stock" means the common stock of Borrower or its
successor.
"Compliance Certificate" means a certificate in the form of
Exhibit B, properly completed and signed by a Senior Officer of
Borrower.
"Contractual Obligation" means, as to any Person, any
provision of any outstanding security issued by that Person or of any
material agreement, instrument or undertaking to which that Person is
a party or by which it or any of its Property is bound.
"Current Ratio" means, as of any date of determination, the
ratio of (a) the consolidated current assets of Borrower and its
Subsidiaries on that date to (b) the consolidated current liabilities
of Borrower and its Subsidiaries on that date, in each case as
determined in accordance with GAAP, consistently applied.
"Debtor Relief Laws" means the Bankruptcy Code of the United
States of America, as amended from time to time, and all other
applicable liquidation, conservatorship, bankruptcy, moratorium,
rearrangement, receivership, insolvency, reorganization, or similar
debtor relief Laws from time to time in effect affecting the rights of
creditors generally.
"Default" means any event that, with the giving of any
applicable notice or passage of time specified in Section 9.1, or
both, would be an Event of Default.
8
<PAGE> 14
"Default Rate" means the interest rate prescribed in Section
3.8.
"Designated Deposit Account" means a deposit account to be
maintained by Borrower with Wells Fargo Bank, National Association or
one of its Affiliates, as from time to time designated by Borrower by
written notification to the Administrative Agent.
"Designated Eurodollar Market" means, with respect to any
Eurodollar Rate Loan, the London Eurodollar Market.
"Disqualified Stock" means any capital stock, warrants,
options or other rights to acquire capital stock (but excluding any
debt security which is convertible, or exchangeable, for capital
stock), which, by its terms (or by the terms of any security into
which it is convertible or for which it is exchangeable), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant
to a sinking fund obligation or otherwise, or is redeemable at the
option of the holder thereof, in whole or in part, on or prior to the
Maturity Date.
"Disposition" means the sale, transfer or other disposition in
any single transaction or series of related transactions of any asset,
or group of related assets, of Borrower or any of its Subsidiaries (a)
which asset or assets constitute a line of business or substantially
all the assets of Borrower or the Subsidiary or (b) the aggregate
amount of the Net Cash Sales Proceeds of such assets is more than
$100,000, other than (i) inventory or other assets sold or otherwise
disposed of in the ordinary course of business of Borrower or its
Subsidiary and (ii) equipment sold or otherwise disposed of where
substantially similar equipment in replacement thereof has theretofore
been acquired, or thereafter within 90 days is acquired, by Borrower
or its Subsidiary.
"Distribution" means, with respect to any shares of capital
stock or any warrant or option to purchase an equity security or other
equity security issued by a Person, (a) the retirement, redemption,
purchase or other acquisition for Cash or for Property by such Person
of any such security, (b) the declaration or (without duplication)
payment by such Person of any dividend in Cash or in Property on or
with respect to any such security, (c) any Investment by such Person
in the holder of 5% or more of any such security if a purpose of such
Investment is to avoid characterization of the transaction as a
Distribution and (d) any other payment in Cash or Property by such
Person constituting a distribution under applicable Laws with respect
to such security.
"Dollars" or "$" means United States of America dollars.
"EBITDA" means, with respect to any fiscal period, the sum of
(a) Net Income for that period, plus (b) any non-operating
non-recurring loss reflected in such Net Income, minus (c) any
non-operating non-recurring gain reflected in such Net Income, plus
(d) Interest Expense of Borrower and its Subsidiaries for that period,
plus (e) the aggregate amount of federal and state taxes on or
measured by income of Borrower and its Subsidiaries for that period
(whether or not payable during that period), plus (f) depreciation,
amortization and all other non-cash expenses of Borrower and its
Subsidiaries for that period, in each case
9
<PAGE> 15
as determined in accordance with GAAP, consistently applied; provided
that, following an Acquisition permitted by Section 6.5, each
component of EBITDA shall also include the results of operations of
the Person that is the subject of the Acquisition as of the beginning
of such fiscal period.
"Eligible Assignee" means (a) another Lender, (b) with respect
to any Lender, any Affiliate of that Lender, (c) any commercial bank
having total assets of $10,000,000,000 or more, (d) any (i) savings
bank, savings and loan association or similar financial institution or
(ii) insurance company engaged in the business of writing insurance
which, in either case (A) has total assets of $10,000,000,000 or more,
(B) is engaged in the business of lending money and extending credit
under credit facilities substantially similar to those extended under
this Agreement and (C) is operationally and procedurally able to meet
the obligations of a Lender hereunder to the same degree as a
commercial bank and (e) any other financial institution (including a
mutual fund or other fund) having total assets of $10,000,000,000 or
more which meets the requirements set forth in subclauses (B) and (C)
of clause (d) above; provided that each Eligible Assignee must either
(aa) be organized under the Laws of the United States of America, any
State thereof or the District of Columbia or (bb) be organized under
the Laws of the Cayman Islands or any country which is a member of the
Organization for Economic Cooperation and Development, or a political
subdivision of such a country, and (i) act hereunder through a branch,
agency or funding office located in the United States of America and
(ii) be exempt from withholding of tax on interest and deliver the
documents related thereto pursuant to Section 11.21.
"ERISA" means the Employee Retirement Income Security Act of
1974, and any regulations issued pursuant thereto, as amended or
replaced and as in effect from time to time.
"ERISA Affiliate" means each Person (whether or not
incorporated) which is required to be aggregated with Borrower
pursuant to Section 414 of the Code.
"Eurodollar Banking Day" means any Banking Day on which
dealings in Dollar deposits are conducted by and among banks in the
Designated Eurodollar Market.
"Eurodollar Lending Office" means, as to each Lender, its
office or branch so designated by written notice to Borrower and the
Administrative Agent as its Eurodollar Lending Office. If no
Eurodollar Lending Office is designated by a Lender, its Eurodollar
Lending Office shall be its office at its address for purposes of
notices hereunder.
"Eurodollar Market" means a regular established market located
outside the United States of America by and among banks for the
solicitation, offer and acceptance of Dollar deposits in such banks.
"Eurodollar Obligations" means eurocurrency liabilities, as
defined in Regulation D or any comparable regulation of any
Governmental Agency having jurisdiction over any Lender.
10
<PAGE> 16
"Eurodollar Period" means, as to each Eurodollar Rate Loan,
the period commencing on the date specified by Borrower pursuant to
Section 2.1(b) and ending 1, 2, 3 or 6 months (or, with the written
consent of all of the Lenders, any other period) thereafter, as
specified by Borrower in the applicable Request for Loan; provided
that:
(a) The first day of any Eurodollar Period shall
be a Eurodollar Banking Day;
(b) Any Eurodollar Period that would otherwise
end on a day that is not a Eurodollar Banking Day shall be
extended to the immediately succeeding Eurodollar Banking Day
unless such Eurodollar Banking Day falls in another calendar
month, in which case such Eurodollar Period shall end on the
immediately preceding Eurodollar Banking Day;
(c) Borrower may not specify a Eurodollar Period
that extends beyond the next Reduction Date unless the
aggregate principal amount of the Eurodollar Loans having a
Eurodollar Period ending after such Reduction Date does not
exceed the Commitment (after giving effect to any reduction
thereto scheduled to be made on such Reduction Date pursuant
to Section 2.6); and
(d) No Eurodollar Period shall extend beyond the
Maturity Date.
"Eurodollar Rate" means, with respect to any Eurodollar Rate
Loan, the average of the interest rates per annum (rounded upward, if
necessary, to the next 1/16 of 1%) at which deposits in Dollars are
offered to the Administrative Agent in the Designated Eurodollar
Market at or about 11:00 a.m. local time in the Designated Eurodollar
Market, two (2) Eurodollar Banking Days before the first day of the
applicable Eurodollar Period in an aggregate amount approximately
equal to the amount of the Advance to be made by the Administrative
Agent with respect to such Eurodollar Rate Loan and for a period of
time comparable to the number of days in the applicable Eurodollar
Period.
"Eurodollar Rate Advance" means an Advance made hereunder and
specified to be a Eurodollar Rate Advance in accordance with Article
2.
"Eurodollar Rate Loan" means a Loan made hereunder and
specified to be a Eurodollar Rate Loan in accordance with Article 2.
"Event of Default" shall have the meaning provided in Section
9.1.
"Excess Cash Flow" means, with respect to any Fiscal Year, the
excess of (a) EBITDA for that Fiscal Year over (b) the sum of (i)
Non-Financed Capital Expenditures made during that Fiscal Year (ii)
Cash Income Taxes paid in that Fiscal Year, (iii) Cash Interest
Expense for that Fiscal Year and (iv) the aggregate scheduled
principal payments (excluding prepayments) of Indebtedness made by
Borrower during that Fiscal Year.
11
<PAGE> 17
"Existing Letters of Credit" means the letters of credit
outstanding on the Closing Date listed on Schedule 2.4.
"Federal Funds Rate" means, as of any date of determination,
the rate set forth in the weekly statistical release designated as
H.15(519), or any successor publication, published by the Federal
Reserve Board (including any such successor, "H.15(519)") for such
date opposite the caption "Federal Funds (Effective)". If for any
relevant date such rate is not yet published in H.15(519), the rate
for such date will be the rate set forth in the daily statistical
release designated as the Composite 3:30 p.m. Quotations for U.S.
Government Securities, or any successor publication, published by the
Federal Reserve Lender of New York (including any such successor, the
"Composite 3:30 p.m. Quotation") for such date under the caption
"Federal Funds Effective Rate". If on any relevant date the
appropriate rate for such date is not yet published in either
H.15(519) or the Composite 3:30 p.m. Quotations, the rate for such
date will be the arithmetic mean of the rates for the last transaction
in overnight Federal funds arranged prior to 9:00 a.m. (New York City
time) on that date by each of three leading brokers of Federal funds
transactions in New York City selected by the Administrative Agent.
For purposes of this Agreement, any change in the Alternate Base Rate
due to a change in the Federal Funds Rate shall be effective as of the
opening of business on the effective date of such change.
"Fiscal Quarter" means the fiscal quarter of Borrower ending
on each March 31, June 30, September 30 and December 31.
"Fiscal Year" means the fiscal year of Borrower ending on each
December 31.
"Fixed Charge Coverage Ratio" means, as of the last day of any
Fiscal Quarter, the ratio of (a) EBITDA for the fiscal period
consisting of the four (4) Fiscal Quarters ended on that date minus
Non-Financed Capital Expenditures made by Borrower and its
Subsidiaries during such fiscal period to (b) the sum of (i) Interest
Expense of Borrower and its Subsidiaries for such fiscal period plus
(ii) Cash Income Taxes of Borrower with respect to such fiscal period
plus (iii) the current portion of long-term debt of Borrower and its
Subsidiaries on such date plus (iv) the current portion of long-term
lease obligations of Borrower and its Subsidiaries on such date.
"GAAP" means, as of any date of determination, accounting
principles (a) set forth as generally accepted in then currently
effective Opinions of the Accounting Principles Board of the American
Institute of Certified Public Accountants, (b) set forth as generally
accepted in then currently effective Statements of the Financial
Accounting Standards Board or (c) that are then approved by such other
entity as may be approved by a significant segment of the accounting
profession in the United States of America. The term "consistently
applied," as used in connection therewith, means that the accounting
principles applied are consistent in all material respects with those
applied at prior dates or for prior periods.
"Government Securities" means readily marketable (a) direct
full faith and credit obligations of the United States of America or
obligations guaranteed by the full faith and
12
<PAGE> 18
credit of the United States of America and (b) obligations of an
agency or instrumentality of, or corporation owned, controlled or
sponsored by, the United States of America that are generally
considered in the securities industry to be implicit obligations of
the United States of America.
"Governmental Agency" means (a) any international, foreign,
federal, state, county or municipal government, or political
subdivision thereof, (b) any governmental or quasi-governmental
agency, authority, board, bureau, commission, department,
instrumentality or public body or (c) any court or administrative
tribunal of competent jurisdiction.
"Guaranty Obligation" means, as to any Person, any (a)
guarantee by that Person of Indebtedness of, or other obligation
performable by, any other Person or (b) assurance given by that Person
to an obligee of any other Person with respect to the performance of
an obligation by, or the financial condition of, such other Person,
whether direct, indirect or contingent, including any purchase or
repurchase agreement covering such obligation or any collateral
security therefor, any agreement to provide funds (by means of loans,
capital contributions or otherwise) to such other Person, any
agreement to support the solvency or level of any balance sheet item
of such other Person or any "keep-well" or other arrangement of
whatever nature given for the purpose of assuring or holding harmless
such obligee against loss with respect to any obligation of such other
Person; provided, however, that the term Guaranty Obligation shall not
include endorsements of instruments for deposit or collection in the
ordinary course of business. The amount of any Guaranty Obligation in
respect of Indebtedness shall be deemed to be an amount equal to the
stated or determinable amount of the related Indebtedness (unless the
Guaranty Obligation is limited by its terms to a lesser amount, in
which case to the extent of such amount) or, if not stated or
determinable, the maximum reasonably anticipated liability in respect
thereof as determined by the Person in good faith. The amount of any
other Guaranty Obligation shall be deemed to be zero unless and until
the amount thereof has been (or in accordance with Financial
Accounting Standards Board Statement No. 5 should be) quantified and
reflected or disclosed in the consolidated financial statements (or
notes thereto) of Borrower.
"Hazardous Materials" means substances defined as "hazardous
substances" pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et
seq., or as "hazardous", "toxic" or "pollutant" substances or as
"solid waste" pursuant to the Hazardous Materials Transportation Act,
49 U.S.C. Section 1801, et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901, et seq., or as "friable
asbestos" pursuant to the Toxic Substances Control Act, 15 U.S.C.
Section 2601 et seq. or any other applicable Hazardous Materials Law,
in each case as such Laws are amended from time to time.
"Hazardous Materials Laws" means all Laws governing the
treatment, transportation or disposal of Hazardous Materials
applicable to any of the Real Property.
13
<PAGE> 19
"Inactive Subsidiary" means a Subsidiary of Borrower that (a)
is not engaged in any active or passive business and (b) holds total
assets of $10,000 or less.
"Indebtedness" means, as to any Person (without duplication),
(a) indebtedness of such Person for borrowed money or for the deferred
purchase price of Property (excluding trade and other accounts payable
in the ordinary course of business in accordance with ordinary trade
terms), including any Guaranty Obligation for any such indebtedness,
(b) indebtedness of such Person of the nature described in clause (a)
that is non-recourse to the credit of such Person but is secured by
assets of such Person, to the extent of the fair market value of such
assets as determined in good faith by such Person, (c) Capital Lease
Obligations of such Person, (d) indebtedness of such Person arising
under bankers' acceptance facilities or under facilities for the
discount of accounts receivable of such Person, (e) any direct or
contingent obligations of such Person under letters of credit issued
for the account of such Person and (f) any net obligations of such
Person under Interest Rate Protection Agreements.
"Intangible Assets" means assets that are considered
intangible assets under GAAP, including customer lists, goodwill,
covenants not to compete, copyrights, trade names, trademarks and
patents.
"Interest Expense" means, with respect to any Person and as of
the last day of any fiscal period, the sum of (a) all interest, fees,
charges and related expenses paid or payable (without duplication) for
that fiscal period by that Person to a lender in connection with
borrowed money (including any obligations for fees, charges and
related expenses payable to the issuer of any letter of credit) or the
deferred purchase price of assets that are considered "interest
expense" under GAAP plus (b) the portion of rent paid or payable
(without duplication) for that fiscal period by that Person under
Capital Lease Obligations that should be treated as interest in
accordance with Financial Accounting Standards Board Statement No. 13.
"Interest Rate Protection Agreement" means a written agreement
between Borrower and one or more financial institutions providing for
"swap", "cap", "collar" or other interest rate protection with respect
to any Indebtedness.
"Investment" means, when used in connection with any Person,
any investment by or of that Person, whether by means of purchase or
other acquisition of stock or other securities of any other Person or
by means of a loan, advance creating a debt, capital contribution,
guaranty or other debt or equity participation or interest in any
other Person, including any partnership and joint venture interests of
such Person. The amount of any Investment shall be the amount
actually invested (minus any return of capital with respect to such
Investment which has actually been received in Cash or has been
converted into Cash), without adjustment for subsequent increases or
decreases in the value of such Investment.
"Issuing Lender" means Wells Fargo Bank, National Association.
14
<PAGE> 20
"Laws" means, collectively, all international, foreign,
federal, state and local statutes, treaties, rules, regulations,
ordinances, codes and administrative or judicial precedents.
"Lender" means each lender whose name is set forth in the
signature pages of this Agreement and each lender which may hereafter
become a party to this Agreement pursuant to Section 11.8.
"Letters of Credit" means (a) the Existing Letters of Credit
and (b) any of the Commercial Letters of Credit or Standby Letters of
Credit issued by the Issuing Lender under the Commitment pursuant to
Section 2.4, either as originally issued or as the same may be
supplemented, modified, amended, renewed, extended or supplanted.
"Lien" means any mortgage, deed of trust, pledge,
hypothecation, assignment for security, security interest,
encumbrance, lien or charge of any kind, whether voluntarily incurred
or arising by operation of Law or otherwise, affecting any Property,
including any conditional sale or other title retention agreement, any
lease in the nature of a security interest, and/or the filing of any
financing statement (other than a precautionary financing statement
with respect to a lease that is not in the nature of a security
interest) under the Uniform Commercial Code or comparable Law of any
jurisdiction with respect to any Property.
"Loan" means the aggregate of the Advances made at any one
time by the Lenders pursuant to Section 2.1.
"Loan Documents" means, collectively, this Agreement, the
Notes, the Collateral Documents and any other agreements of any type
or nature hereafter executed and delivered by Borrower to the
Administrative Agent or to any Lender in any way relating to or in
furtherance of this Agreement, in each case either as originally
executed or as the same may from time to time be supplemented,
modified, amended, restated, extended or supplanted.
"Margin Stock" means "margin stock" as such term is defined in
Regulation U.
"Material Adverse Effect" means any set of circumstances or
events which (a) has had or could reasonably be expected to have any
material adverse effect whatsoever upon the validity or enforceability
of any Loan Document, (b) has been or could reasonably be expected to
be material and adverse to the business or condition (financial or
otherwise) of Borrower and its Subsidiaries, taken as a whole or (c)
has materially impaired or could reasonably be expected to materially
impair the ability of Borrower to perform the Obligations.
"Material Customer Contract" means a contract between Borrower
and a customer providing for the installation of Borrower's equipment
on the premises of the customer, which customer accounted for 10% or
more of the gross revenues of Borrower during the Fiscal Year then
most-recently ended.
"Maturity Date" means June 30, 2001.
15
<PAGE> 21
"Monthly Payment Date" means the last day of each calendar
month.
"Multiemployer Plan" means any employee benefit plan of the
type described in Section 4001(a)(3) of ERISA to which Borrower or any
of its ERISA Affiliates contributes or is obligated to contribute.
"Negative Pledge" means a Contractual Obligation which
contains a covenant binding on Borrower or any of its Subsidiaries
that prohibits Liens on any of its Property, other than (a) any such
covenant contained in a Contractual Obligation granting or relating to
a particular Lien which affects only the Property that is the subject
of such Lien and (b) any such covenant that does not apply to Liens
securing the Obligations.
"Net Cash Issuance Proceeds" means, with respect to the
issuance of any debt security or equity security by Borrower or any of
its Subsidiaries, the Cash proceeds received by or for the account of
Borrower or such Subsidiary in consideration of such issuance net of
(a) underwriting discounts and commissions actually paid to any Person
not an Affiliate of Borrower and (b) professional fees and
disbursements actually paid in connection therewith.
"Net Cash Sales Proceeds" means, with respect to any
Disposition, the sum of (a) the Cash proceeds received by or for the
account of Borrower and its Subsidiaries from such Disposition plus
(b) the amount of Cash received by or for the account of Borrower and
its Subsidiaries upon the sale, collection or other liquidation of any
proceeds that are not Cash from such Disposition, in each case net of
(i) any amount required to be paid to any Person owning an interest in
the assets disposed of, (ii) any amount applied to the repayment of
Indebtedness secured by a Lien permitted under Section 6.9 on the
asset disposed of, (iii) any transfer, income or other taxes payable
as a result of such Disposition, (iv) professional fees and expenses,
fees due to any Governmental Agency, broker's commissions and other
out-of-pocket costs of sale actually paid to any Person that is not an
Affiliate of Borrower attributable to such Disposition and (v) any
reserves established in accordance with GAAP in connection with such
Disposition.
"Net Income" means, with respect to any fiscal period, the
consolidated net income of Borrower and its Subsidiaries for that
period, determined in accordance with GAAP, consistently applied.
"Non-Financed Capital Expenditure" means, with respect to any
Capital Expenditure, an amount equal to 40% thereof.
"Note" means any of the promissory notes made by Borrower to a
Lender evidencing Advances under that Lender's Pro Rata Share of the
Commitment, substantially in the form of Exhibit C, either as
originally executed or as the same may from time to time be
supplemented, modified, amended, renewed, extended or supplanted.
"Obligations" means all present and future obligations of
every kind or nature of Borrower at any time and from time to time
owed to the Administrative Agent or the Lenders
16
<PAGE> 22
or any one or more of them, under any one or more of the Loan
Documents, whether due or to become due, matured or unmatured,
liquidated or unliquidated, or contingent or noncontingent, including
obligations of performance as well as obligations of payment, and
including interest that accrues after the commencement of any
proceeding under any Debtor Relief Law by or against Borrower.
"Opinion of Counsel" means the favorable written legal opinion
of Hutchinson Black and Cook, LLC, special counsel to Borrower,
substantially in the form of Exhibit D, together with copies of all
factual certificates and legal opinions delivered to such counsel in
connection with such opinion upon which such counsel has relied.
"Party" means any Person other than the Administrative Agent
and the Lenders, which now or hereafter is a party to any of the Loan
Documents.
"PBGC" means the Pension Benefit Guaranty Corporation or any
successor thereof established under ERISA.
"Pension Plan" means any "employee pension benefit plan" (as
such term is defined in Section 3(2) of ERISA), other than a
Multiemployer Plan, which is subject to Title IV of ERISA and is
maintained by Borrower or to which Borrower contributes or has an
obligation to contribute.
"Permitted Encumbrances" means:
(a) Inchoate Liens incident to construction on or
maintenance of Property; or Liens incident to construction on
or maintenance of Property now or hereafter filed of record
for which adequate reserves have been set aside (or deposits
made pursuant to applicable Law) and which are being contested
in good faith by appropriate proceedings and have not
proceeded to judgment, provided that, by reason of nonpayment
of the obligations secured by such Liens, no such Property is
subject to a material impending risk of loss or forfeiture;
(b) Liens for taxes and assessments on Property
which are not yet past due; or Liens for taxes and assessments
on Property for which adequate reserves have been set aside
and are being contested in good faith by appropriate
proceedings and have not proceeded to judgment, provided that,
by reason of nonpayment of the obligations secured by such
Liens, no such Property is subject to a material impending
risk of loss or forfeiture;
(c) defects and irregularities in title to any
Property which in the aggregate do not materially impair the
fair market value or use of the Property for the purposes for
which it is or may reasonably be expected to be held;
(d) easements, exceptions, reservations, or other
agreements for the purpose of pipelines, conduits, cables,
wire communication lines, power lines and substations,
streets, trails, walkways, drainage, irrigation, water, and
sewerage
17
<PAGE> 23
purposes, dikes, canals, ditches, the removal of oil, gas,
coal, or other minerals, and other like purposes affecting
Property which in the aggregate do not materially burden or
impair the fair market value or use of such Property for the
purposes for which it is or may reasonably be expected to be
held;
(e) easements, exceptions, reservations, or other
agreements for the purpose of facilitating the joint or common
use of Property in or adjacent to a shopping center or similar
project affecting Property which in the aggregate do not
materially burden or impair the fair market value or use of
such Property for the purposes for which it is or may
reasonably be expected to be held;
(f) rights reserved to or vested in any
Governmental Agency to control or regulate, or obligations or
duties to any Governmental Agency with respect to, the use of
any Property;
(g) rights reserved to or vested in any
Governmental Agency to control or regulate, or obligations or
duties to any Governmental Agency with respect to, any right,
power, franchise, grant, license, or permit;
(h) present or future zoning laws and ordinances
or other laws and ordinances restricting the occupancy, use,
or enjoyment of Property;
(i) statutory Liens, other than those described
in clauses (a) or (b) above, arising in the ordinary course of
business with respect to obligations which are not delinquent
or are being contested in good faith, provided that, if
delinquent, adequate reserves have been set aside with respect
thereto and, by reason of nonpayment, no Property is subject
to a material impending risk of loss or forfeiture;
(j) covenants, conditions, and restrictions
affecting the use of Property which in the aggregate do not
materially impair the fair market value or use of the Property
for the purposes for which it is or may reasonably be expected
to be held;
(k) rights of tenants under leases and rental
agreements covering Property entered into in the ordinary
course of business of the Person owning such Property;
(l) Liens consisting of pledges or deposits to
secure obligations under workers' compensation laws or similar
legislation, including Liens of judgments thereunder which are
not currently dischargeable;
(m) Liens consisting of pledges or deposits of
Property to secure performance in connection with operating
leases made in the ordinary course of business, provided the
aggregate value of all such pledges and deposits in connection
with any such lease does not at any time exceed 20% of the
annual fixed rentals payable under such lease;
18
<PAGE> 24
(n) Liens consisting of deposits of Property to
secure bids made with respect to, or performance of, contracts
(other than contracts creating or evidencing an extension of
credit to the depositor);
(o) Liens consisting of any right of offset, or
statutory bankers' lien, on bank deposit accounts maintained
in the ordinary course of business so long as such bank
deposit accounts are not established or maintained for the
purpose of providing such right of offset or bankers' lien;
(p) Liens consisting of deposits of Property to
secure statutory obligations of Borrower;
(q) Liens consisting of deposits of Property to
secure (or in lieu of) surety, appeal or customs bonds;
(r) Liens created by or resulting from any
litigation or legal proceeding in the ordinary course of
business which is currently being contested in good faith by
appropriate proceedings, provided that, adequate reserves have
been set aside and no material Property is subject to a
material impending risk of loss or forfeiture; and
(s) other non-consensual Liens incurred in the
ordinary course of business but not in connection with the
incurrence of any Indebtedness, which do not in the aggregate,
when taken together with all other Liens, materially impair
the fair market value or use of the Property for the purposes
for which it is or may reasonably be expected to be held.
"Permitted Right of Others" means a Right of Others consisting
of (a) an interest (other than a legal or equitable co-ownership
interest, an option or right to acquire a legal or equitable
co-ownership interest and any interest of a ground lessor under a
ground lease), that does not materially impair the fair market value
or use of Property for the purposes for which it is or may reasonably
be expected to be held, (b) an option or right to acquire a Lien that
would be a Permitted Encumbrance, (c) the subordination of a lease or
sublease in favor of a financing entity and (d) a license, or similar
right, of or to Intangible Assets granted in the ordinary course of
business.
"Person" means any individual or entity, including a trustee,
corporation, limited liability company, general partnership, limited
partnership, joint stock company, trust, estate, unincorporated
organization, business association, firm, joint venture, Governmental
Agency, or other entity.
"Pricing Certificate" means a certificate in the form of
Exhibit E, properly completed and signed by a Senior Officer of
Borrower.
"Pricing Period" means (a) the period commencing on the
Closing Date and ending on August 15, 1998, (b) the period commencing
on August 16, 1998, and each subsequent August 16, and ending on the
next following November 15, (c) the period commencing on
19
<PAGE> 25
each November 16 and ending on the next following February 15, (d) the
period commencing on each February 16 and ending on the next following
May 15 and (e) the period commencing on each May 16 and ending on the
next following August 15.
"Prime Rate" means the rate of interest publicly announced
from time to time by the Administrative Agent in San Francisco,
California (or other headquarters city of the Administrative Agent),
as its "prime rate." The "prime rate" is one of several base rates
used by the Administrative Agent and serves as the basis upon which
effective rates of interest are calculated for loans and other credits
making reference thereto. The "prime rate" is evidenced by the
recording thereof after its announcement in such internal publication
or publications as the Administrative Agent may designate. Any change
in the Prime Rate announced by the Administrative Agent shall take
effect at the opening of business on the day specified in the public
announcement of such change.
"Prior Credit Agreement" means that certain Credit Agreement
dated as of September 23, 1996, as amended, between Borrower and Wells
Fargo Bank, National Association.
"Projections" means the projected financial information dated
June 4, 1998 prepared by Borrower to be contained in the Confidential
Offering Memorandum furnished to the Lenders as part of the
syndication process referred to in Section 5.15.
"Property" means any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible.
"Pro Rata Share" means, with respect to each Lender, the
percentage of the Commitment set forth opposite the name of that
Lender on Schedule 1.1, as such percentage may be increased or
decreased pursuant to a Commitment Assignment and Acceptance executed
in accordance with Section 11.8.
"Quarterly Payment Date" means each June 30, September 30,
December 31 and March 31.
"Real Property" means, as of any date of determination, all
real property then or theretofore owned, leased or occupied by any of
Borrower.
"Reduction Amount" means $1,000,000.
"Reduction Date" means September 30, 1999 and each Quarterly
Payment Date thereafter.
"Regulation D" means Regulation D, as at any time amended, of
the Board of Governors of the Federal Reserve System, or any other
regulation in substance substituted therefor.
20
<PAGE> 26
"Regulation U" means Regulation U, as at any time amended, of
the Board of Governors of the Federal Reserve System, or any other
regulation in substance substituted therefor.
"Request for Letter of Credit" means a written request for a
Letter of Credit substantially in the form of Exhibit F, signed by a
Responsible Official of Borrower and properly completed to provide all
information required to be included therein.
"Request for Loan" means a written request for a Loan
substantially in the form of Exhibit G, signed by a Responsible
Official of Borrower, on behalf of Borrower, and properly completed to
provide all information required to be included therein.
"Requirement of Law" means, as to any Person, the articles or
certificate of incorporation and by-laws or other organizational or
governing documents of such Person, and any Law, or judgment, award,
decree, writ or determination of a Governmental Agency, in each case
applicable to or binding upon such Person or any of its Property or to
which such Person or any of its Property is subject.
"Requisite Lenders" means (a) as of any date of determination
if the Commitment is then in effect, Lenders having in the aggregate
66-2/3% or more of the Commitment then in effect and (b) as of any
date of determination if the Commitment has then been suspended or
terminated and there is then any Indebtedness evidenced by the Notes,
Lenders holding Notes evidencing in the aggregate 66-2/3% or more of
the aggregate Indebtedness then evidenced by the Notes.
"Responsible Official" means (a) any Senior Officer of
Borrower and (b) any other responsible official of Borrower so
designated in a written notice thereof from a Senior Officer to the
Administrative Agent. The Lenders shall be entitled to conclusively
rely upon any document or certificate that is signed or executed by a
Responsible Official of Borrower or any of its Subsidiaries as having
been authorized by all necessary corporate, partnership and/or other
action on the part of Borrower or such Subsidiary.
"Right of Others" means, as to any Property in which a Person
has an interest, any legal or equitable right, title or other interest
(other than a Lien) held by any other Person in that Property, and any
option or right held by any other Person to acquire any such right,
title or other interest in that Property, including any option or
right to acquire a Lien; provided, however, that (a) no covenant
restricting the use or disposition of Property of such Person
contained in any Contractual Obligation of such Person and (b) no
provision contained in a contract creating a right of payment or
performance in favor of a Person that conditions, limits, restricts,
diminishes, transfers or terminates such right shall be deemed to
constitute a Right of Others.
"Security Agreement" means the security agreement to be
executed and delivered pursuant to Article 8 by Borrower, in the form
of Exhibit H, either as originally executed or as it may from time to
time be supplemented, modified, amended, extended or supplanted.
21
<PAGE> 27
"Seller Subordinated Notes" means promissory notes of Borrower
payable to the sellers of a business issued in connection with an
Acquisition permitted by Section 6.5 that meet the requirements of
subclauses (ii) through (vi) of clause (b) of the definition of
Subordinated Obligations.
"Senior Funded Debt Ratio" means, as of the last day of any
Fiscal Quarter, the ratio of (a) the sum of (i) all Senior
Indebtedness of Borrower and its Subsidiaries on that date other than
Indebtedness evidenced by the Notes plus (ii) the average daily
balance of Indebtedness evidenced by the Notes for such Fiscal Quarter
(or, if such Fiscal Quarter commenced prior to the Closing Date, for
the period commencing on the Closing Date and ended on the last day of
such Fiscal Quarter) to (b) EBITDA for the fiscal period consisting of
the four (4) Fiscal Quarters ended on that date.
"Senior Indebtedness" means all Indebtedness of Borrower other
than Subordinated Obligations.
"Senior Officer" means (a) the chief executive officer, (b)
the president, (c) any executive vice president, (d) the chief
financial officer or (e) the treasurer, in each case of Borrower.
"Special Eurodollar Circumstance" means the application or
adoption after the Closing Date of any Law or interpretation, or any
change therein or thereof, or any change in the interpretation or
administration thereof by any Governmental Agency, central bank or
comparable authority charged with the interpretation or administration
thereof, or compliance by any Lender or its Eurodollar Lending Office
with any request or directive (whether or not having the force of Law)
of any such Governmental Agency, central bank or comparable authority.
"Standby Letter of Credit" means each Letter of Credit that is
not a Commercial Letter of Credit.
"Stockholders' Equity" means, as of any date of determination
and with respect to any Person, the consolidated stockholders' equity
of the Person as of that date determined in accordance with GAAP;
provided that there shall be excluded from Stockholders' Equity any
amount attributable to Disqualified Stock.
"Subordinated Obligations" means (a) any Seller Subordinated
Notes and (b) any other Indebtedness of Borrower that (i) does not
have any scheduled principal payment, mandatory principal prepayment
or sinking fund payment due prior to June 30, 2002, (ii) is not
secured by any Lien on any Property of Borrower or any of its
Subsidiaries, (iii) is not guarantied by any Subsidiary of Borrower,
(iv) is subordinated by its terms in right of payment to the
Obligations pursuant to provisions acceptable to the Requisite
Lenders, (v) is subject to such financial and other covenants and
events of defaults as may be acceptable to the Requisite Lenders and
(vi) is subject to customary interest blockage and delayed
acceleration provisions as may be acceptable to the Requisite Lenders.
22
<PAGE> 28
"Subsidiary" means, as of any date of determination and with
respect to any Person, any corporation, limited liability company or
partnership (whether or not, in any case, characterized as such or as
a "joint venture"), whether now existing or hereafter organized or
acquired: (a) in the case of a corporation or limited liability
company, of which a majority of the securities having ordinary voting
power for the election of directors or other governing body (other
than securities having such power only by reason of the happening of a
contingency) are at the time beneficially owned by such Person and/or
one or more Subsidiaries of such Person, or (b) in the case of a
partnership, of which a majority of the partnership or other ownership
interests are at the time beneficially owned by such Person and/or one
or more of its Subsidiaries.
"Total Funded Debt Ratio" means, as of the last day of each
Fiscal Quarter, the ratio of (a) the sum of (i) all Indebtedness of
Borrower and its Subsidiaries on that date other than Indebtedness
evidenced by the Notes plus (ii) the average daily balance of
Indebtedness evidenced by the Notes for the period consisting of the
four (4) Fiscal Quarters ended on that date (or, if such period
extends prior to the Closing Date, for the period commencing on the
Closing Date and ended on that date) to (b) EBITDA for the fiscal
period consisting of the four (4) Fiscal Quarters ended on that date.
"to the best knowledge of" means, when modifying a
representation, warranty or other statement of any Person, that the
fact or situation described therein is known by the Person (or, in the
case of a Person other than a natural Person, known by a Responsible
Official of that Person) making the representation, warranty or other
statement, or with the exercise of reasonable due diligence under the
circumstances (in accordance with the standard of what a reasonable
Person in similar circumstances would have done) would have been known
by the Person (or, in the case of a Person other than a natural
Person, would have been known by a Responsible Official of that
Person).
"type", when used with respect to any Loan or Advance, means
the designation of whether such Loan or Advance is an Alternate Base
Rate Loan or Advance, or a Eurodollar Rate Loan or Advance.
"Wholly-Owned Subsidiary" means a Subsidiary of Borrower, 100%
of the capital stock or other equity interest of which is owned,
directly or indirectly, by Borrower, except for director's qualifying
shares required by applicable Laws.
1.2 Use of Defined Terms. Any defined term used in the
plural shall refer to all members of the relevant class, and any defined term
used in the singular shall refer to any one or more of the members of the
relevant class.
1.3 Accounting Terms. All accounting terms not
specifically defined in this Agreement shall be construed in conformity with,
and all financial data required to be submitted by this Agreement shall be
prepared in conformity with, GAAP applied on a consistent basis, except as
otherwise specifically prescribed herein. In the event that GAAP changes
during the term of this Agreement such that the covenants contained in Sections
6.12 through 6.16, inclusive, would then be calculated in a different manner or
with different components, (a) Borrower and the Lenders agree
23
<PAGE> 29
to amend this Agreement in such respects as are necessary to conform those
covenants as criteria for evaluating Borrower's financial condition to
substantially the same criteria as were effective prior to such change in GAAP
and (b) Borrower shall be deemed to be in compliance with the covenants
contained in the aforesaid Sections if and to the extent that Borrower would
have been in compliance therewith under GAAP as in effect immediately prior to
such change, but shall have the obligation to deliver each of the materials
described in Article 7 to the Administrative Agent and the Lenders, on the
dates therein specified, with financial data presented in a manner which
conforms with GAAP as in effect immediately prior to such change.
1.4 Rounding. Any financial ratios required to be
maintained by Borrower pursuant to this Agreement shall be calculated by
dividing the appropriate component by the other component, carrying the result
to one place more than the number of places by which such ratio is expressed in
this Agreement and rounding the result up or down to the nearest number (with a
round-up if there is no nearest number) to the number of places by which such
ratio is expressed in this Agreement.
1.5 Exhibits and Schedules. All Exhibits and Schedules
to this Agreement, either as originally existing or as the same may from time
to time be supplemented, modified or amended, are incorporated herein by this
reference. A matter disclosed on any Schedule shall be deemed disclosed on all
Schedules.
1.6 References to "Borrower and its Subsidiaries". Any
reference herein to "Borrower and its Subsidiaries" or the like shall refer
solely to Borrower during such times, if any, as Borrower shall have no
Subsidiaries.
1.7 Miscellaneous Terms. The term "or" is disjunctive;
the term "and" is conjunctive. The term "shall" is mandatory; the term "may"
is permissive. Masculine terms also apply to females; feminine terms also
apply to males. The term "including" is by way of example and not limitation.
Article 2
LOANS AND LETTERS OF CREDIT
2.1 Loans-General.
(a) Subject to the terms and conditions set forth
in this Agreement, at any time and from time to time from the Closing
Date through the Maturity Date, each Lender shall, pro rata according
to that Lender's Pro Rata Share of the then applicable Commitment,
make Advances to Borrower under the Commitment in such amounts as
Borrower may request that do not result in the sum of (i) the
aggregate principal amount outstanding under the Notes and (ii) the
Aggregate Effective Amount of all outstanding Letters of Credit to
exceed the Commitment. Subject to the limitations set forth herein,
Borrower may borrow, repay and reborrow under the Commitment without
premium or penalty.
(b) Subject to the next sentence, each Loan shall
be made pursuant to a Request for Loan which shall specify the
requested (i) date of such Loan, (ii) type of Loan,
24
<PAGE> 30
(iii) amount of such Loan, and (iv) in the case of a Eurodollar Rate
Loan, the Eurodollar Period for such Loan. Unless the Administrative
Agent has notified, in its sole and absolute discretion, Borrower to
the contrary, a Loan may be requested by telephone by a Responsible
Official of Borrower, in which case Borrower shall confirm such
request by promptly delivering a Request for Loan (conforming to the
preceding sentence) in person or by telecopier to the Administrative
Agent. Administrative Agent shall incur no liability whatsoever
hereunder in acting upon any telephonic request for Loan purportedly
made by a Responsible Official of Borrower, and Borrower hereby agrees
to indemnify the Administrative Agent from any loss, cost, expense or
liability as a result of so acting.
(c) Promptly following receipt of a Request for
Loan, the Administrative Agent shall notify each Lender by telephone
or telecopier (and if by telephone, promptly confirmed by telecopier)
of the date and type of the Loan, the applicable Eurodollar Period,
and that Lender's Pro Rata Share of the Loan. Not later than 10:00
a.m., California time, on the date specified for any Loan (which must
be a Banking Day), each Lender shall make its Pro Rata Share of the
Loan in immediately available funds available to the Administrative
Agent at the Administrative Agent's Office. Upon satisfaction or
waiver of the applicable conditions set forth in Article 8, all
Advances shall be credited on that date in immediately available funds
to the Designated Deposit Account.
(d) Unless the Requisite Lenders otherwise
consent, each Alternate Base Rate Loan shall be not less than $500,000
and in an integral multiple of $100,000 and each Eurodollar Rate Loan
shall be not less than $5,000,000 and in an integral multiple of
$1,000,000.
(e) Notwithstanding Section 2.1(b), during the
period commencing on the Closing Date and ending on the earlier of (i)
six (6) months after the Closing Date or (ii) the completion of the
syndication process referred to in Section 5.16, Borrower may not
request a Eurodollar Rate Loan with a Eurodollar Period longer than
one (1) month.
(f) The Advances made by each Lender under the
Commitment shall be evidenced by that Lender's Note.
(g) A Request for Loan shall be irrevocable upon
the Administrative Agent's first notification thereof.
(h) If no Request for Loan (or telephonic request
for Loan referred to in the second sentence of Section 2.1(b), if
applicable) has been made within the requisite notice periods set
forth in Section 2.2 or 2.3 prior to the end of the Eurodollar Period
for any outstanding Eurodollar Rate Loan, then on the last day of such
Eurodollar Period, such Eurodollar Rate Loan shall be automatically
converted into an Alternate Base Rate Loan in the same amount.
2.2 Alternate Base Rate Loans. Each request by Borrower
for an Alternate Base Rate Loan shall be made pursuant to a Request for Loan
(or telephonic or other request for loan referred to in the second sentence of
Section 2.1(b), if applicable) received by the Administrative
25
<PAGE> 31
Agent, at the Administrative Agent's Office, not later than 11:00 a.m.
California time, on the date (which must be a Banking Day) immediately prior to
the date of the requested Alternate Base Rate Loan. All Loans shall constitute
Alternate Base Rate Loans unless properly designated as a Eurodollar Rate Loan
pursuant to Section 2.3.
2.3 Eurodollar Rate Loans.
(a) Each request by Borrower for a Eurodollar
Rate Loan shall be made pursuant to a Request for Loan (or telephonic
or other request for Loan referred to in the second sentence of
Section 2.1(b), if applicable) received by the Administrative Agent,
at the Administrative Agent's Office, not later than 9:00 a.m.,
California time, at least three (3) Eurodollar Banking Days before the
first day of the applicable Eurodollar Period.
(b) On the date which is two (2) Eurodollar
Banking Days before the first day of the applicable Eurodollar Period,
the Administrative Agent shall confirm its determination of the
applicable Eurodollar Rate (which determination shall be conclusive in
the absence of manifest error) and promptly shall give notice of the
same to Borrower and the Lenders by telephone or telecopier (and if by
telephone, promptly confirmed by telecopier).
(c) Unless the Administrative Agent and the
Requisite Lenders otherwise consent, no more than five (5) Eurodollar
Rate Loans shall be outstanding at any one time.
(d) No Eurodollar Rate Loan may be requested
during the continuation of a Default or Event of Default.
(e) Nothing contained herein shall require any
Lender to fund any Eurodollar Rate Advance in the Designated
Eurodollar Market.
2.4 Letters of Credit.
(a) The Existing Letters of Credit described in
Schedule 2.4 shall be Letters of Credit for all purposes under this
Agreement. Subject to the terms and conditions hereof, at any time
and from time to time from the Closing Date through the Maturity Date,
the Issuing Lender shall issue such Letters of Credit under the
Commitment as Borrower may request by a Request for Letter of Credit;
provided that (i) giving effect to all such Letters of Credit, the sum
of (A) the aggregate principal amount outstanding under the Notes plus
(B) the Aggregate Effective Amount of all outstanding Letters of
Credit, does not exceed the then applicable Commitment and (ii) the
Aggregate Effective Amount under all outstanding Letters of Credit
does not exceed $2,000,000. Each Letter of Credit shall be in a form
acceptable to the Issuing Lender. Unless all the Lenders otherwise
consent in a writing delivered to the Administrative Agent, the term
of any Letter of Credit shall not exceed one (1) year or extend beyond
the Maturity Date.
(b) Each Request for Letter of Credit shall be
submitted to the Issuing Lender, with a copy to the Administrative
Agent, at least two (2) Banking Days prior to the
26
<PAGE> 32
date upon which the related Letter of Credit is proposed to be issued.
The Administrative Agent shall promptly notify the Issuing Lender
whether such Request for Letter of Credit, and the issuance of a
Letter of Credit pursuant thereto, conforms to the requirements of
this Agreement. Upon issuance of a Letter of Credit, the Issuing
Lender shall promptly notify the Administrative Agent, and the
Administrative Agent shall promptly notify the Lenders, of the amount
and terms thereof.
(c) Upon the issuance of a Letter of Credit, each
Lender shall be deemed to have purchased a pro rata participation in
such Letter of Credit from the Issuing Lender in an amount equal to
that Lender's Pro Rata Share. Without limiting the scope and nature
of each Lender's participation in any Letter of Credit, to the extent
that the Issuing Lender has not been reimbursed by Borrower for any
payment required to be made by the Issuing Lender under any Letter of
Credit, each Lender shall, pro rata according to its Pro Rata Share,
reimburse the Issuing Lender through the Administrative Agent promptly
upon demand for the amount of such payment. The obligation of each
Lender to so reimburse the Issuing Lender shall be absolute and
unconditional and shall not be affected by the occurrence of an Event
of Default or any other occurrence or event. Any such reimbursement
shall not relieve or otherwise impair the obligation of Borrower to
reimburse the Issuing Lender for the amount of any payment made by the
Issuing Lender under any Letter of Credit together with interest as
hereinafter provided.
(d) Borrower agrees to pay to the Issuing Lender
through the Administrative Agent an amount equal to any payment made
by the Issuing Lender with respect to each Letter of Credit within one
(1) Banking Day after demand made by the Issuing Lender therefor,
together with interest on such amount from the date of any payment
made by the Issuing Lender at the rate applicable to Alternate Base
Rate Loans for two (2) Banking Days and thereafter at the Default
Rate. The principal amount of any such payment shall be used to
reimburse the Issuing Lender for the payment made by it under the
Letter of Credit and, to the extent that the Lenders have not
reimbursed the Issuing Lender pursuant to Section 2.4(c), the interest
amount of any such payment shall be for the account of the Issuing
Lender. Each Lender that has reimbursed the Issuing Lender pursuant
to Section 2.4(c) for its Pro Rata Share of any payment made by the
Issuing Lender under a Letter of Credit shall thereupon acquire a pro
rata participation, to the extent of such reimbursement, in the claim
of the Issuing Lender against Borrower for reimbursement of principal
and interest under this Section 2.4(d) and shall share, in accordance
with that pro rata participation, in any principal payment made by
Borrower with respect to such claim and in any interest payment made
by Borrower (but only with respect to periods subsequent to the date
such Lender reimbursed the Issuing Lender) with respect to such claim.
(e) Borrower may, pursuant to a Request for Loan,
request that Advances be made pursuant to Section 2.1(a) to provide
funds for the payment required by Section 2.4(d) and, for this
purpose, the conditions precedent set forth in Article 8 shall not
apply. The proceeds of such Advances shall be paid directly to the
Issuing Lender to reimburse it for the payment made by it under the
Letter of Credit.
27
<PAGE> 33
(f) If Borrower fails to make the payment
required by Section 2.4(d) within the time period therein set forth,
in lieu of the reimbursement to the Issuing Lender under Section
2.4(c) the Issuing Lender may (but is not required to), without notice
to or the consent of Borrower, instruct the Administrative Agent to
cause Advances to be made by the Lenders under the Line A Commitment
in an aggregate amount equal to the amount paid by the Issuing Lender
with respect to that Letter of Credit and, for this purpose, the
conditions precedent set forth in Article 8 shall not apply. The
proceeds of such Advances shall be paid directly to the Issuing Lender
to reimburse it for the payment made by it under the Letter of Credit.
(g) The issuance of any supplement, modification,
amendment, renewal, or extension to or of any Letter of Credit shall
be treated in all respects the same as the issuance of a new Letter of
Credit.
(h) The obligation of Borrower to pay to the
Issuing Lender the amount of any payment made by the Issuing Lender
under any Letter of Credit shall be absolute, unconditional, and
irrevocable, subject only to performance by the Issuing Lender of its
obligations to Borrower under Uniform Commercial Code Section 5109.
Without limiting the foregoing, Borrower's obligations shall not be
affected by any of the following circumstances:
(i) any lack of validity or
enforceability prior to its stated expiration date of the
Letter of Credit, this Agreement, or any other agreement or
instrument relating thereto;
(ii) any amendment or waiver of or any
consent to departure from the Letter of Credit, this
Agreement, or any other agreement or instrument relating
thereto, with the consent of Borrower;
(iii) the existence of any claim, setoff,
defense, or other rights which Borrower may have at any time
against the Issuing Lender, the Administrative Agent or any
Lender, any beneficiary of the Letter of Credit (or any
persons or entities for whom any such beneficiary may be
acting) or any other Person, whether in connection with the
Letter of Credit, this Agreement, or any other agreement or
instrument relating thereto, or any unrelated transactions;
(iv) any demand, statement, or any other
document presented under the Letter of Credit proving to be
forged, fraudulent, invalid, or insufficient in any respect or
any statement therein being untrue or inaccurate in any
respect whatsoever so long as any such document appeared
substantially to comply with the terms of the Letter of
Credit;
(v) payment by the Issuing Lender in
good faith under the Letter of Credit against presentation of
a draft or any accompanying document which does not strictly
comply with the terms of the Letter of Credit;
28
<PAGE> 34
(vi) the existence, character, quality,
quantity, condition, packing, value or delivery of any
Property purported to be represented by documents presented in
connection with any Letter of Credit or any difference between
any such Property and the character, quality, quantity,
condition, or value of such Property as described in such
documents;
(vii) the time, place, manner, order or
contents of shipments or deliveries of Property as described
in documents presented in connection with any Letter of Credit
or the existence, nature and extent of any insurance relative
thereto;
(viii) the solvency or financial
responsibility of any party issuing any documents in
connection with a Letter of Credit;
(ix) any failure or delay in notice of
shipments or arrival of any Property;
(x) any error in the transmission of any
message relating to a Letter of Credit not caused by the
Issuing Lender, or any delay or interruption in any such
message;
(xi) any error, neglect or default of any
correspondent of the Issuing Lender in connection with a
Letter of Credit;
(xii) any consequence arising from acts of
God, war, insurrection, civil unrest, disturbances, labor
disputes, emergency conditions or other causes beyond the
control of the Issuing Lender;
(xiii) so long as the Issuing Lender in
good faith determines that the contract or document appears
substantially to comply with the terms of the Letter of
Credit, the form, accuracy, genuineness or legal effect of any
contract or document referred to in any document submitted to
the Issuing Lender in connection with a Letter of Credit; and
(xiv) where the Issuing Lender has acted
in good faith and observed general banking usage, any other
circumstances whatsoever.
(i) The Issuing Lender shall be entitled to the
protection accorded to the Administrative Agent pursuant to Section
10.6, mutatis mutandis.
(j) The Uniform Customs and Practice for
Documentary Credits, as published in its most current version by the
International Chamber of Commerce, shall be deemed a part of this
Section and shall apply to all Letters of Credit to the extent not
inconsistent with applicable Law.
2.5 Voluntary Reduction of Commitment. Borrower shall
have the right, at any time and from time to time, without penalty or charge,
upon at least five (5) Banking Days' prior
29
<PAGE> 35
written notice by a Responsible Official of Borrower to the Administrative
Agent, voluntarily to reduce, permanently and irrevocably, in aggregate
principal amounts in an integral multiple of $500,000 but not less than
$2,500,000, or to terminate, all or a portion of the then undisbursed portion
of the Commitment. The Administrative Agent shall promptly notify the Lenders
of any reduction or termination of the Commitment under this Section.
2.6 Automatic Reduction of Commitment. On each Reduction
Date, the Commitment shall automatically be reduced by the applicable Reduction
Amount.
2.7 Specified Reductions of Commitment. The Commitment
shall be reduced (a) on the date of any Disposition for which a prepayment of
the Notes is required under Section 3.1(e)(i), by the amount of such required
prepayment, (b) on the date of issuance of debt securities of Borrower or any
of its Subsidiaries (other than the debt securities consisting of Subordinated
Obligations required pursuant to Section 5.15) for which a prepayment of the
Notes is required under Section 3.1(e)(ii), by the amount of such required
prepayment and (c) on the date of issuance of any equity securities of Borrower
or any of its Subsidiaries for which a prepayment is required under Section
3.1(e)(iii), by the amount of such required prepayment.
2.8 Optional Termination of Commitment. Following the
occurrence of a Change in Control or a Change in Management, the Requisite
Lenders may in their sole and absolute discretion elect, during the thirty (30)
day period immediately subsequent to the later of (a) such occurrence or (b)
the earlier of (i) receipt of Borrower's written notice to the Administrative
Agent of such occurrence or (ii) if no such notice has been received by the
Administrative Agent, the date upon which the Administrative Agent has actual
knowledge thereof, to terminate the Commitment, in which case the Commitment
shall be terminated effective on the date which is thirty (30) days subsequent
to written notice from the Administrative Agent to Borrower thereof.
2.9 Administrative Agent's Right to Assume Funds
Available for Advances. Unless the Administrative Agent shall have been
notified by any Lender no later than 10:00 a.m. on the Banking Day of the
proposed funding by the Administrative Agent of any Loan that such Lender does
not intend to make available to the Administrative Agent such Lender's portion
of the total amount of such Loan, the Administrative Agent may assume that such
Lender has made such amount available to the Administrative Agent on the date
of the Loan and the Administrative Agent may, in reliance upon such assumption,
make available to Borrower a corresponding amount. If the Administrative Agent
has made funds available to Borrower based on such assumption and such
corresponding amount is not in fact made available to the Administrative Agent
by such Lender, the Administrative Agent shall be entitled to recover such
corresponding amount on demand from such Lender. If such Lender does not pay
such corresponding amount forthwith upon the Administrative Agent's demand
therefor, the Administrative Agent promptly shall notify Borrower and Borrower
shall pay such corresponding amount to the Administrative Agent. The
Administrative Agent also shall be entitled to recover from such Lender
interest on such corresponding amount in respect of each day from the date such
corresponding amount was made available by the Administrative Agent to Borrower
to the date such corresponding amount is recovered by the Administrative Agent,
at a rate per annum equal to the daily Federal Funds Rate. Nothing herein
shall be deemed to relieve any Lender from its obligation to fulfill its share
of the Commitment or to prejudice any rights which the
30
<PAGE> 36
Administrative Agent or Borrower may have against any Lender as a result of any
default by such Lender hereunder.
2.10 Collateral. The Obligations shall be secured by a
first priority (subject to Liens permitted by Section 6.9) perfected (except
with respect to motor vehicles) Lien on the Collateral pursuant to the
Collateral Documents.
Article 3
PAYMENTS AND FEES
3.1 Principal and Interest.
(a) Interest shall be payable on the outstanding
daily unpaid principal amount of each Advance from the date thereof
until payment in full is made and shall accrue and be payable at the
rates set forth or provided for herein before and after Default,
before and after maturity, before and after judgment, and before and
after the commencement of any proceeding under any Debtor Relief Law,
with interest on overdue interest at the Default Rate to the fullest
extent permitted by applicable Laws.
(b) Interest accrued on each Alternate Base Rate
Loan shall be due and payable on each Monthly Payment Date. Except as
otherwise provided in Section 3.8, the unpaid principal amount of any
Alternate Base Rate Loan shall bear interest at a fluctuating rate per
annum equal to the Alternate Base Rate plus the Applicable Alternate
Base Rate Margin. Each change in the interest rate under this Section
3.1(b) due to a change in the Alternate Base Rate shall take effect
simultaneously with the corresponding change in the Alternate Base
Rate.
(c) Interest accrued on each Eurodollar Rate Loan
which is for a term of three months or less shall be due and payable
on the last day of the related Eurodollar Period. Interest accrued on
each other Eurodollar Rate Loan shall be due and payable on the date
which is three months after the date such Eurodollar Rate Loan was
made (and, in the event that all of the Lenders have approved a
Eurodollar Period of longer than six months, every three months
thereafter through the last day of the Eurodollar Period) and on the
last day of the related Eurodollar Period. Except as otherwise
provided in Section 3.8, the unpaid principal amount of any Eurodollar
Rate Loan shall bear interest at a rate per annum equal to the
Eurodollar Rate for that Eurodollar Rate Loan plus the Applicable
Eurodollar Rate Margin.
(d) If not sooner paid, the principal
Indebtedness evidenced by the Notes shall be payable as follows:
(i) the amount, if any, by which the sum
of (A) the principal Indebtedness evidenced by the Notes plus
(B) the Aggregate Effective Amount of all outstanding Letters
of Credit at any time exceeds the then applicable Commitment
31
<PAGE> 37
(including the Commitment as reduced pursuant to Section 2.5,
2.6 or 2.7) shall be payable immediately; and
(ii) the principal Indebtedness evidenced
by the Notes shall in any event be payable on the Maturity
Date.
(e) The principal Indebtedness evidenced by the
Notes shall be prepaid on or before the third Banking Day following
the receipt by Borrower or any of its Subsidiaries of (i) Net Cash
Sales Proceeds from Dispositions in excess of $1,000,000 in any Fiscal
Year, by an amount equal to the amount of such Net Cash Sales Proceeds
in excess of $1,000,000, (ii) Net Cash Issuance Proceeds from the
issuance of debt securities (other than the debt securities consisting
of Subordinated Obligations required pursuant to Section 5.15) of
Borrower or any of its Subsidiaries (except an issuance of debt
securities to Borrower or to a Wholly-Owned Subsidiary), by an amount
equal to 50% of such Net Cash Issuance Proceeds, (iii) Net Cash
Issuance Proceeds from the issuance of the debt securities consisting
of Subordinated Obligations required pursuant to Section 5.15, by an
amount equal to 100% of such Net Cash Issuance Proceeds and (iv) Net
Cash Issuance Proceeds from the issuance of equity securities of
Borrower or any of its Subsidiaries (except an issuance of equity
securities to Borrower or to a Wholly-Owned Subsidiary or to employees
or former employees of Borrower pursuant to an employee stock option
plan maintained by Borrower), by an amount equal to 50% of such Net
Cash Issuance Proceeds.
(f) The principal Indebtedness evidenced by the
Notes shall be prepaid on or before each March 15 by an amount equal
to 50% of Excess Cash Flow for the Fiscal Year then most recently
ended.
(g) The principal Indebtedness evidenced by the
Notes may, at any time and from time to time, voluntarily be paid or
prepaid in whole or in part without premium or penalty, except that
with respect to any voluntary prepayment under this Subsection, (i)
any partial prepayment shall be not less than $1,000,000 and shall be
an integral multiple of $500,000, (ii) the Administrative Agent shall
have received written notice of any prepayment by 9:00 a.m. California
time on the date that is one (1) Banking Day before the date of
prepayment (which must be a Banking Day) in the case of an Alternate
Base Rate Loan, and, in the case of a Eurodollar Rate Loan, three (3)
Banking Days before the date of prepayment, which notice shall
identify the date and amount of the prepayment and the Loan(s) being
prepaid, (iii) each prepayment of principal on any Eurodollar Rate
Loan shall be accompanied by payment of interest accrued to the date
of payment on the amount of principal paid and (iv) any payment or
prepayment of all or any part of any Eurodollar Rate Loan on a day
other than the last day of the applicable Eurodollar Period shall be
subject to Section 3.7(e).
3.2 Arrangement Fee. On the Closing Date, Borrower shall
pay to the Arranger the arrangement fee as heretofore agreed upon by letter
agreement dated May 21, 1998 between Borrower and the Arranger. The
arrangement fee paid to the Arranger is solely for its own account and is
nonrefundable.
32
<PAGE> 38
3.3 Commitment Fee. From the Closing Date through the
Maturity Date, Borrower shall pay to the Administrative Agent, for the ratable
accounts of the Lenders pro rata according to their Pro Rata Share of the
Commitment, a commitment fee equal to the Applicable Commitment Fee Rate per
annum times the average daily amount by which the Commitment exceeds the sum of
(a) the aggregate daily principal Indebtedness evidenced by the Notes plus (b)
the Aggregate Effective Amount of all outstanding Letters of Credit. The
commitment fee shall be payable quarterly in arrears as of each Quarterly
Payment Date within ten (10) days after receipt by Borrower of an invoice
therefor from the Administrative Agent.
3.4 Agency Fee. Borrower shall pay to the Administrative
Agent an agency fee in such amounts and at such times as heretofore agreed upon
by letter agreement dated May 21, 1998 between Borrower and the Administrative
Agent. The agency fee paid to the Administrative Agent is solely for its own
account and is nonrefundable.
3.5 Letter of Credit Fees. With respect to each Letter
of Credit, Borrower shall pay the following fees:
(a) concurrently with the issuance of each
Standby Letter of Credit, a letter of credit issuance fee to the
Issuing Lender for the sole account of the Issuing Lender, in an
amount set forth in the letter agreement dated May 21, 1998 between
Borrower and the Issuing Lender;
(b) concurrently with the issuance of each
Standby Letter of Credit, to the Administrative Agent for the ratable
account of the Lenders in accordance with their Pro Rata Share of the
Commitment, a standby letter of credit fee in an amount equal to the
Applicable Standby Letter of Credit Fee Rate as of the date of such
issuance times the face amount of such Standby Letter of Credit
through the termination or expiration of such Standby Letter of
Credit, which the Administrative Agent shall promptly pay to the
Lenders; and
(c) concurrently with each issuance, negotiation,
drawing or amendment of each Commercial Letter of Credit, to the
Issuing Lender for the sole account of the Issuing Lender, issuance,
negotiation, drawing and amendment fees in the amounts set forth from
time to time as the Issuing Lender's published scheduled fees for such
services.
Each of the fees payable with respect to Letters of Credit under this
Section is earned when due and is nonrefundable.
3.6 Increased Commitment Costs. If any Lender shall
determine in good faith that the introduction after the Closing Date of any
applicable law, rule, regulation or guideline regarding capital adequacy, or
any change therein or any change in the interpretation or administration
thereof by any central bank or other Governmental Agency charged with the
interpretation or administration thereof, or compliance by such Lender (or its
Eurodollar Lending Office) or any corporation controlling such Lender, with any
request, guideline or directive regarding capital adequacy (whether or not
having the force of Law) of any such central bank or other authority not
imposed as a result of such Lender's or such corporation's failure to comply
with any other Laws,
33
<PAGE> 39
affects or would affect the amount of capital required or expected to be
maintained by such Lender or any corporation controlling such Lender and
(taking into consideration such Lender's or such corporation's policies with
respect to capital adequacy and such Lender's desired return on capital)
determines in good faith that the amount of such capital is increased, or the
rate of return on capital is reduced, as a consequence of its obligations under
this Agreement, then, within five (5) Banking Days after demand of such Lender,
Borrower shall pay to such Lender, from time to time as specified in good faith
by such Lender, additional amounts sufficient to compensate such Lender in
light of such circumstances, to the extent reasonably allocable to such
obligations under this Agreement, provided that Borrower shall not be obligated
to pay any such amount which arose prior to the date which is ninety (90) days
preceding the date of such demand or is attributable to periods prior to the
date which is ninety (90) days preceding the date of such demand. Each
Lender's determination of such amounts shall be conclusive in the absence of
manifest error.
3.7 Eurodollar Costs and Related Matters.
(a) In the event that any Governmental Agency
imposes on any Lender any reserve or comparable requirement (including
any emergency, supplemental or other reserve) with respect to the
Eurodollar Obligations of that Lender, Borrower shall pay that Lender
within five (5) Banking Days after demand all amounts necessary to
compensate such Lender (determined as though such Lender's Eurodollar
Lending Office had funded 100% of its Eurodollar Rate Advance in the
Designated Eurodollar Market) in respect of the imposition of such
reserve requirements (provided, that Borrower shall not be obligated
to pay any such amount which arose prior to the date which is ninety
(90) days preceding the date of such demand or is attributable to
periods prior to the date which is ninety (90) days preceding the date
of such demand). The Lender's determination of such amount shall be
conclusive in the absence of manifest error.
(b) If, after the date hereof, the existence or
occurrence of any Special Eurodollar Circumstance:
(1) shall subject any Lender or its
Eurodollar Lending Office to any tax, duty or other charge or
cost with respect to any Eurodollar Rate Advance, any of its
Notes evidencing Eurodollar Rate Loans or its obligation to
make Eurodollar Rate Advances, or shall change the basis of
taxation of payments to any Lender attributable to the
principal of or interest on any Eurodollar Rate Advance or any
other amounts due under this Agreement in respect of any
Eurodollar Rate Advance, any of its Notes evidencing
Eurodollar Rate Loans or its obligation to make Eurodollar
Rate Advances, excluding (i) taxes imposed on or measured in
whole or in part by its overall net income by (A) any
jurisdiction (or political subdivision thereof) in which it is
organized or maintains its principal office or Eurodollar
Lending Office or (B) any jurisdiction (or political
subdivision thereof) in which it is "doing business" and (ii)
any withholding taxes or other taxes based on gross income
imposed by the United States of America for any period with
respect to which it has failed to provide Borrower with the
appropriate form or forms required by Section 11.21, to the
extent such forms are then required by applicable Laws;
34
<PAGE> 40
(2) shall impose, modify or deem
applicable any reserve not applicable or deemed applicable on
the date hereof (including any reserve imposed by the Board of
Governors of the Federal Reserve System, special deposit,
capital or similar requirements against assets of, deposits
with or for the account of, or credit extended by, any Lender
or its Eurodollar Lending Office); or
(3) shall impose on any Lender or its
Eurodollar Lending Office or the Designated Eurodollar Market
any other condition affecting any Eurodollar Rate Advance, any
of its Notes evidencing Eurodollar Rate Loans, its obligation
to make Eurodollar Rate Advances or this Agreement, or shall
otherwise affect any of the same;
and the result of any of the foregoing, as determined in good faith by
such Lender, increases the cost to such Lender or its Eurodollar
Lending Office of making or maintaining any Eurodollar Rate Advance or
in respect of any Eurodollar Rate Advance, any of its Notes evidencing
Eurodollar Rate Loans or its obligation to make Eurodollar Rate
Advances or reduces the amount of any sum received or receivable by
such Lender or its Eurodollar Lending Office with respect to any
Eurodollar Rate Advance, any of its Notes evidencing Eurodollar Rate
Loans or its obligation to make Eurodollar Rate Advances (assuming
such Lender's Eurodollar Lending Office had funded 100% of its
Eurodollar Rate Advance in the Designated Eurodollar Market), then,
within five (5) Banking Days after demand by such Lender (with a copy
to the Administrative Agent), Borrower shall pay to such Lender such
additional amount or amounts as will compensate such Lender for such
increased cost or reduction (determined as though such Lender's
Eurodollar Lending Office had funded 100% of its Eurodollar Rate
Advance in the Designated Eurodollar Market); provided, that Borrower
shall not be obligated to pay any such amount which arose prior to the
date which is ninety (90) days preceding the date of such demand or is
attributable to periods prior to the date which is ninety (90) days
preceding the date of such demand. A statement of any Lender claiming
compensation under this subsection shall be conclusive in the absence
of manifest error.
(c) If, after the date hereof, the existence or
occurrence of any Special Eurodollar Circumstance shall, in the good
faith opinion of any Lender, make it unlawful or impossible for such
Lender or its Eurodollar Lending Office to make, maintain or fund its
portion of any Eurodollar Rate Loan, or materially restrict the
authority of such Lender to purchase or sell, or to take deposits of,
Dollars in the Designated Eurodollar Market, or to determine or charge
interest rates based upon the Eurodollar Rate, and such Lender shall
so notify the Administrative Agent, then such Lender's obligation to
make Eurodollar Rate Advances shall be suspended for the duration of
such illegality or impossibility and the Administrative Agent
forthwith shall give notice thereof to the other Lenders and Borrower.
Upon receipt of such notice, the outstanding principal amount of such
Lender's Eurodollar Rate Advances, together with accrued interest
thereon, automatically shall be converted to Alternate Base Rate
Advances on either (1) the last day of the Eurodollar Period(s)
applicable to such Eurodollar Rate Advances if such Lender may
lawfully continue to maintain and fund such Eurodollar Rate Advances
to such day(s) or (2) immediately if such
35
<PAGE> 41
Lender may not lawfully continue to fund and maintain such Eurodollar
Rate Advances to such day(s), provided that in such event the
conversion shall not be subject to payment of a prepayment fee under
Section 3.7(e). Each Lender agrees to endeavor promptly to notify
Borrower of any event of which it has actual knowledge, occurring after
the Closing Date, which will cause that Lender to notify the
Administrative Agent under this Section, and agrees to designate a
different Eurodollar Lending Office if such designation will avoid the
need for such notice and will not, in the good faith judgment of such
Lender, otherwise be materially disadvantageous to such Lender. In the
event that any Lender is unable, for the reasons set forth above, to
make, maintain or fund its portion of any Eurodollar Rate Loan, such
Lender shall fund such amount as an Alternate Base Rate Advance for the
same period of time, and such amount shall be treated in all respects
as an Alternate Base Rate Advance. Any Lender whose obligation to make
Eurodollar Rate Advances has been suspended under this Section shall
promptly notify the Administrative Agent and Borrower of the cessation
of the Special Eurodollar Circumstance which gave rise to such
suspension.
(d) If, with respect to any proposed Eurodollar
Rate Loan:
(1) the Administrative Agent reasonably
determines that, by reason of circumstances affecting the
Designated Eurodollar Market generally that are beyond the
reasonable control of the Lenders, deposits in Dollars (in the
applicable amounts) are not being offered to any Lender in the
Designated Eurodollar Market for the applicable Eurodollar
Period; or
(2) the Requisite Lenders advise the
Administrative Agent that the Eurodollar Rate as determined by
the Administrative Agent (i) does not represent the effective
pricing to such Lenders for deposits in Dollars in the
Designated Eurodollar Market in the relevant amount for the
applicable Eurodollar Period, or (ii) will not adequately and
fairly reflect the cost to such Lenders of making the
applicable Eurodollar Rate Advances;
then the Administrative Agent forthwith shall give notice thereof to
Borrower and the Lenders, whereupon until the Administrative Agent
notifies Borrower that the circumstances giving rise to such
suspension no longer exist, the obligation of the Lenders to make any
future Eurodollar Rate Advances shall be suspended.
(e) Upon payment or prepayment of any Eurodollar
Rate Advance (other than as the result of a conversion required under
Section 3.7(c) on a day other than the last day in the applicable
Eurodollar Period (whether voluntarily, involuntarily, by reason of
acceleration, or otherwise), or upon the failure of Borrower (for a
reason other than the breach by a Lender of its obligation pursuant to
Section 2.1(a) to make an Advance) to borrow on the date or in the
amount specified for a Eurodollar Rate Loan in any Request for Loan,
Borrower shall pay to the appropriate Lender within five (5) Banking
Days after demand a prepayment fee or failure to borrow fee, as the
case may be (determined as though 100% of the Eurodollar Rate Advance
had been funded in the Designated Eurodollar Market) equal to the sum
of:
36
<PAGE> 42
(1) $250; plus
(2) the amount, if any, by which (i) the
additional interest would have accrued on the amount prepaid
or not borrowed at the Eurodollar Rate plus the Applicable
Eurodollar Rate Margin if that amount had remained or been
outstanding through the last day of the applicable Eurodollar
Period exceeds (ii) the interest that the Lender could recover
by placing such amount on deposit in the Designated Eurodollar
Market for a period beginning on the date of the prepayment or
failure to borrow and ending on the last day of the applicable
Eurodollar Period (or, if no deposit rate quotation is
available for such period, for the most comparable period for
which a deposit rate quotation may be obtained); plus
(3) all out-of-pocket expenses incurred
by the Lender reasonably attributable to such payment,
prepayment or failure to borrow.
Each Lender's determination of the amount of any prepayment fee
payable under this Section shall be conclusive in the absence of
manifest error.
(f) Each Lender agrees to endeavor promptly to
notify Borrower of any event of which it has actual knowledge,
occurring after the Closing Date, which will entitle such Lender to
compensation pursuant to clause (a) or clause (b) of this Section, and
agrees to designate a different Eurodollar Lending Office if such
designation will avoid the need for or reduce the amount of such
compensation and will not, in the good faith judgment of such Lender,
otherwise be materially disadvantageous to such Lender. Any request
for compensation by a Lender under this Section shall set forth the
basis upon which it has been determined that such an amount is due
from Borrower, a calculation of the amount due, and a certification
that the corresponding costs have been incurred by the Lender.
3.8 Late Payments. If any installment of principal or
interest or any fee or cost or other amount payable under any Loan Document to
the Administrative Agent or any Lender is not paid when due, it shall
thereafter bear interest at a fluctuating interest rate per annum at all times
equal to the sum of the Alternate Base Rate plus the Applicable Alternate Base
Rate Margin plus 2%, to the fullest extent permitted by applicable Laws.
Accrued and unpaid interest on past due amounts (including, without limitation,
interest on past due interest) shall be compounded monthly, on the last day of
each calendar month, to the fullest extent permitted by applicable Laws.
3.9 Computation of Interest and Fees. Computation of
interest and fees under this Agreement shall be calculated on the basis of a
year of 360 days and the actual number of days elapsed. Interest shall accrue
on each Loan for the day on which the Loan is made; interest shall not accrue
on a Loan, or any portion thereof, for the day on which the Loan or such
portion is paid. Any Loan that is repaid on the same day on which it is made
shall bear interest for one day. Notwithstanding anything in this Agreement to
the contrary, interest in excess of the maximum amount permitted by applicable
Laws shall not accrue or be payable hereunder or under the Notes, and any
amount paid as interest hereunder or under the Notes which would otherwise be
in excess of such maximum permitted amount shall instead be treated as a
payment of principal.
37
<PAGE> 43
3.10 Non-Banking Days. If any payment to be made by
Borrower or any other Party under any Loan Document shall come due on a day
other than a Banking Day, payment shall instead be considered due on the next
succeeding Banking Day and the extension of time shall be reflected in
computing interest and fees.
3.11 Manner and Treatment of Payments.
(a) Each payment hereunder (except payments
pursuant to Sections 3.6, 3.7, 11.3, 11.11 and 11.22) or on the Notes
or under any other Loan Document shall be made to the Administrative
Agent at the Administrative Agent's Office for the account of each of
the Lenders or the Administrative Agent, as the case may be, in
immediately available funds not later than 11:00 a.m. California time,
on the day of payment (which must be a Banking Day). All payments
received after such time, on any Banking Day, shall be deemed received
on the next succeeding Banking Day. The amount of all payments
received by the Administrative Agent for the account of each Lender
shall be immediately paid by the Administrative Agent to the
applicable Lender in immediately available funds and, if such payment
was received by the Administrative Agent by 11:00 a.m., California
time, on a Banking Day and not so made available to the account of a
Lender on that Banking Day, the Administrative Agent shall reimburse
that Lender for the cost to such Lender of funding the amount of such
payment at the Federal Funds Rate. All payments shall be made in
lawful money of the United States of America.
(b) Borrower hereby authorizes the Administrative
Agent to debit the general operating bank account of Borrower to
effect any payment due to the Lenders or the Administrative Agent
pursuant to this Agreement. Any resulting overdraft in such account
shall be payable by Borrower to the Administrative Agent on the next
following Banking Day.
(c) Each payment or prepayment on account of any
Loan shall be applied pro rata according to the outstanding Advances
made by each Lender comprising such Loan.
(d) Each Lender shall use its best efforts to
keep a record (in writing or by an electronic data entry system) of
Advances made by it and payments received by it with respect to each
of its Notes and, subject to Section 10.6(g), such record shall, as
against Borrower, be presumptive evidence of the amounts owing.
Notwithstanding the foregoing sentence, the failure by any Lender to
keep such a record shall not affect Borrower's obligation to pay the
Obligations.
(e) Each payment of any amount payable by
Borrower or any other Party under this Agreement or any other Loan
Document shall be made free and clear of, and without reduction by
reason of, any taxes, assessments or other charges imposed by any
Governmental Agency, central bank or comparable authority,
excluding(i) taxes imposed on or measured in whole or in part by its
overall net income by (A) any jurisdiction (or political subdivision
thereof) in which it is organized or maintains its principal office or
Eurodollar Lending Office or (B) any jurisdiction (or political
subdivision thereof) in which it is "doing business" and (ii) any
withholding taxes or other taxes based on gross income
38
<PAGE> 44
imposed by the United States of America for any period with respect to
which it has failed to provide Borrower with the appropriate form or
forms required by Section 11.21, to the extent such forms are then
required by applicable Laws (all such non-excluded taxes, assessments
or other charges being hereinafter referred to as "Taxes"). To the
extent that Borrower is obligated by applicable Laws to make any
deduction or withholding on account of Taxes from any amount payable
to any Lender under this Agreement, Borrower shall (i) make such
deduction or withholding and pay the same to the relevant Governmental
Agency and (ii) pay such additional amount to that Lender as is
necessary to result in that Lender's receiving a net after-Tax amount
equal to the amount to which that Lender would have been entitled
under this Agreement absent such deduction or withholding. If and
when receipt of such payment results in an excess payment or credit to
that Lender on account of such Taxes, that Lender shall promptly
refund such excess to Borrower.
3.12 Funding Sources. Nothing in this Agreement shall be
deemed to obligate any Lender to obtain the funds for any Loan or Advance in
any particular place or manner or to constitute a representation by any Lender
that it has obtained or will obtain the funds for any Loan or Advance in any
particular place or manner.
3.13 Failure to Charge Not Subsequent Waiver. Any
decision by the Administrative Agent or any Lender not to require payment of
any interest (including interest arising under Section 3.8), fee, cost or other
amount payable under any Loan Document, or to calculate any amount payable by a
particular method, on any occasion shall in no way limit or be deemed a waiver
of the Administrative Agent's or such Lender's right to require full payment of
any interest (including interest arising under Section 3.8), fee, cost or other
amount payable under any Loan Document, or to calculate an amount payable by
another method that is not inconsistent with this Agreement, on any other or
subsequent occasion.
3.14 Administrative Agent's Right to Assume Payments Will
be Made. Unless the Administrative Agent shall have been notified by Borrower
prior to the date on which any payment to be made by Borrower hereunder is due
that Borrower does not intend to remit such payment, the Administrative Agent
may, in its discretion, assume that Borrower has remitted such payment when so
due and the Administrative Agent may, in its discretion and in reliance upon
such assumption, make available to each Lender on such payment date an amount
equal to such Lender's share of such assumed payment. If Borrower has not in
fact remitted such payment to the Administrative Agent, each Lender shall
forthwith on demand repay to the Administrative Agent the amount of such
assumed payment made available to such Lender, together with interest thereon
in respect of each day from and including the date such amount was made
available by the Administrative Agent to such Lender to the date such amount is
repaid to the Administrative Agent at the Federal Funds Rate.
3.15 Fee Determination Detail. The Administrative Agent,
and any Lender, shall provide reasonable detail to Borrower regarding the
manner in which the amount of any payment to the Administrative Agent and the
Lenders, or that Lender, under Article 3 has been determined, concurrently with
demand for such payment.
39
<PAGE> 45
3.16 Survivability. All of Borrower's obligations under
Sections 3.6 and 3.7 shall survive for the ninety (90) day period following the
date on which the Commitment is terminated and all Loans hereunder are fully
paid, and Borrower shall remain obligated thereunder for all claims under such
Sections made by any Lender to Borrower prior to the expiration of such period.
Article 4
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to the Lenders that:
4.1 Existence and Qualification; Power; Compliance With
Laws. Borrower is a corporation duly formed, validly existing and in good
standing under the Laws of Delaware. Borrower is duly qualified or registered
to transact business and is in good standing in Colorado and each other
jurisdiction in which the conduct of its business or the ownership or leasing
of its Properties makes such qualification or registration necessary, except
where the failure so to qualify or register and to be in good standing would
not constitute a Material Adverse Effect. Borrower has all requisite power and
authority to conduct its business, to own and lease its Properties and to
execute and deliver each Loan Document to which it is a Party and to perform
its Obligations. The chief executive offices of Borrower are located in
Colorado. All outstanding shares of capital stock of Borrower are duly
authorized, validly issued, fully paid and non-assessable, and no holder
thereof has any enforceable right of rescission under any applicable state or
federal securities Laws. Borrower is in compliance with all Laws and other
legal requirements applicable to its business, has obtained all authorizations,
consents, approvals, orders, licenses and permits from, and has accomplished
all filings, registrations and qualifications with, or obtained exemptions from
any of the foregoing from, any Governmental Agency that are necessary for the
transaction of its business, except where the failure so to comply, obtain
authorizations, etc., file, register, qualify or obtain exemptions does not
constitute a Material Adverse Effect.
4.2 Authority; Compliance With Other Agreements and
Instruments and Government Regulations. The execution, delivery and
performance by Borrower of the Loan Documents to which it is a Party have been
duly authorized by all necessary corporate action, and do not and will not:
(a) Require any consent or approval not
heretofore obtained of any partner, director, stockholder, security
holder or creditor of such Party;
(b) Violate or conflict with any provision of
such Party's charter, articles of incorporation or bylaws, as
applicable;
(c) Result in or require the creation or
imposition of any Lien (other than pursuant to the Loan Documents) or
Right of Others upon or with respect to any Property now owned or
leased or hereafter acquired by such Party;
(d) Violate any Requirement of Law applicable to
such Party;
40
<PAGE> 46
(e) Result in a breach of or constitute a default
under, or cause or permit the acceleration of any obligation owed
under, any indenture or loan or credit agreement or any other
Contractual Obligation to which such Party is a party or by which such
Party or any of its Property is bound or affected;
and such Party is not in violation of, or default under, any Requirement of Law
or Contractual Obligation, or any indenture, loan or credit agreement described
in Section 4.2(e), in any respect that constitutes a Material Adverse Effect.
4.3 No Governmental Approvals Required. Except as
previously obtained or made, no authorization, consent, approval, order,
license or permit from, or filing, registration or qualification with, any
Governmental Agency is or will be required to authorize or permit under
applicable Laws the execution, delivery and performance by Borrower of the Loan
Documents to which it is a Party.
4.4 Subsidiaries. Borrower has no Subsidiaries other
than Inactive Subsidiaries.
4.5 Financial Statements. Borrower has furnished to the
Lenders (a) the audited financial statements of Borrower for the Fiscal Year
ended December 31, 1997 and (b) the unaudited balance sheet and statement of
operations of Borrower for the Fiscal Quarter ended March 31, 1998. The
financial statements described in clause (a) fairly present in all material
respects the financial condition, results of operations and changes in
financial position, and the balance sheet and statement of operations described
in clause (b) fairly present the financial condition and results of operations
of Borrower as of such dates and for such periods in conformity with GAAP
consistently applied, subject only to normal year-end accruals and audit
adjustments.
4.6 No Other Liabilities; No Material Adverse Changes.
Borrower and its Subsidiaries do not have any material liability or material
contingent liability required under GAAP to be reflected or disclosed, and not
reflected or disclosed, in the balance sheet described in Section 4.5(b), other
than liabilities and contingent liabilities arising in the ordinary course of
business since the date of such financial statements. As of the Closing Date,
no circumstance or event has occurred that constitutes a Material Adverse
Effect since March 31, 1998.
4.7 Title to and Location of Property. Borrower and its
Subsidiaries have valid title to the Property (other than assets which are the
subject of a Capital Lease Obligation) reflected in the balance sheet described
in Section 4.5(b), other than items of Property or exceptions to title which
are in each case immaterial and Property subsequently sold or disposed of in
the ordinary course of business. Such Property is free and clear of all Liens
and Rights of Others, other than Liens or Rights of Others described in
Schedule 4.7A and Permitted Encumbrances and Permitted Rights of Others. All
Property of Borrower and its Subsidiaries is located in one of the States of
the United States of America described in Schedule 4.7B.
4.8 Intangible Assets. Borrower and its Subsidiaries
own, or possess the right to use to the extent necessary in their respective
businesses, all material trademarks, trade names,
41
<PAGE> 47
copyrights, patents, patent rights, computer software, licenses and other
Intangible Assets that are used in the conduct of their businesses as now
operated, and no such Intangible Asset, to the best knowledge of Borrower,
conflicts with the valid trademark, trade name, copyright, patent, patent right
or Intangible Asset of any other Person to the extent that such conflict
constitutes a Material Adverse Effect. Schedule 4.8 sets forth all material
trademarks, trade names, copyrights, patents, and licenses for any of the
foregoing owned by Borrower and its Subsidiaries. Except as set forth in
Schedule 4.8, Borrower has not used any trade name, trade style or "dba" during
the five year period ending on the Closing Date.
4.9 Public Utility Holding Company Act. Neither Borrower
nor any of its Subsidiaries is a "holding company", or a "subsidiary company"
of a "holding company", or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company", within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
4.10 Litigation. Except for (a) any matter fully covered
as to subject matter and amount (subject to applicable deductibles and
retentions) by insurance for which the insurance carrier has not asserted lack
of subject matter coverage or reserved its right to do so, (b) any matter, or
series of related matters, involving a claim against Borrower or any of its
Subsidiaries of less than $100,000, (c) matters of an administrative nature not
involving a claim or charge against Borrower or any of its Subsidiaries and (d)
matters set forth in Schedule 4.10, there are no actions, suits, proceedings or
investigations pending as to which Borrower or any of its Subsidiaries have
been served or have received notice or, to the best knowledge of Borrower,
threatened against or affecting Borrower or any of its Subsidiaries or any
Property of any of them before any Governmental Agency.
4.11 Binding Obligations. Each of the Loan Documents to
which Borrower is a Party will, when executed and delivered by Borrower,
constitute the legal, valid and binding obligation of Borrower, enforceable
against Borrower in accordance with its terms, except as enforcement may be
limited by Debtor Relief Laws or equitable principles relating to the granting
of specific performance and other equitable remedies as a matter of judicial
discretion.
4.12 No Default. No event has occurred and is continuing
that is a Default or Event of Default.
4.13 ERISA.
(a) With respect to each Pension Plan:
(i) such Pension Plan complies in all
material respects with ERISA and any other applicable Laws to
the extent that noncompliance could reasonably be expected to
have a Material Adverse Effect;
(ii) such Pension Plan has not incurred
any "accumulated funding deficiency" (as defined in Section
302 of ERISA) that could reasonably be expected to have a
Material Adverse Effect;
42
<PAGE> 48
(iii) no "reportable event" (as defined in
Section 4043 of ERISA, but excluding such events as to which
the PBGC has by regulation waived the requirement therein
contained that it be notified within thirty days of the
occurrence of such event) has occurred that could reasonably
be expected to have a Material Adverse Effect; and
(iv) neither Borrower nor any of its
Subsidiaries has engaged in any non-exempt "prohibited
transaction" (as defined in Section 4975 of the Code) that
could reasonably be expected to have a Material Adverse
Effect.
(b) Neither Borrower nor any of its Subsidiaries
has incurred or expects to incur any withdrawal liability to any
Multiemployer Plan that could reasonably be expected to have a
Material Adverse Effect.
4.14 Regulation U; Investment Company Act. No part of the
proceeds of any Loan hereunder will be used to purchase or carry, or to extend
credit to others for the purpose of purchasing or carrying, any Margin Stock in
violation of Regulation U. Neither Borrower nor any of its Subsidiaries is or
is required to be registered as an "investment company" under the Investment
Company Act of 1940.
4.15 Disclosure. No written statement made by a Senior
Officer to the Administrative Agent or any Lender in connection with this
Agreement, or in connection with any Loan, as of the date thereof contained any
untrue statement of a material fact or omitted a material fact necessary to
make the statement made not misleading in light of all the circumstances
existing at the date the statement was made.
4.16 Tax Liability. Borrower and its Subsidiaries have
filed all tax returns which are required to be filed, and have paid, or made
provision for the payment of, all taxes with respect to the periods, Property
or transactions covered by said returns, or pursuant to any assessment received
by Borrower or any of its Subsidiaries, except (a) such taxes, if any, as are
being contested in good faith by appropriate proceedings and as to which
adequate reserves have been established and maintained and (b) immaterial taxes
so long as no material Property of Borrower or any of its Subsidiaries is at
impending risk of being seized, levied upon or forfeited.
4.17 Projections. As of the Closing Date, to the best
knowledge of Borrower, the assumptions set forth in the Projections are
reasonable and consistent with each other and with all facts known to Borrower,
and the Projections are reasonably based on such assumptions. Nothing in this
Section 4.17 shall be construed as a representation or covenant that the
Projections in fact will be achieved.
4.18 Hazardous Materials. Except as described in Schedule
4.18, as of the Closing Date (a) neither Borrower nor any of its Subsidiaries
(from and after the Acquisition of any Subsidiary by Borrower) at any time has
disposed of, discharged, released or threatened the release of any Hazardous
Materials on, from or under the Real Property in violation of any Hazardous
Materials Law that would individually or in the aggregate constitute a Material
Adverse Effect, (b) to the best knowledge of Borrower, no condition exists that
violates any Hazardous Material Law
43
<PAGE> 49
affecting any Real Property except for such violations that would not
individually or in the aggregate constitute a Material Adverse Effect, (c) no
Real Property or any portion thereof is or has been utilized by Borrower or any
of its Subsidiaries (from and after the Acquisition of any Subsidiary by
Borrower) as a site for the manufacture of any Hazardous Materials and (d) to
the extent that any Hazardous Materials are used, generated or stored by
Borrower or any of its Subsidiaries on any Real Property, or transported to or
from such Real Property by Borrower or any of its Subsidiaries, such use,
generation, storage and transportation are in compliance with all Hazardous
Materials Laws except for such non-compliance that would not constitute a
Material Adverse Effect or be materially adverse to the interests of the
Lenders.
4.19 Security Interests. Upon the execution and delivery
of the Security Agreement, the Security Agreement will create a valid first
priority security interest in the Collateral described therein securing the
Obligations (subject only to Permitted Encumbrances, Permitted Rights of Others
and other matters permitted by Section 6.9 and to such qualifications and
exceptions as are contained in the Uniform Commercial Code with respect to the
priority of security interests perfected by means other than the filing of a
financing statement or with respect to the creation of security interests in
Property to which Division 9 of the Uniform Commercial Code does not apply) and
all actions necessary to perfect (except with respect to motor vehicles) the
security interests so created, other than filing of the UCC-1 financing
statements delivered to the Administrative Agent pursuant to Section 8.1 with
the appropriate Governmental Agency, have been taken and completed.
Article 5
AFFIRMATIVE COVENANTS
(OTHER THAN INFORMATION AND
REPORTING REQUIREMENTS)
So long as any Advance remains unpaid, or any other Obligation
remains unpaid, or any portion of the Commitment remains in force, Borrower
shall, and shall cause its Subsidiaries to, unless the Administrative Agent
(with the written approval of the Requisite Lenders) otherwise consents:
5.1 Payment of Taxes and Other Potential Liens. Pay and
discharge promptly all taxes, assessments and governmental charges or levies
imposed upon any of them, upon their respective Property or any part thereof
and upon their respective income or profits or any part thereof, except that
Borrower and its Subsidiaries shall not be required to pay or cause to be paid
(a) any tax, assessment, charge or levy that is not yet past due, or is being
contested in good faith by appropriate proceedings so long as the relevant
entity has established and maintains adequate reserves for the payment of the
same or (b) any immaterial tax so long as no material Property of Borrower or
its Subsidiaries is at impending risk of being seized, levied upon or
forfeited.
5.2 Preservation of Existence. Preserve and maintain
their respective existences in the jurisdiction of their formation and all
material authorizations, rights, franchises, privileges, consents, approvals,
orders, licenses, permits, or registrations from any Governmental Agency that
44
<PAGE> 50
are necessary for the transaction of their respective business and qualify and
remain qualified to transact business in each jurisdiction in which such
qualification is necessary in view of their respective business or the
ownership or leasing of their respective Properties except (a) a merger
permitted by Section 6.3 or as otherwise permitted by this Agreement and (b)
where the failure to so qualify or remain qualified would not constitute a
Material Adverse Effect.
5.3 Maintenance of Properties. Maintain, preserve and
protect all of their respective Properties in good order and condition, subject
to wear and tear in the ordinary course of business, and not permit any waste
of their respective Properties, except that the failure to maintain, preserve
and protect a particular item of Property that is at the end of its useful life
or that is not of significant value, either intrinsically or to the operations
of Borrower, shall not constitute a violation of this covenant.
5.4 Maintenance of Insurance. Maintain liability,
casualty and other insurance (subject to customary deductibles and retentions)
with responsible insurance companies in such amounts and against such risks as
is carried by responsible companies engaged in similar businesses and owning
similar assets in the general areas in which Borrower and its Subsidiaries
operate.
5.5 Compliance With Laws. Comply with all Requirements
of Law noncompliance with which constitutes a Material Adverse Effect, except
that Borrower and its Subsidiaries need not comply with a Requirement of Law
then being contested by any of them in good faith by appropriate proceedings.
5.6 Inspection Rights. Upon reasonable notice, at any
time during regular business hours and as often as reasonably requested (but
not so as to materially interfere with the business of Borrower or any of its
Subsidiaries) permit the Administrative Agent or any Lender, or any authorized
employee, agent or representative thereof, to examine, audit and make copies
and abstracts from the records and books of account of, and to visit and
inspect the Properties of, Borrower and its Subsidiaries and to discuss the
affairs, finances and accounts of Borrower and its Subsidiaries with any of
their officers, key employees or accountants.
5.7 Keeping of Records and Books of Account. Keep
adequate records and books of account reflecting all financial transactions in
conformity with GAAP, consistently applied, and in material conformity with all
applicable requirements of any Governmental Agency having regulatory
jurisdiction over Borrower and its Subsidiaries.
5.8 Compliance With Agreements. Promptly and fully
comply with all Contractual Obligations to which any one or more of them is a
party, except for any such Contractual Obligations (a) the performance of which
would cause a Default or (b) then being contested by any of them in good faith
by appropriate proceedings or (c) if the failure to comply does not constitute
a Material Adverse Effect.
5.9 Use of Proceeds. Use the proceeds of all Loans for
working capital and general corporate purposes of Borrower, including repayment
of the Prior Credit Agreement and funding of Acquisitions permitted by Section
6.5.
45
<PAGE> 51
5.10 Hazardous Materials Laws. Keep and maintain all Real
Property and each portion thereof in compliance in all material respects with
all applicable Hazardous Materials Laws and promptly notify the Administrative
Agent in writing (attaching a copy of any pertinent written material) of (a)
any and all material enforcement, cleanup, removal or other governmental or
regulatory actions instituted, completed or threatened in writing by a
Governmental Agency pursuant to any applicable Hazardous Materials Laws, (b)
any and all material claims made or threatened in writing by any Person against
Borrower relating to damage, contribution, cost recovery, compensation, loss or
injury resulting from any Hazardous Materials and (c) discovery by any Senior
Officer of any of Borrower of any material occurrence or condition on any real
Property adjoining or in the vicinity of such Real Property that could
reasonably be expected to cause such Real Property or any part thereof to be
subject to any restrictions on the ownership, occupancy, transferability or use
of such Real Property under any applicable Hazardous Materials Laws.
5.11 Future Subsidiaries. Pledge all of the capital stock
of any Subsidiary (other than an Inactive Subsidiary) formed or acquired after
the Closing Date pursuant to a pledge agreement in form and substance
acceptable to the Administrative Agent, and cause each such Subsidiary (other
than an Inactive Subsidiary) to execute and deliver (a) an appropriate joinder
to the Security Agreement and (b) a guaranty of the Obligations in form and
substance acceptable to the Administrative Agent.
5.12 Future Real Property. Promptly following its
acquisition of any fee simple real property, execute and deliver to the
Administrative Agent a deed of trust or mortgage in form and substance
acceptable to the Administrative Agent creating a first priority Lien on such
real property securing the Obligations, and provide to the Administrative Agent
such customary lender's title insurance policies, appraisals, environmental
reports and other related documents as the Administrative Agent may reasonably
request.
5.13 Future Approved Acquisitions. Provide to the
Administrative Agent, with respect to an Acquisition which Borrower wishes to
qualify as an Approved Acquisition (a) a copy of the stock purchase agreement
and/or asset purchase agreement between Borrower and the Approved Acquisition
Target, which agreement shall in form and substance be subject to the approval,
not to be unreasonably withheld, of the Requisite Lenders, (b) with respect to
each such Acquisition where the aggregate consideration paid and payable by
Borrower in respect of such Acquisition and in respect of all transactions
related to such Acquisition is $6,000,000 or greater, a copy of the audited
financial statements of the related Acquisition Target covering a fiscal period
of at least (1) year, which financial statement shall be subject to the
approval, not to be unreasonably withheld, of the Requisite Lenders and (c)
with respect to each such acquisition where the aggregate consideration is less
than the amount set forth in clause (b), a copy of the unaudited financial
statements of the related Acquisition Target covering a fiscal period of at
least one (1) year together with a written statement of KPMG Peat Marwick LLP
(or other independent public accountants of recognized standing selected by
Borrower and reasonably satisfactory to the Requisite Lenders) to the effect
that such firm has performed specified agreed procedures with respect thereto
(but not constituting an audit thereof) reasonably acceptable to Borrower and
the Requisite Lenders, which financial statements shall be subject to the
approval, not to be unreasonably withheld, of the Requisite Lenders.
46
<PAGE> 52
5.14 Year 2000 Compliance. Take such steps as are
reasonably necessary to assure that, prior to November 1, 1999, (a) Borrower
and its Subsidiaries are Year 2000 Compliant and (b) all customers and vendors
of Borrower and its Subsidiaries that are material to the business of Borrower
and whose ability to perform their business obligations to Borrower may be
materially affected by their not being Year 2000 Compliant are Year 2000
Compliant. Such steps shall include the performance of a comprehensive review
and assessment of all data storage and operating systems and the adoption of a
detailed plan and budget for the remediation, monitoring and testing of such
systems. The term "Year 2000 Compliant" means, for purposes of the foregoing,
that all hardware, software, firmware, equipment, goods and systems used by a
Person, or which are material to the business operations or financial condition
of a Person, will properly perform date-sensitive functions on and after
January 1, 2000.
5.15 Subordinated Debt Issuance. Issue and sell, not
later than August 15, 1998, for not less than $15,000,000 a debt security of
Borrower that constitutes a Subordinated Obligation.
5.16 Syndication Process. Cooperate in such respects as
may be requested by the Arranger in connection with the syndication of the
credit facilities under this Agreement, including the provision of information
(in form and substance acceptable to the Arranger) for inclusion in written
materials furnished to prospective syndicate members and the participation by
Senior Officers in meetings with prospective syndicate members. Nothing in
Section 5.16 shall obligate Borrower to amend any Loan Document.
Article 6
NEGATIVE COVENANTS
So long as any Advance remains unpaid, or any other Obligation
remains unpaid, or any portion of the Commitment remains in force, Borrower
shall not, and shall not permit any of its Subsidiaries to, unless the
Administrative Agent (with the written approval of the Requisite Lenders or, if
required by Section 11.2, of all of the Lenders) otherwise consents:
6.1 Payment of Subordinated Obligations. Pay any (a)
principal (including sinking fund payments) or any other amount (other than
scheduled interest payments) with respect to any Subordinated Obligation, or
purchase or redeem (or offer to purchase or redeem) any Subordinated
Obligation, or deposit any monies, securities or other Property with any
trustee or other Person to provide assurance that the principal or any portion
thereof of any Subordinated Obligation will be paid when due or otherwise to
provide for the defeasance of any Subordinated Obligation or (b) scheduled
interest on any Subordinated Obligation unless the payment thereof is then
permitted pursuant to the terms of the indenture or other agreement governing
such Subordinated Obligation; provided that payments of principal and interest
may be made under any Seller Subordinated Notes so long as no Event of Default
then exists or would result therefrom.
6.2 Disposition of Property. Make any Disposition of its
Property, whether now owned or hereafter acquired, (a) except a Disposition by
Borrower to a Wholly-Owned Subsidiary, or by a Subsidiary to Borrower or a
Wholly- Owned Subsidiary and (b) a Disposition for which the
47
<PAGE> 53
Net Cash Sales Proceeds, when added to the aggregate Net Cash Sales Proceeds of
all Dispositions made after the Closing Date, does not exceed $500,000.
6.3 Mergers. Merge or consolidate with or into any
Person, except (a) mergers and consolidations of a Subsidiary of Borrower into
Borrower or a Wholly-Owned Subsidiary or of Subsidiaries with each other and
(b) a merger or consolidation of a Person into Borrower or with or into a
Wholly-Owned Subsidiary of Borrower which constitutes an Acquisition permitted
by Section 6.5; provided that (i) Borrower or a Wholly-Owned Subsidiary is the
surviving entity, (ii) no Change in Control results therefrom, (iii) no Default
or Event of Default then exists or would result therefrom and (iv) Borrower and
each of its Subsidiaries execute such amendments to the Loan Documents as the
Administrative Agent may reasonably determine are appropriate as a result of
such merger.
6.4 Hostile Acquisitions. Directly or indirectly use the
proceeds of any Loan in connection with the acquisition of part or all of a
voting interest of five percent (5%) or more in any corporation or other
business entity if such acquisition is opposed by the board of directors of
such corporation or business entity.
6.5 Acquisitions. Make any Acquisition, except (a) the
Approved Acquisitions and (b) any Acquisition of a Person engaged in the same
line of business as Borrower if the aggregate consideration paid and payable by
Borrower in respect of such Acquisition and in respect of all transactions
related to such Acquisition does not (i) exceed $2,500,000 or (ii) when
aggregated with all other Acquisitions permitted by this clause (b) during that
Fiscal Year, exceed $5,000,000.
6.6 Distributions. Make any Distribution, whether from
capital, income or otherwise, and whether in Cash or other Property, except:
(a) Distributions by any Subsidiary of Borrower
to Borrower or any Wholly-Owned Subsidiary;
(b) dividends payable solely in Common Stock or
rights to purchase Common Stock; and
(c) repurchases or redemptions of Common Stock
owned by sellers of a business which was previously the subject of an
Acquisition in accordance with terms binding on Borrower and such
sellers at the time of such Acquisition.
6.7 ERISA. At any time, permit any Pension Plan
to: (i) engage in any non-exempt "prohibited transaction" (as defined in
Section 4975 of the Code); (ii) fail to comply with ERISA or any other
applicable Laws; (iii) incur any material "accumulated funding deficiency" (as
defined in Section 302 of ERISA); or (iv) terminate in any manner, which, with
respect to each event listed above, could reasonably be expected to result in a
Material Adverse Effect or (b) withdraw, completely or partially, from any
Multiemployer Plan if to do so could reasonably be expected to result in a
Material Adverse Effect.
48
<PAGE> 54
6.8 Change in Nature of Business. Make any material
change in the nature of the business of Borrower and its Subsidiaries, taken as
a whole.
6.9 Liens and Negative Pledges. Create, incur, assume or
suffer to exist any Lien or Negative Pledge of any nature upon or with respect
to any of their respective Properties, or engage in any sale and leaseback
transaction with respect to any of their respective Properties, whether now
owned or hereafter acquired, except:
(a) Liens and Negative Pledges existing on the
Closing Date and disclosed in Schedule 4.7 and any renewals/extensions
or amendments thereof, provided that the obligations secured or
benefited thereby are not increased;
(b) Liens and Negative Pledges under the Loan
Documents;
(c) Permitted Encumbrances;
(d) Liens on Property acquired by Borrower or any
of its Subsidiaries that were in existence at the time of the
acquisition of such Property and were not created in contemplation of
such acquisition;
(e) Liens securing Indebtedness permitted by
Section 6.10(d) on and limited to the capital assets acquired,
constructed or financed with the proceeds of such Indebtedness or with
the proceeds of any Indebtedness directly or indirectly refinanced by
such Indebtedness;
(f) Liens securing Indebtedness permitted by
Section 6.10(e) on or limited to the assets that are the subject of an
Acquisition therein described; and
(g) Liens granted in favor of a landlord to
secure obligations of Borrower under a lease, provided that (i) the
Lien attaches only to Property of Borrower located in the premises
covered by the lease and (ii) with respect to any such Lien on
Property having a fair market value of $4,000 or more, the landlord
has executed and delivered a landlord waiver (in form and substance
reasonably acceptable to the Administrative Agent) in favor of the
Administrative Agent subordinating such Lien to the Lien of the
Collateral Documents and permitting the Administrative Agent to have
reasonable access thereto during an Event of Default.
6.10 Indebtedness and Guaranty Obligations. Create, incur
or assume any Indebtedness or Guaranty Obligation except:
(a) Indebtedness and Guaranty Obligations
existing on the Closing Date and disclosed in Schedule 6.10, and
refinancings, renewals, extensions or amendments that do not increase
the amount thereof;
(b) Indebtedness and Guaranty Obligations under
the Loan Documents;
49
<PAGE> 55
(c) Indebtedness and Guaranty Obligations owed to
Borrower or any of its Subsidiaries;
(d) Indebtedness consisting of Capital Lease
Obligations, or otherwise incurred to finance the purchase or
construction of capital assets (which shall be deemed to exist if the
Indebtedness is incurred at or within 90 days before or after the
purchase or construction of the capital asset), or to refinance any
such Indebtedness, provided that the aggregate principal amount of
such Indebtedness incurred in any Fiscal Year does not exceed
$1,000,000;
(e) Indebtedness (other than Seller Subordinated
Notes) incurred in favor of the seller in an Acquisition permitted by
Section 6.5, provided that the aggregate principal amount of such
Indebtedness incurred in any Fiscal Year does not exceed $1,000,000;
(f) Seller Subordinated Notes issued in
connection with an Acquisition permitted by Section 6.5;
(g) Subordinated Obligations issued pursuant to
Section 5.15;
(h) Subordinated Obligations (other than Seller
Subordinated Notes and the Subordinated Obligations required by
Section 5.15) in such amount as may be approved in writing by the
Requisite Lenders;
(i) Indebtedness consisting of debt securities
for which the Net Cash Issuance Proceeds will be applied as a
mandatory prepayment pursuant to Section 3.1(e);
(j) Indebtedness consisting of Interest Rate
Protection Agreements; and
(k) Guaranty Obligations in support of the
obligations of a Wholly-Owned Subsidiary, provided that such
obligations are not prohibited by this Agreement.
6.11 Transactions with Affiliates. Enter into any
transaction of any kind with any Affiliate of Borrower other than (a) salary,
bonus, employee stock option and other compensation arrangements with directors
or officers in the ordinary course of business or with individuals in connection
with an Acquisition permitted by Section 6.5, (b) transactions that are fully
disclosed to the board of directors (or executive committee thereof) of Borrower
and expressly authorized by a resolution of the board of directors (or executive
committee) of Borrower which is approved by a majority of the directors (or
executive committee) not having an interest in the transaction, (c) transactions
between or among Borrower and its Subsidiaries and (d) transactions on overall
terms at least as favorable to Borrower or its Subsidiaries as would be the case
in an arm's-length transaction between unrelated parties of equal bargaining
power.
6.12 Current Ratio. Permit the Current Ratio, as of the
last day of any Fiscal Quarter, to be less than 1.15 to 1.00.
50
<PAGE> 56
6.13 Senior Funded Debt Ratio. Permit the Senior Funded
Debt Ratio, as of the last day of any Fiscal Quarter, to be greater than 2.50
to 1.00.
6.14 Total Funded Debt Ratio. Permit the Total Funded
Debt Ratio, as of the last day of any Fiscal Quarter, to be greater than the
ratio set forth below opposite the period during which such Fiscal Quarter
ends:
Period Ratio
------ -----
Closing Date through 3.50 to 1.00
December 31, 1999
January 1, 2000 3.00 to 1.00
and thereafter
6.15 Fixed Charge Coverage Ratio. Permit the Fixed Charge
Coverage Ratio, as of the last day of any Fiscal Quarter, to be less than 1.15
to 1.00.
6.16 Stockholders' Equity. Permit Stockholders' Equity,
as of the last day of any Fiscal Quarter, to be less than the sum of (a)
$27,500,000, plus (b) 90% of Net Income in the Fiscal Quarter ending June 30,
1998 and each Fiscal Quarter thereafter (with no deduction for a net loss in
any such Fiscal Quarter) plus (c) 75% of the proceeds of any issuance by
Borrower of equity securities (except to employees or former employees of
Borrower pursuant to an employee stock option plan maintained by Borrower)
subsequent to the Closing Date.
6.17 Investments. Make or suffer to exist any Investment,
other than:
(a) Investments in existence on the Closing Date
and disclosed on Schedule 6.17;
(b) Investments consisting of Cash Equivalents;
(c) Investments in a Person that is the subject
of an Acquisition permitted by Section 6.5;
(d) Investments consisting of advances to
officers, directors and employees of Borrower and its Subsidiaries for
travel, entertainment, relocation, anticipated bonus and analogous
ordinary business purposes;
(e) Investments of Borrower in any Wholly-Owned
Subsidiary and Investments of any such Subsidiary in another
Wholly-Owned Subsidiary;
(f) Investments consisting of the extension of
credit to customers or suppliers of Borrower and its Subsidiaries in
the ordinary course of business and any Investments received in
satisfaction or partial satisfaction thereof;
(g) Investments received in connection with the
settlement of a bona fide dispute with another Person;
51
<PAGE> 57
(h) Investments representing all or a portion of
the sales price of Property sold or services provided to another
Person; and
(i) Investments not described above not in excess
of $50,000 in any Fiscal Year.
6.18 Capital Expenditures. Make any Capital Expenditure
(a) during the Fiscal Year ending December 31, 1998, if to do so would result
in the aggregate of all Capital Expenditures made in such Fiscal Year to exceed
$15,000,000 and (b) during any Fiscal Year thereafter, if to do so would result
in the aggregate of all Capital Expenditures made in such Fiscal Year to exceed
$12,000,000.
6.19 Operating Leases. Incur any obligation to pay rent
under an operating lease in any Fiscal Year if to do so would result in the
aggregate obligation of Borrower and its Subsidiaries to pay rent under all
operating leases in that Fiscal Year to exceed $1,000,000.
6.20 Subsidiary Indebtedness. Permit (whether or not
otherwise permitted under Section 6.10) any Subsidiary to create, incur, assume
or suffer to exist any Indebtedness or Guaranty Obligation, except (a)
Indebtedness and Guaranty Obligations in existence on the Closing Date, (b) a
Guaranty Obligation required by Section 5.11, (c) Indebtedness owed to Borrower
or another Subsidiary of Borrower and (d) Capital Lease Obligations and
purchase money obligations of a Subsidiary in respect of Property used by that
Subsidiary.
6.21 Amendments to Subordinated Obligations. Amend or
modify any term or provision of any indenture, agreement or instrument
evidencing or governing any Subordinated Obligation in any respect that will or
may adversely affect the interests of the Lenders.
Article 7
INFORMATION AND REPORTING REQUIREMENTS
7.1 Financial and Business Information. So long as any
Advance remains unpaid, or any other Obligation remains unpaid, or any portion
of the Commitment remains in force, Borrower shall, unless the Administrative
Agent (with the written approval of the Requisite Lenders) otherwise consents,
at Borrower's sole expense, deliver to the Administrative Agent for
distribution by it to the Lenders, a sufficient number of copies for all of the
Lenders of the following:
(a) As soon as practicable, and in any event
within 45 days after the end of each Fiscal Quarter (other than the
fourth Fiscal Quarter in any Fiscal Year), the consolidated balance
sheet of Borrower and its Subsidiaries as at the end of such Fiscal
Quarter and the consolidated statements of operations and cash flows
for such Fiscal Quarter, and the portion of the Fiscal Year ended with
such Fiscal Quarter, all in reasonable detail. Such financial
statements shall be certified by the chief financial officer of
Borrower as fairly presenting the financial condition, results of
operations and cash flows of Borrower and its Subsidiaries in
accordance with GAAP (other than footnote disclosures), consistently
52
<PAGE> 58
applied, as at such date and for such periods, subject only to normal
year-end accruals and audit adjustments;
(b) As soon as practicable, and in any event
within 45 days after the end of each Fiscal Quarter, a Pricing
Certificate setting forth a calculation of the Senior Funded Debt
Ratio as of the last day of such Fiscal Quarter, and providing
reasonable detail as to the calculation thereof, which calculations in
the case of the fourth Fiscal Quarter in any Fiscal Year shall be
based on the preliminary unaudited financial statements of Borrower
and its Subsidiaries for such Fiscal Quarter, and as soon as
practicable thereafter, in the event of any material variance in the
actual calculation of the Senior Funded Debt Ratio from such
preliminary calculation, a revised Pricing Certificate setting forth
the actual calculation thereof;
(c) As soon as practicable, and in any event
within 90 days after the end of each Fiscal Year, the consolidated
balance sheet of Borrower and its Subsidiaries as at the end of such
Fiscal Year and the consolidated statements of operations,
stockholders' equity and cash flows, in each case of Borrower and its
Subsidiaries for such Fiscal Year, all in reasonable detail. Such
financial statements shall be prepared in accordance with GAAP,
consistently applied, and shall be accompanied by a report of KPMG
Peat Marwick LLP or other independent public accountants of recognized
standing selected by Borrower and reasonably satisfactory to the
Requisite Lenders, which report shall be prepared in accordance with
generally accepted auditing standards as at such date, and shall not
be subject to any qualifications or exceptions as to the scope of the
audit nor to any other qualification or exception determined by the
Requisite Lenders in their good faith business judgment to be adverse
to the interests of the Lenders. Such accountants' report shall be
accompanied by a certificate stating that, in making the examination
pursuant to generally accepted auditing standards necessary for the
certification of such financial statements and such report, such
accountants have obtained no knowledge of any Default then existing
or, if, in the opinion of such accountants, any such Default shall
exist, stating the nature and status of such Default, and stating that
such accountants have reviewed Borrower's financial calculations as at
the end of such Fiscal Year (which shall accompany such certificate)
under Sections 6.12 through 6.16, have read such Sections (including
the definitions of all defined terms used therein) and that nothing
has come to the attention of such accountants in the course of such
examination that would cause them to believe that the same were not
calculated by Borrower in the manner prescribed by this Agreement;
(d) As soon as practicable, and in any event not
later than sixty (60) days after the commencement of each Fiscal Year,
a budget and projection by Fiscal Quarter for that Fiscal Year and by
Fiscal Year for the next two succeeding Fiscal Years, including for
the first such Fiscal Year, projected consolidated balance sheets,
statements of operations and statements of cash flow and, for the
second and third such Fiscal Years, projected consolidated condensed
balance sheets and statements of operations and cash flows of Borrower
and its Subsidiaries, all in reasonable detail;
53
<PAGE> 59
(e) Promptly after request by the Administrative
Agent or any Lender, copies of any detailed audit reports, management
letters or recommendations submitted to the board of directors (or the
audit committee of the board of directors) of Borrower by independent
accountants in connection with the accounts or books of Borrower or
any of its Subsidiaries, or any audit of any of them;
(f) Promptly after the same are available, and in
any event within five (5) Banking Days after filing with the
Securities and Exchange Commission, copies of each annual report,
proxy or financial statement or other report or communication sent to
the stockholders of Borrower, and copies of all annual, regular,
periodic and special reports and registration statements which
Borrower may file or be required to file with the Securities and
Exchange Commission under Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, and not otherwise required to be
delivered to the Lenders pursuant to other provisions of this Section
7.1;
(g) Promptly after request by the Administrative
Agent or any Lender, copies of any other report or other document that
was filed by Borrower with any Governmental Agency;
(h) Promptly upon a Senior Officer becoming
aware, and in any event within five (5) Banking Days after becoming
aware, of the occurrence of any (i) "reportable event" (as such term
is defined in Section 4043 of ERISA, but excluding such events as to
which the PBGC has by regulation waived the requirement therein
contained that it be notified within thirty days of the occurrence of
such event) or (ii) non-exempt "prohibited transaction" (as such term
is defined in Section 406 of ERISA or Section 4975 of the Code)
involving any Pension Plan or any trust created thereunder, telephonic
notice specifying the nature thereof, and, no more than two (2)
Banking Days after such telephonic notice, written notice again
specifying the nature thereof and specifying what action Borrower is
taking or proposes to take with respect thereto, and, when known, any
action taken by the Internal Revenue Service with respect thereto;
(i) As soon as practicable, and in any event
within two (2) Banking Days after a Senior Officer becomes aware of
the existence of any condition or event which constitutes a Default or
Event of Default, telephonic notice specifying the nature and period
of existence thereof, and, no more than two (2) Banking Days after
such telephonic notice, written notice again specifying the nature and
period of existence thereof and specifying what action Borrower is
taking or proposes to take with respect thereto;
(j) Promptly upon a Senior Officer becoming aware
that (i) any Person has commenced a legal proceeding with respect to a
claim against Borrower that is $100,000 or more in excess of the
amount thereof that is fully covered by insurance, (ii) any creditor
under a credit agreement involving Indebtedness of $1,000,000 or more
or any lessor under a lease involving aggregate rent of $1,000,000 or
more has asserted a default thereunder on the part of Borrower or,
(iii) any Person has commenced a legal proceeding with respect to a
claim against Borrower under a contract that is not a credit agreement
or material lease
54
<PAGE> 60
with respect to a claim of in excess of $100,000 or which otherwise
may reasonably be expected to result in a Material Adverse Effect, a
written notice describing the pertinent facts relating thereto and
what action Borrower is taking or proposes to take with respect
thereto; and
(k) Such other data and information as from time
to time may be reasonably requested by the Administrative Agent, any
Lender (through the Administrative Agent) or the Requisite Lenders.
7.2 Compliance Certificates. So long as any Advance
remains unpaid, or any other Obligation remains unpaid or unperformed, or any
portion of the Commitment remains outstanding, Borrower shall, at Borrower's
sole expense, deliver to the Administrative Agent for distribution by it to the
Lenders concurrently with the financial statements required pursuant to
Sections 7.1(a) and 7.1(c), a Compliance Certificate signed by a Senior
Officer.
Article 8
CONDITIONS
8.1 Initial Advances. The obligation of each Lender to
make the initial Advance to be made by it, and the obligation of the Issuing
Lender to issue the initial Letter of Credit, is subject to the following
conditions precedent, each of which shall be satisfied prior to the making of
the initial Advances (unless all of the Lenders, in their sole and absolute
discretion, shall agree otherwise):
(a) The Administrative Agent shall have received
all of the following, each of which shall be originals unless
otherwise specified, each properly executed by a Responsible Official
of each party thereto, each dated as of the Closing Date and each in
form and substance satisfactory to the Administrative Agent and its
legal counsel (unless otherwise specified or, in the case of the date
of any of the following, unless the Administrative Agent otherwise
agrees or directs):
(1) at least one (1) executed
counterpart of this Agreement, together with arrangements
satisfactory to the Administrative Agent for additional
executed counterparts, sufficient in number for distribution
to the Lenders and Borrower;
(2) Notes executed by Borrower in favor
of each Lender, each in a principal amount equal to that
Lender's Pro Rata Share of the Commitment;
(3) the Security Agreement executed by
Borrower;
(4) such financing statements on Form
UCC-1 executed by Borrower with respect to the Security
Agreement as the Administrative Agent may request;
55
<PAGE> 61
(5) with respect to Borrower, such
documentation as the Administrative Agent may reasonably
require to establish the due organization, valid existence and
good standing of Borrower, its qualification to engage in
business in each material jurisdiction in which it is engaged
in business or required to be so qualified, their authority to
execute, deliver and perform the Loan Documents to which it is
a Party, the identity, authority and capacity of each
Responsible Official thereof authorized to act on its behalf,
including certified copies of articles of incorporation and
amendments thereto, bylaws and amendments thereto,
certificates of good standing and/or qualification to engage
in business, tax clearance certificates, certificates of
corporate resolutions, incumbency certificates, Certificates
of Responsible Officials, and the like;
(6) the Opinion of Counsel;
(7) a true copy of each of the stock
purchase agreements and/or asset purchase agreements for the
Acquisition of the Approved Acquisition Targets that have been
executed and delivered as of the Closing Date, which
agreements shall be in form and substance acceptable to the
Administrative Agent;
(8) a true copy of the most recent
audited financial statements (if any) and unaudited financial
statements of each of the Approved Acquisition Targets for
which a stock purchase agreement and/or asset purchase
agreement has been provided pursuant to clause (7) above,
which financial statements shall be in form and substance
acceptable to the Administrative Agent;
(9) a true copy of each Material
Customer Contract;
(10) a certificate issued by the
insurance carrier (or representative) of Borrower reflecting
all insurance in effect for Borrower and its Property (which
shall be in form and substance acceptable to the
Administrative Agent) and showing the Administrative Agent, as
agent for the Lenders, as loss payee and additional named
insured to the extent requested by the Administrative Agent;
(11) a Compliance Certificate as of March
31, 1998;
(12) a Certificate of the chief financial
officer of Borrower certifying that the representation
contained in Section 4.17 is, to the best of his or her
knowledge, true and correct;
(13) a Certificate of the chief financial
officer of Borrower certifying that the conditions specified
in Sections 8.1(g) and 8.1(h) have been satisfied; and
(14) such other assurances, certificates,
documents, consents or opinions as the Administrative Agent or
the Requisite Lenders reasonably may require.
56
<PAGE> 62
(b) The arrangement fee payable pursuant to
Section 3.2 shall have been paid.
(c) Any agency fees payable on the Closing Date
pursuant to Section 3.4 shall have been paid.
(d) All Indebtedness outstanding under the Prior
Credit Agreement shall have been (or shall concurrently be) paid and
the same shall, together with all Liens securing such Indebtedness,
have been (or shall concurrently be) terminated.
(e) The Administrative Agent shall be reasonably
satisfied that, upon the filing of the financing statements described
in Section 8.1(a)(4) with the appropriate Governmental Agencies, the
Lenders will hold a first priority perfected Lien in the Collateral
subject only to Permitted Encumbrances.
(f) The reasonable costs and expenses of the
Administrative Agent in connection with the preparation of the Loan
Documents payable pursuant to Section 11.3, and invoiced to Borrower
prior to the Closing Date, shall have been paid.
(g) The representations and warranties of
Borrower contained in Article 4 shall be true and correct in all
material respects.
(h) Borrower and any other Parties shall be in
compliance with all the terms and provisions of the Loan Documents,
and giving effect to the initial Advance, no Default or Event of
Default shall have occurred and be continuing.
(i) All legal matters relating to the Loan
Documents shall be satisfactory to Sheppard, Mullin, Richter & Hampton
LLP, special counsel to the Administrative Agent.
(j) The Closing Date shall have occurred on or
before June 12, 1998.
8.2 Any Advance. The obligation of each Lender to make
any Advance, and the obligation of the Issuing Lender to issue any Letter of
Credit, is subject to the following conditions precedent (unless the Requisite
Lenders or, in any case where the approval of all of the Lenders is required
pursuant to Section 11.2, all of the Lenders, in their sole and absolute
discretion, shall agree otherwise):
(a) except (i) for representations and warranties
which expressly speak as of a particular date or are no longer true
and correct as a result of a change which is permitted by this
Agreement or (ii) as disclosed by Borrower and approved in writing by
the Requisite Lenders, the representations and warranties contained in
Article 4 (other than Sections 4.4, 4.6 (first sentence), 4.10 and
4.17) shall be true and correct in all material respects on and as of
the date of the Advance as though made on that date;
(b) no circumstance or event shall have occurred
that constitutes a Material Adverse Effect since the Closing Date;
57
<PAGE> 63
(c) other than matters described in Schedule 4.10
or not required as of the Closing Date to be therein described, there
shall not be then pending or threatened any action, suit, proceeding
or investigation against or affecting Borrower or any of its
Subsidiaries or any Property of any of them before any Governmental
Agency that constitutes a Material Adverse Effect;
(d) the Administrative Agent shall have timely
received a Request for Loan (or telephonic or other request for Loan
referred to in the second sentence of Section 2.1(b), if applicable),
or a Request for Letter of Credit (as applicable), in compliance with
Article 2; and
(e) the Administrative Agent shall have received,
in form and substance satisfactory to the Administrative Agent, such
other assurances, certificates, documents or consents related to the
foregoing as the Administrative Agent or Requisite Lenders reasonably
may require.
Article 9
EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT
9.1 Events of Default. The existence or occurrence of
any one or more of the following events, whatever the reason therefor and under
any circumstances whatsoever, shall constitute an Event of Default:
(a) Borrower fails to pay any principal on any of
the Notes, or any portion thereof, on the date when due; or
(b) Borrower fails to pay any interest on any of
the Notes, or any fees under Sections 3.3, 3.4 or 3.5, or any portion
thereof, within two (2) Banking Days after the date when due; or fails
to pay any other fee or amount payable to the Lenders under any Loan
Document, or any portion thereof, within two (2) Banking Days after
demand therefor; or
(c) Borrower fails to comply with the covenant
contained in Section 5.15 or any of the covenants contained in Article
6; or
(d) Borrower fails to comply with Section 7.1(i)
in any respect that is materially adverse to the interests of the
Lenders; or
(e) Borrower or any other Party fails to perform
or observe any other covenant or agreement (not specified in clause
(a), (b), (c) or (d) above) contained in any Loan Document on its part
to be performed or observed within twenty (20) Banking Days after the
giving of notice by the Administrative Agent on behalf of the
Requisite Lenders of such Default or, if such Default is not
reasonably susceptible of cure within such period, within such longer
period as is reasonably necessary to effect a cure so long as such
58
<PAGE> 64
Borrower or such Party continues to diligently pursue cure of such
Default but not in any event in excess of forty (40) Banking Days; or
(f) Any representation or warranty of Borrower or
any other Party made in any Loan Document, or in any certificate or
other writing delivered by Borrower or such Party pursuant to any Loan
Document, proves to have been incorrect when made or reaffirmed in any
respect that is materially adverse to the interests of the Lenders; or
(g) Borrower (i) fails to pay the principal, or
any principal installment, of any present or future Indebtedness of
$5,000,000 or more, or any guaranty of present or future Indebtedness
of $5,000,000 or more, on its part to be paid, when due (or within any
stated grace period), whether at the stated maturity, upon
acceleration, by reason of required prepayment or otherwise or (ii)
fails to perform or observe any other term, covenant or agreement on
its part to be performed or observed, or suffers any event of default
to occur, in connection with any present or future Indebtedness of
$5,000,000 or more, or of any guaranty of present or future
Indebtedness of $5,000,000 or more, if as a result of such failure or
sufferance any holder or holders thereof (or an agent or trustee on
its or their behalf) has the right to declare such Indebtedness due
before the date on which it otherwise would become due or the right to
require Borrower to redeem or purchase, or offer to redeem or
purchase, all or any portion of such Indebtedness; or
(h) Any Loan Document, at any time after its
execution and delivery and for any reason other than the agreement or
action (or omission to act) of the Administrative Agent or the Lenders
or satisfaction in full of all the Obligations, ceases to be in full
force and effect or is declared by a court of competent jurisdiction
to be null and void, invalid or unenforceable in any respect which is
materially adverse to the interests of the Lenders; or any Collateral
Document ceases (other than by action or inaction of the
Administrative Agent or any Lender) to create a valid and effective
Lien in any material portion of the Collateral; or any Party thereto
denies in writing that it has any or further liability or obligation
under any Loan Document, or purports to revoke, terminate or rescind
same; or
(i) A final judgment against Borrower is entered
for the payment of money in excess of $1,000,000 (not covered by
insurance or for which an insurer has reserved its rights) and, absent
procurement of a stay of execution, such judgment remains unsatisfied
for thirty (30) calendar days after the date of entry of judgment, or
in any event later than five (5) days prior to the date of any
proposed sale thereunder; or any writ or warrant of attachment or
execution or similar process is issued or levied against all or any
material part of the Property of Borrower and is not released, vacated
or fully bonded within thirty (30) calendar days after its issue or
levy; or
(j) Borrower institutes or consents to the
institution of any proceeding under a Debtor Relief Law relating to it
or to all or any material part of its Property, or is unable or admits
in writing its inability to pay its debts as they mature, or makes an
assignment for the benefit of creditors; or applies for or consents to
the appointment of any receiver, trustee, custodian, conservator,
liquidator, rehabilitator or similar officer for it or
59
<PAGE> 65
for all or any material part of its Property; or any receiver,
trustee, custodian, conservator, liquidator, rehabilitator or similar
officer is appointed without the application or consent of that Person
and the appointment continues undischarged or unstayed for sixty (60)
calendar days; or any proceeding under a Debtor Relief Law relating to
any such Person or to all or any part of its Property is instituted
without the consent of that Person and continues undismissed or
unstayed for sixty (60) calendar days; or
(k) The occurrence of an Event of Default (as
such term is or may hereafter be specifically defined in any other
Loan Document) under any other Loan Document; or
(l) Any holder of a Subordinated Obligation
asserts in writing that such Subordinated Obligation is not
subordinated to the Obligations in accordance with its terms and
Borrower does not promptly deny in writing such assertion and contest
any attempt by such holder to take action based on such assertion; or
(m) Any Pension Plan maintained by Borrower is
finally determined by the PBGC to have a material "accumulated funding
deficiency" as that term is defined in Section 302 of ERISA in excess
of an amount equal to 5% of the consolidated total assets of Borrower
as of the most-recently ended Fiscal Quarter; or
(n) Notice of early termination of a Material
Customer Contract given by a customer of Borrower or the failure of
the customer to renew or extend a Material Customer Contract upon
expiration thereof; or
(o) The Requisite Lenders determine in good faith
that a circumstance or event has occurred that constitutes a Material
Adverse Effect.
9.2 Remedies Upon Event of Default. Without limiting any
other rights or remedies of the Administrative Agent or the Lenders provided
for elsewhere in this Agreement, or the other Loan Documents, or by applicable
Law, or in equity, or otherwise:
(a) Upon the occurrence, and during the
continuance, of any Event of Default other than an Event of Default
described in Section 9.1(j):
(1) the Commitment to make Advances and
all other obligations of the Administrative Agent or the
Lenders and all rights of Borrower and any other Parties under
the Loan Documents shall be suspended without notice to or
demand upon Borrower, which are expressly waived by Borrower,
except that all of the Lenders or the Requisite Lenders (as
the case may be, in accordance with Section 11.2) may waive an
Event of Default or, without waiving, determine, upon terms
and conditions satisfactory to the Lenders or Requisite
Lenders, as the case may be, to reinstate the Commitment and
such other obligations and rights and make further Advances,
which waiver or determination shall apply equally to, and
shall be binding upon, all the Lenders;
60
<PAGE> 66
(2) the Issuing Lender may, with the
approval of the Administrative Agent on behalf of the
Requisite Lenders, demand immediate payment by Borrower of an
amount equal to the aggregate amount of all outstanding
Letters of Credit to be held by the Issuing Lender in an
interest- bearing cash collateral account as collateral
hereunder; and
(3) the Requisite Lenders may request
the Administrative Agent to, and the Administrative Agent
thereupon shall, terminate the Commitment and/or declare all
or any part of the unpaid principal of all Notes, all interest
accrued and unpaid thereon and all other amounts payable under
the Loan Documents to be forthwith due and payable, whereupon
the same shall become and be forthwith due and payable,
without protest, presentment, notice of dishonor, demand or
further notice of any kind, all of which are expressly waived
by Borrower.
(b) Upon the occurrence of any Event of Default
described in Section 9.1(j):
(1) the Commitment to make Advances and
all other obligations of the Administrative Agent or the
Lenders and all rights of Borrower and any other Parties under
the Loan Documents shall terminate without notice to or demand
upon Borrower, which are expressly waived by Borrower, except
that all of the Lenders may waive the Event of Default or,
without waiving, determine, upon terms and conditions
satisfactory to all the Lenders, to reinstate the Commitment
and such other obligations and rights and make further
Advances, which determination shall apply equally to, and
shall be binding upon, all the Lenders;
(2) an amount equal to the aggregate
amount of all outstanding Letters of Credit shall be
immediately due and payable to the Issuing Lender without
notice to or demand upon Borrower, which are expressly waived
by Borrower, to be held by the Issuing Lender in an
interest-bearing cash collateral account as collateral
hereunder; and
(3) the unpaid principal of all Notes,
all interest accrued and unpaid thereon and all other amounts
payable under the Loan Documents shall be forthwith due and
payable, without protest, presentment, notice of dishonor,
demand or further notice of any kind, all of which are
expressly waived by Borrower.
(c) Upon the occurrence of any Event of Default,
the Lenders and the Administrative Agent, or any of them, without
notice to (except as expressly provided for in any Loan Document) or
demand upon Borrower, which are expressly waived by Borrower (except
as to notices expressly provided for in any Loan Document), may
proceed (but only with the consent of the Requisite Lenders) to
protect, exercise and enforce their rights and remedies under the Loan
Documents against Borrower and any other Party and such other rights
and remedies as are provided by Law or equity.
61
<PAGE> 67
(d) The order and manner in which the Lenders'
rights and remedies are to be exercised shall be determined by the
Requisite Lenders in their sole discretion, and all payments received
by the Administrative Agent and the Lenders, or any of them, shall be
applied first to the costs and expenses (including reasonable
attorneys' fees and disbursements and the reasonably allocated costs
of attorneys employed by the Administrative Agent or by any Lender) of
the Administrative Agent and of the Lenders, and thereafter paid pro
rata to the Lenders in the same proportions that the aggregate
Obligations owed to each Lender under the Loan Documents bear to the
aggregate Obligations owed under the Loan Documents to all the
Lenders, without priority or preference among the Lenders. Regardless
of how each Lender may treat payments for the purpose of its own
accounting, for the purpose of computing Borrower' Obligations
hereunder and under the Notes, payments shall be applied first, to the
costs and expenses of the Administrative Agent and the Lenders, as set
forth above, second, to the payment of accrued and unpaid interest due
under any Loan Documents to and including the date of such application
(ratably, and without duplication, according to the accrued and unpaid
interest due under each of the Loan Documents), and third, to the
payment of all other amounts (including principal and fees) then owing
to the Administrative Agent or the Lenders under the Loan Documents.
No application of payments will cure any Event of Default, or prevent
acceleration, or continued acceleration, of amounts payable under the
Loan Documents, or prevent the exercise, or continued exercise, of
rights or remedies of the Lenders hereunder or thereunder or at Law or
in equity.
Article 10
THE ADMINISTRATIVE AGENT
10.1 Appointment and Authorization. Subject to Section
10.8, each Lender hereby irrevocably appoints and authorizes the Administrative
Agent to take such action as agent on its behalf and to exercise such powers
under the Loan Documents as are delegated to the Administrative Agent by the
terms thereof or are reasonably incidental, as determined by the Administrative
Agent, thereto. This appointment and authorization is intended solely for the
purpose of facilitating the servicing of the Loans and does not constitute
appointment of the Administrative Agent as trustee for any Lender or as
representative of any Lender for any other purpose and, except as specifically
set forth in the Loan Documents to the contrary, the Administrative Agent shall
take such action and exercise such powers only in an administrative and
ministerial capacity.
10.2 Administrative Agent and Affiliates. Wells Fargo
Bank, National Association (and each successor Administrative Agent) has the
same rights and powers under the Loan Documents as any other Lender and may
exercise the same as though it were not the Administrative Agent, and the term
"Lender" or "Lenders" includes Wells Fargo Bank, National Association in its
individual capacity. Wells Fargo Bank, National Association (and each
successor Administrative Agent) and its Affiliates may accept deposits from,
lend money to and generally engage in any kind of banking, trust or other
business with Borrower, any Subsidiary thereof, or any Affiliate of Borrower or
any Subsidiary thereof, as if it were not the Administrative Agent and without
any duty to account therefor to the Lenders. Wells Fargo Bank, National
Association (and
62
<PAGE> 68
each successor Administrative Agent) need not account to any other Lender for
any monies received by it for reimbursement of its costs and expenses as
Administrative Agent hereunder, or (subject to Section 11.10) for any monies
received by it in its capacity as a Lender hereunder. The Administrative Agent
shall not be deemed to hold a fiduciary relationship with any Lender and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or otherwise exist against the
Administrative Agent.
10.3 Proportionate Interest in any Collateral. The
Administrative Agent, on behalf of all the Lenders, shall hold in accordance
with the Loan Documents all items of any collateral or interests therein
received or held by the Administrative Agent. Subject to the Administrative
Agent's and the Lenders' rights to reimbursement for their costs and expenses
hereunder (including reasonable attorneys' fees and disbursements and other
professional services and the reasonably allocated costs of attorneys employed
by the Administrative Agent or a Lender) and subject to the application of
payments in accordance with Section 9.2(d), each Lender shall have an interest
in the Lenders' interest in such collateral or interests therein in the same
proportions that the aggregate Obligations owed such Lender under the Loan
Documents bear to the aggregate Obligations owed under the Loan Documents to
all the Lenders, without priority or preference among the Lenders.
10.4 Lenders' Credit Decisions. Each Lender agrees that
it has, independently and without reliance upon the Administrative Agent, any
other Lender or the directors, officers, agents, employees or attorneys of the
Administrative Agent or of any other Lender, and instead in reliance upon
information supplied to it by or on behalf of Borrower and upon such other
information as it has deemed appropriate, made its own independent credit
analysis and decision to enter into this Agreement. Each Lender also agrees
that it shall, independently and without reliance upon the Administrative
Agent, any other Lender or the directors, officers, agents, employees or
attorneys of the Administrative Agent or of any other Lender, continue to make
its own independent credit analyses and decisions in acting or not acting under
the Loan Documents.
10.5 Action by Administrative Agent.
(a) Absent actual knowledge of the Administrative
Agent of the existence of a Default, the Administrative Agent may
assume that no Default has occurred and is continuing, unless the
Administrative Agent (or the Lender that is then the Administrative
Agent) has received notice from Borrower stating the nature of the
Default or has received notice from a Lender stating the nature of the
Default and that such Lender considers the Default to have occurred
and to be continuing.
(b) The Administrative Agent has only those
obligations under the Loan Documents as are expressly set forth
therein.
(c) Except for any obligation expressly set forth
in the Loan Documents and as long as the Administrative Agent may
assume that no Event of Default has occurred and is continuing, the
Administrative Agent may, but shall not be required to, exercise its
discretion to act or not act, except that the Administrative Agent
shall be required to act or
63
<PAGE> 69
not act upon the instructions of the Requisite Lenders (or of all the
Lenders, to the extent required by Section 11.2) and those
instructions shall be binding upon the Administrative Agent and all
the Lenders, provided that the Administrative Agent shall not be
required to act or not act if to do so would be contrary to any Loan
Document or to applicable Law or would result, in the reasonable
judgment of the Administrative Agent, in substantial risk of liability
to the Administrative Agent.
(d) If the Administrative Agent has received a
notice specified in clause (a), the Administrative Agent shall
immediately give notice thereof to the Lenders and shall act or not
act upon the instructions of the Requisite Lenders (or of all the
Lenders, to the extent required by Section 11.2), provided that the
Administrative Agent shall not be required to act or not act if to do
so would be contrary to any Loan Document or to applicable Law or
would result, in the reasonable judgment of the Administrative Agent,
in substantial risk of liability to the Administrative Agent, and
except that if the Requisite Lenders (or all the Lenders, if required
under Section 11.2) fail, for five (5) Banking Days after the receipt
of notice from the Administrative Agent, to instruct the
Administrative Agent, then the Administrative Agent, in its sole
discretion, may act or not act as it deems advisable for the
protection of the interests of the Lenders.
(e) The Administrative Agent shall have no
liability to any Lender for acting, or not acting, as instructed by
the Requisite Lenders (or all the Lenders, if required under Section
11.2), notwithstanding any other provision hereof.
10.6 Liability of Administrative Agent. Neither the
Administrative Agent nor any of its directors, officers, agents, employees or
attorneys shall be liable for any action taken or not taken by them under or in
connection with the Loan Documents, except for their own gross negligence or
willful misconduct. Without limitation on the foregoing, the Administrative
Agent and its directors, officers, agents, employees and attorneys:
(a) May treat the payee of any Note as the holder
thereof until the Administrative Agent receives notice of the
assignment or transfer thereof, in form satisfactory to the
Administrative Agent, signed by the payee, and may treat each Lender
as the owner of that Lender's interest in the Obligations for all
purposes of this Agreement until the Administrative Agent receives
notice of the assignment or transfer thereof, in form satisfactory to
the Administrative Agent, signed by that Lender;
(b) May consult with legal counsel (including
in-house legal counsel), accountants (including in-house accountants)
and other professionals or experts selected by it, or with legal
counsel, accountants or other professionals or experts for Borrower
and/or their Subsidiaries or the Lenders, and shall not be liable for
any action taken or not taken by it in good faith in accordance with
any advice of such legal counsel, accountants or other professionals
or experts;
(c) Shall not be responsible to any Lender for
any statement, warranty or representation made in any of the Loan
Documents or in any notice, certificate, report,
64
<PAGE> 70
request or other statement (written or oral) given or made in connection with
any of the Loan Documents;
(d) Except to the extent expressly set forth in
the Loan Documents, shall have no duty to ask or inquire as to the
performance or observance by Borrower or its Subsidiaries of any of
the terms, conditions or covenants of any of the Loan Documents or to
inspect any collateral or any Property, books or records of Borrower
or their Subsidiaries;
(e) Will not be responsible to any Lender for the
due execution, legality, validity, enforceability, genuineness,
effectiveness, sufficiency or value of any Loan Document, any other
instrument or writing furnished pursuant thereto or in connection
therewith, or any collateral;
(f) Will not incur any liability by acting or not
acting in reliance upon any Loan Document, notice, consent,
certificate, statement, request or other instrument or writing
believed in good faith by it to be genuine and signed or sent by the
proper party or parties; and
(g) Will not incur any liability for any
arithmetical error in computing any amount paid or payable by Borrower
or any Subsidiary or Affiliate thereof or paid or payable to or
received or receivable from any Lender under any Loan Document,
including, without limitation, principal, interest, commitment fees,
Advances and other amounts; provided that, promptly upon discovery of
such an error in computation, the Administrative Agent, the Lenders
and (to the extent applicable) Borrower and/or its Subsidiaries or
Affiliates shall make such adjustments as are necessary to correct
such error and to restore the parties to the position that they would
have occupied had the error not occurred.
10.7 Indemnification. Each Lender shall, ratably in
accordance with its Pro Rata Share of the Commitment (if the Commitment is then
in effect) or in accordance with its proportion of the aggregate Indebtedness
then evidenced by the Notes (if the Commitment has then been terminated),
indemnify and hold the Administrative Agent and its directors, officers,
agents, employees and attorneys harmless against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever (including
reasonable attorneys' fees and disbursements and allocated costs of attorneys
employed by the Administrative Agent) that may be imposed on, incurred by or
asserted against it or them in any way relating to or arising out of the Loan
Documents (other than losses incurred by reason of the failure of Borrower to
pay the Indebtedness represented by the Notes) or any action taken or not taken
by it as Administrative Agent thereunder, except such as result from its own
gross negligence or willful misconduct. Without limitation on the foregoing,
each Lender shall reimburse the Administrative Agent upon demand for that
Lender's Pro Rata Share of any out-of-pocket cost or expense incurred by the
Administrative Agent in connection with the negotiation, preparation,
execution, delivery, amendment, waiver, restructuring, reorganization
(including a bankruptcy reorganization), enforcement or attempted enforcement
of the Loan Documents, to the extent that Borrower or any other Party is
required by Section 11.3 to pay that cost or expense but fails to do so upon
demand. Nothing in this Section 10.7 shall entitle the Administrative Agent or
any
65
<PAGE> 71
indemnitee referred to above to recover any amount from the Lenders if and to
the extent that such amount has theretofore been recovered from Borrower or any
of its Subsidiaries. To the extent that the Administrative Agent or any
indemnitee referred to above is later reimbursed such amount by Borrower or any
of its Subsidiaries, it shall return the amounts paid to it by the Lenders in
respect of such amount.
10.8 Successor Administrative Agent. The Administrative
Agent may, and at the request of the Requisite Lenders shall, resign as
Administrative Agent upon reasonable notice to the Lenders and Borrower
effective upon acceptance of appointment by a successor Administrative Agent.
If the Administrative Agent shall resign as Administrative Agent under this
Agreement, the Requisite Lenders shall appoint from among the Lenders a
successor Administrative Agent for the Lenders, which successor Administrative
Agent shall be approved by Borrower (and such approval shall not be
unreasonably withheld or delayed). If no successor Administrative Agent is
appointed prior to the effective date of the resignation of the Administrative
Agent, the Administrative Agent may appoint, after consulting with the Lenders
and Borrower, a successor Administrative Agent from among the Lenders. Upon
the acceptance of its appointment as successor Administrative Agent hereunder,
such successor Administrative Agent shall succeed to all the rights, powers and
duties of the retiring Administrative Agent and the term "Administrative Agent"
shall mean such successor Administrative Agent and the retiring Administrative
Agent's appointment, powers and duties as Administrative Agent shall be
terminated. After any retiring Administrative Agent's resignation hereunder as
Administrative Agent, the provisions of this Article 10, and Sections 11.3,
11.11 and 11.22, shall inure to its benefit as to any actions taken or omitted
to be taken by it while it was Administrative Agent under this Agreement.
Notwithstanding the foregoing, if (a) the Administrative Agent has not been
paid its agency fees under Section 3.4 or has not been reimbursed for any
expense reimbursable to it under Section 11.3, in either case for a period of
at least one (1) year and (b) no successor Administrative Agent has accepted
appointment as Administrative Agent by the date which is thirty (30) days
following a retiring Administrative Agent's notice of resignation, the retiring
Administrative Agent's resignation shall nevertheless thereupon become
effective and the Lenders shall perform all of the duties of the Administrative
Agent hereunder until such time, if any, as the Requisite Lenders appoint a
successor Administrative Agent as provided for above.
10.9 No Obligations of Borrower. Nothing contained in
this Article 10 shall be deemed to impose upon Borrower any obligation in
respect of the due and punctual performance by the Administrative Agent of its
obligations to the Lenders under any provision of this Agreement, and Borrower
shall have no liability to the Administrative Agent or any of the Lenders in
respect of any failure by the Administrative Agent or any Lender to perform any
of its obligations to the Administrative Agent or the Lenders under this
Agreement. Without limiting the generality of the foregoing, where any
provision of this Agreement relating to the payment of any amounts due and
owing under the Loan Documents provides that such payments shall be made by
Borrower to the Administrative Agent for the account of the Lenders, Borrower's
obligations to the Lenders in respect of such payments shall be deemed to be
satisfied upon the making of such payments to the Administrative Agent in the
manner provided by this Agreement. In addition, Borrower may rely on a written
statement by the Administrative Agent to the effect that it has obtained the
written consent of the Requisite Lenders or all of the Lenders, as applicable
under Section 11.2, in
66
<PAGE> 72
connection with a waiver, amendment, consent, approval or other action by the
Lenders hereunder, and shall have no obligation to verify or confirm the same.
Article 11
MISCELLANEOUS
11.1 Cumulative Remedies; No Waiver. The rights, powers,
privileges and remedies of the Administrative Agent and the Lenders provided
herein or in any Note or other Loan Document are cumulative and not exclusive
of any right, power, privilege or remedy provided by Law or equity. No failure
or delay on the part of the Administrative Agent or any Lender in exercising
any right, power, privilege or remedy may be, or may be deemed to be, a waiver
thereof; nor may any single or partial exercise of any right, power, privilege
or remedy preclude any other or further exercise of the same or any other
right, power, privilege or remedy. The terms and conditions of Article 8
hereof are inserted for the sole benefit of the Administrative Agent and the
Lenders; the same may be waived in whole or in part, with or without terms or
conditions, in respect of any Loan without prejudicing the Administrative
Agent's or the Lenders' rights to assert them in whole or in part in respect of
any other Loan.
11.2 Amendments; Consents. No amendment, modification,
supplement, extension, termination or waiver of any provision of this Agreement
or any other Loan Document, no approval or consent thereunder, and no consent
to any departure by Borrower or any other Party therefrom, may in any event be
effective unless in writing signed by the Administrative Agent with the written
approval of the Requisite Lenders (and, in the case of any amendment,
modification or supplement of or to any Loan Document to which Borrower is a
Party, signed by Borrower, and, in the case of any amendment, modification or
supplement to Article 10, signed by the Administrative Agent), and then only in
the specific instance and for the specific purpose given; and, without the
approval in writing of all the Lenders, no amendment, modification, supplement,
termination, waiver or consent may be effective:
(a) To amend or modify the principal of, or the
amount of principal, principal prepayments or the rate of interest
payable on, any Note, or the amount of the Commitment or the Pro Rata
Share of any Lender or the amount of any commitment fee payable to any
Lender, or any other fee or amount payable to any Lender under the
Loan Documents or to waive an Event of Default consisting of the
failure of Borrower to pay when due principal, interest or any fee;
(b) To postpone any date fixed for any payment of
principal of, prepayment of principal of or any installment of
interest on, any Note or any installment of any fee, or to extend the
term of the Commitment;
(c) To amend the provisions of the definition of
"Requisite Lenders", "Reduction Date", "Reduction Amount" or "Maturity
Date"; or
(d) To release any material Collateral from the
Lien of the Collateral Documents; or
67
<PAGE> 73
(e) To amend or waive Article 8 or this Section
11.2; or
(f) To amend any provision of this Agreement that
expressly requires the consent or approval of all the Lenders.
Any amendment, modification, supplement, termination, waiver or consent
pursuant to this Section 11.2 shall apply equally to, and shall be binding
upon, all the Lenders and the Administrative Agent.
11.3 Costs, Expenses and Taxes. Borrower shall pay within
five (5) Banking Days after demand, accompanied by an invoice therefor, the
reasonable costs and expenses of the Administrative Agent in connection with
the negotiation, preparation, syndication, execution and delivery of the Loan
Documents and any amendment thereto or waiver thereof. Borrower shall also pay
on demand, accompanied by an invoice therefor, the reasonable costs and
expenses of the Administrative Agent and the Lenders in connection with the
refinancing, restructuring, reorganization (including a bankruptcy
reorganization) and enforcement or attempted enforcement of the Loan Documents,
and any matter related thereto. The foregoing costs and expenses shall include
filing fees, recording fees, title insurance fees, appraisal fees, search fees,
and other out-of-pocket expenses and the reasonable fees and out-of-pocket
expenses of any legal counsel (including reasonably allocated costs of legal
counsel employed by the Administrative Agent or any Lender), independent public
accountants and other outside experts retained by the Administrative Agent or
any Lender, whether or not such costs and expenses are incurred or suffered by
the Administrative Agent or any Lender in connection with or during the course
of any bankruptcy or insolvency proceedings of any of Borrower or any
Subsidiary thereof. Borrower shall pay any and all documentary and other
taxes, excluding (i) taxes imposed on or measured in whole or in part by a
Lender's overall net income imposed on it by (A) any jurisdiction (or political
subdivision thereof) in which it is organized or maintains its principal office
or Eurodollar Lending Office or (B) any jurisdiction (or political subdivision
thereof) in which it is "doing business" or (ii) any withholding taxes or other
taxes based on gross income imposed by the United States of America for any
period with respect to which it has failed to provide Borrower with the
appropriate form or forms required by Section 11.21, to the extent such forms
are then required by applicable Laws, and all costs, expenses, fees and charges
payable or determined to be payable in connection with the filing or recording
of this Agreement, any other Loan Document or any other instrument or writing
to be delivered hereunder or thereunder, or in connection with any transaction
pursuant hereto or thereto, and shall reimburse, hold harmless and indemnify on
the terms set forth in 11.11 the Administrative Agent and the Lenders from and
against any and all loss, liability or legal or other expense with respect to
or resulting from any delay in paying or failure to pay any such tax, cost,
expense, fee or charge or that any of them may suffer or incur by reason of the
failure of any Party to perform any of its Obligations. Any amount payable to
the Administrative Agent or any Lender under this Section 11.3 shall bear
interest from the fifth Banking Day following the date of demand for payment at
the Default Rate.
11.4 Nature of Lenders' Obligations. The obligations of
the Lenders hereunder are several and not joint or joint and several. Nothing
contained in this Agreement or any other Loan Document and no action taken by
the Administrative Agent or the Lenders or any of them pursuant
68
<PAGE> 74
hereto or thereto may, or may be deemed to, make the Lenders a partnership, an
association, a joint venture or other entity, either among themselves or with
the Borrower or any Affiliate of any of Borrower. A default by any Lender will
not increase the Pro Rata Share of the Commitment attributable to any other
Lender. Any Lender not in default may, if it desires, assume in such
proportion as the nondefaulting Lenders agree the obligations of any Lender in
default, but is not obligated to do so. The Administrative Agent agrees that
it will use its best efforts either to induce promptly the other Lenders to
assume the obligations of a Lender in default or to obtain promptly another
Lender, reasonably satisfactory to Borrower, to replace such a Lender in
default.
11.5 Survival of Representations and Warranties. All
representations and warranties contained herein or in any other Loan Document,
or in any certificate or other writing delivered by or on behalf of any one or
more of the Parties to any Loan Document, will survive the making of the Loans
hereunder and the execution and delivery of the Notes, and have been or will be
relied upon by the Administrative Agent and each Lender, notwithstanding any
investigation made by the Administrative Agent or any Lender or on their
behalf.
11.6 Notices. Except as otherwise expressly provided in
the Loan Documents, all notices, requests, demands, directions and other
communications provided for hereunder or under any other Loan Document must be
in writing and must be mailed, telegraphed, telecopied, dispatched by
commercial courier or delivered to the appropriate party at the address set
forth on the signature pages of this Agreement or other applicable Loan
Document or, as to any party to any Loan Document, at any other address as may
be designated by it in a written notice sent to all other parties to such Loan
Document in accordance with this Section. Except as otherwise expressly
provided in any Loan Document, if any notice, request, demand, direction or
other communication required or permitted by any Loan Document is given by mail
it will be effective on the earlier of receipt or the fourth Banking Day after
deposit in the United States mail with first class or airmail postage prepaid;
if given by telegraph or cable, when delivered to the telegraph company with
charges prepaid; if given by telecopier, when sent; if dispatched by commercial
courier, on the scheduled delivery date; or if given by personal delivery, when
delivered.
11.7 Execution of Loan Documents. Unless the
Administrative Agent otherwise specifies with respect to any Loan Document, (a)
this Agreement and any other Loan Document may be executed in any number of
counterparts and any party hereto or thereto may execute any counterpart, each
of which when executed and delivered will be deemed to be an original and all
of which counterparts of this Agreement or any other Loan Document, as the case
may be, when taken together will be deemed to be but one and the same
instrument and (b) execution of any such counterpart may be evidenced by a
telecopier transmission of the signature of such party. The execution of this
Agreement or any other Loan Document by any party hereto or thereto will not
become effective until counterparts hereof or thereof, as the case may be, have
been executed by all the parties hereto or thereto.
69
<PAGE> 75
11.8 Binding Effect; Assignment.
(a) This Agreement and the other Loan Documents
to which Borrower is a Party will be binding upon and inure to the
benefit of Borrower, the Administrative Agent, each of the Lenders,
and their respective successors and assigns, except that Borrower may
not assign its rights hereunder or thereunder or any interest herein
or therein without the prior written consent of all the Lenders. Each
Lender represents that it is not acquiring its Note with a view to the
distribution thereof within the meaning of the Securities Act of 1933,
as amended (subject to any requirement that disposition of such Note
must be within the control of such Lender). Any Lender may at any
time pledge its Note or any other instrument evidencing its rights as
a Lender under this Agreement to a Federal Reserve Bank, but no such
pledge shall release that Lender from its obligations hereunder or
grant to such Federal Reserve Bank the rights of a Lender hereunder
absent foreclosure of such pledge.
(b) From time to time following the Closing Date,
each Lender may assign to one or more Eligible Assignees all or any
portion of its Pro Rata Share of the Commitment; provided that (i)
such Eligible Assignee, if not then a Lender or an Affiliate of the
assigning Lender, shall be approved by the Administrative Agent and
(if no Event of Default then exists) Borrower (neither of which
approvals shall be unreasonably withheld or delayed), (ii) such
assignment shall be evidenced by a Commitment Assignment and
Acceptance, a copy of which shall be furnished to the Administrative
Agent as hereinbelow provided, (iii) except in the case of an
assignment to an Affiliate of the assigning Lender, to another Lender
or of the entire remaining Commitment of the assigning Lender, the
assignment shall not assign a Pro Rata Share of the Commitment that is
equivalent to less than $5,000,000 and (iv) the effective date of any
such assignment shall be as specified in the Commitment Assignment and
Acceptance, but not earlier than the date which is five (5) Banking
Days after the date the Administrative Agent has received the
Commitment Assignment and Acceptance. Upon the effective date of such
Commitment Assignment and Acceptance, the Eligible Assignee named
therein shall be a Lender for all purposes of this Agreement, with the
Pro Rata Share of the Commitment therein set forth and, to the extent
of such Pro Rata Share, the assigning Lender shall be released from
its further obligations under this Agreement. Borrower agrees that it
shall execute and deliver (against delivery by the assigning Lender to
Borrower of its Note) to such assignee Lender, Notes evidencing that
assignee Lender's Pro Rata Share of the Commitment, and to the
assigning Lender, Notes evidencing the remaining balance Pro Rata
Share retained by the assigning Lender.
(c) By executing and delivering a Commitment
Assignment and Acceptance, the Eligible Assignee thereunder
acknowledges and agrees that: (i) other than the representation and
warranty that it is the legal and beneficial owner of the Pro Rata
Share of the Commitment being assigned thereby free and clear of any
adverse claim, the assigning Lender has made no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability,
genuineness or sufficiency of this Agreement or any other Loan
Document; (ii) the assigning Lender has made no representation or
warranty and assumes no responsibility with respect to the financial
condition of Borrower or the performance by Borrower of the
Obligations; (iii) it has
70
<PAGE> 76
received a copy of this Agreement, together with copies of the most
recent financial statements delivered pursuant to Section 7.1 and such
other documents and information as it has deemed appropriate to make
its own credit analysis and decision to enter into such Commitment
Assignment and Acceptance; (iv) it will, independently and without
reliance upon the Administrative Agent or any Lender and based on such
documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking
action under this Agreement; (v) it appoints and authorizes the
Administrative Agent to take such action and to exercise such powers
under this Agreement as are delegated to the Administrative Agent by
this Agreement; and (vi) it will perform in accordance with their
terms all of the obligations which by the terms of this Agreement are
required to be performed by it as a Lender.
(d) The Administrative Agent shall maintain at
the Administrative Agent's Office a copy of each Commitment Assignment
and Acceptance delivered to it and a register (the "Register") of the
names and address of each of the Lenders and the Pro Rata Share of the
Commitment held by each Lender, giving effect to each Commitment
Assignment and Acceptance. The Register shall be available during
normal business hours for inspection by Borrower or any Lender upon
reasonable prior notice to the Administrative Agent. After receipt of
a completed Commitment Assignment and Acceptance executed by any
Lender and an Eligible Assignee, and receipt of an assignment fee of
$3,500 from such Lender or Eligible Assignee, the Administrative Agent
shall, promptly following the effective date thereof, provide to
Borrower and the Lenders a revised Schedule 1.1 giving effect thereto.
Borrower, the Administrative Agent and the Lenders shall deem and
treat the Persons listed as Lenders in the Register as the holders and
owners of the Pro Rata Share of the Commitment listed therein for all
purposes hereof, and no assignment or transfer of any such Pro Rata
Share of the Commitment shall be effective, in each case unless and
until a Commitment Assignment and Acceptance effecting the assignment
or transfer thereof shall have been accepted by the Administrative
Agent and recorded in the Register as provided above. Prior to such
recordation, all amounts owed with respect to the applicable Pro Rata
Share of the Commitment shall be owed to the Lender listed in the
Register as the owner thereof, and any request, authority or consent
of any Person who, at the time of making such request or giving such
authority or consent, is listed in the Register as a Lender shall be
conclusive and binding on any subsequent holder, assignee or
transferee of the corresponding Pro Rata Share of the Commitment.
(e) Each Lender may from time to time grant
participations to one or more banks or other financial institutions in
a portion of its Pro Rata Share of the Commitment; provided, however,
that (i) such Lender's obligations under this Agreement shall remain
unchanged, (ii) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations, (iii)
the participating banks or other financial institutions shall not be a
Lender hereunder for any purpose except, if the participation
agreement so provides, for the purposes of Sections 3.6, 3.7, 11.11
and 11.22 but only to the extent that the cost of such benefits to
Borrower does not exceed the cost which Borrower would have incurred
in respect of such Lender absent the participation, (iv) Borrower, the
Administrative Agent and the other Lenders shall continue to deal
solely and directly with
71
<PAGE> 77
such Lender in connection with such Lender's rights and obligations
under this Agreement, (v) the participation interest shall be
expressed as a percentage of the granting Lender's Pro Rata Share of
the Commitment as it then exists and shall not restrict an increase in
the Commitment, or in the granting Lender's Pro Rata Share of the
Commitment, so long as the amount of the participation interest is not
affected thereby and (vi) the consent of the holder of such
participation interest shall not be required for amendments or waivers
of provisions of the Loan Documents other than those which (A) extend
any Reduction Date, the Maturity Date or any other date upon which any
payment of money is due to the Lenders, (B) reduce the rate of
interest on the Notes, any fee or any other monetary amount payable to
the Lenders, (C) reduce the amount of any installment of principal due
under the Notes or (D) release any material Collateral from the Lien
of the Collateral Documents.
11.9 Right of Setoff. If an Event of Default has occurred
and is continuing, the Administrative Agent or any Lender (but in each case
only with the consent of the Requisite Lenders) may exercise its rights under
Article 9 of the Uniform Commercial Code and other applicable Laws and, to the
extent permitted by applicable Laws, apply any funds in any deposit account
maintained with it by Borrower and/or any Property of Borrower in its
possession against the Obligations.
11.10 Sharing of Setoffs. Each Lender severally agrees
that if it, through the exercise of any right of setoff, banker's lien or
counterclaim against Borrower, or otherwise, receives payment of the
Obligations held by it that is ratably more than any other Lender, through any
means, receives in payment of the Obligations held by that Lender, then,
subject to applicable Laws: (a) the Lender exercising the right of setoff,
banker's lien or counterclaim or otherwise receiving such payment shall
purchase, and shall be deemed to have simultaneously purchased, from each of
the other Lenders a participation in the Obligations held by the other Lenders
and shall pay to the other Lenders a purchase price in an amount so that the
share of the Obligations held by each Lender after the exercise of the right of
setoff, banker's lien or counterclaim or receipt of payment shall be in the
same proportion that existed prior to the exercise of the right of setoff,
banker's lien or counterclaim or receipt of payment; and (b) such other
adjustments and purchases of participations shall be made from time to time as
shall be equitable to ensure that all of the Lenders share any payment obtained
in respect of the Obligations ratably in accordance with each Lender's share of
the Obligations immediately prior to, and without taking into account, the
payment; provided that, if all or any portion of a disproportionate payment
obtained as a result of the exercise of the right of setoff, banker's lien,
counterclaim or otherwise is thereafter recovered from the purchasing Lender by
Borrower or any Person claiming through or succeeding to the rights of
Borrower, the purchase of a participation shall be rescinded and the purchase
price thereof shall be restored to the extent of the recovery, but without
interest. Each Lender that purchases a participation in the Obligations
pursuant to this Section 11.10 shall from and after the purchase have the right
to give all notices, requests, demands, directions and other communications
under this Agreement with respect to the portion of the Obligations purchased
to the same extent as though the purchasing Lender were the original owner of
the Obligations purchased. Borrower expressly consents to the foregoing
arrangements and agree that any Lender holding a participation in an Obligation
so purchased pursuant to this Section 11.10 may exercise any and all rights of
setoff, banker's lien or counterclaim
72
<PAGE> 78
with respect to the participation as fully as if the Lender were the original
owner of the Obligation purchased.
11.11 Indemnity by Borrower. Borrower agrees to indemnify,
save and hold harmless the Administrative Agent and each Lender and their
respective directors, officers, agents, attorneys and employees (collectively
the "Indemnitees") from and against: (a) any and all claims, demands, actions
or causes of action (except a claim, demand, action, or cause of action for any
amount excluded from the definition of "Taxes" in Section 3.12(d)) if the
claim, demand, action or cause of action arises out of or relates to any act or
omission (or alleged act or omission) of Borrower, its Affiliates or any of its
officers, directors or stockholders relating to the Commitment, the use or
contemplated use of proceeds of any Loan, or the relationship of Borrower and
the Lenders under this Agreement; (b) any administrative or investigative
proceeding by any Governmental Agency arising out of or related to a claim,
demand, action or cause of action described in clause (a) above; and (c) any
and all liabilities, losses, costs or expenses (including reasonable attorneys'
fees and the reasonably allocated costs of attorneys employed by any Indemnitee
and disbursements of such attorneys and other professional services) that any
Indemnitee suffers or incurs as a result of the assertion of any foregoing
claim, demand, action or cause of action; provided that no Indemnitee shall be
entitled to indemnification for any loss caused by its own gross negligence or
willful misconduct or for any loss asserted against it by another Indemnitee.
If any claim, demand, action or cause of action is asserted against any
Indemnitee, such Indemnitee shall promptly notify Borrower, but the failure to
so promptly notify Borrower shall not affect Borrower's obligations under this
Section unless such failure materially prejudices Borrower's right to
participate in the contest of such claim, demand, action or cause of action, as
hereinafter provided. Such Indemnitee may (and shall, if requested by Borrower
in writing) contest the validity, applicability and amount of such claim,
demand, action or cause of action and shall permit Borrower to participate in
such contest. Any Indemnitee that proposes to settle or compromise any claim
or proceeding for which Borrower may be liable for payment of indemnity
hereunder shall give Borrower written notice of the terms of such proposed
settlement or compromise reasonably in advance of settling or compromising such
claim or proceeding and shall obtain Borrower's prior consent (which shall not
be unreasonably withheld or delayed). In connection with any claim, demand,
action or cause of action covered by this Section 11.11 against more than one
Indemnitee, all such Indemnitees shall be represented by the same legal counsel
(which may be a law firm engaged by the Indemnitees or attorneys employed by an
Indemnitee or a combination of the foregoing) selected by the Indemnitees and
reasonably acceptable to Borrower; provided, that if such legal counsel
determines in good faith that representing all such Indemnitees would or could
result in a conflict of interest under Laws or ethical principles applicable to
such legal counsel or that a defense or counterclaim is available to an
Indemnitee that is not available to all such Indemnitees, then to the extent
reasonably necessary to avoid such a conflict of interest or to permit
unqualified assertion of such a defense or counterclaim, each affected
Indemnitee shall be entitled to separate representation by legal counsel
selected by that Indemnitee and reasonably acceptable to Borrower, with all
such legal counsel using reasonable efforts to avoid unnecessary duplication of
effort by counsel for all Indemnitees; and further provided that the
Administrative Agent (as an Indemnitee) shall at all times be entitled to
representation by separate legal counsel (which may be a law firm or attorneys
employed by the Administrative Agent or a combination of the foregoing). Any
obligation or liability of Borrower to any Indemnitee under this Section 11.11
shall survive the expiration or
73
<PAGE> 79
termination of this Agreement and the repayment of all Loans and the payment
and performance of all other Obligations owed to the Lenders.
11.12 Nonliability of the Lenders. Borrower acknowledges
and agrees that:
(a) Any inspections of any Property of Borrower
made by or through the Administrative Agent or the Lenders are for
purposes of administration of the Loan only and Borrower is not
entitled to rely upon the same (whether or not such inspections are at
the expense of Borrower);
(b) By accepting or approving anything required
to be observed, performed, fulfilled or given to the Administrative
Agent or the Lenders pursuant to the Loan Documents, neither the
Administrative Agent nor the Lenders shall be deemed to have warranted
or represented the sufficiency, legality, effectiveness or legal
effect of the same, or of any term, provision or condition thereof,
and such acceptance or approval thereof shall not constitute a
warranty or representation to anyone with respect thereto by the
Administrative Agent or the Lenders;
(c) The relationship between Borrower and the
Administrative Agent and the Lenders is, and shall at all times
remain, solely that of borrowers and lenders; neither the
Administrative Agent nor the Lenders shall under any circumstance be
construed to be partners or joint venturers of Borrower or its
Affiliates; neither the Administrative Agent nor the Lenders shall
under any circumstance be deemed to be in a relationship of confidence
or trust or a fiduciary relationship with Borrower or its Affiliates,
or to owe any fiduciary duty to Borrower or its Affiliates; neither
the Administrative Agent nor the Lenders undertake or assume any
responsibility or duty to Borrower or its Affiliates to select,
review, inspect, supervise, pass judgment upon or inform Borrower or
its Affiliates of any matter in connection with their Property or the
operations of Borrower or its Affiliates; Borrower and its Affiliates
shall rely entirely upon their own judgment with respect to such
matters; and any review, inspection, supervision, exercise of judgment
or supply of information undertaken or assumed by the Administrative
Agent or the Lenders in connection with such matters is solely for the
protection of the Administrative Agent and the Lenders and neither
Borrower nor any other Person is entitled to rely thereon; and
(d) The Administrative Agent and the Lenders
shall not be responsible or liable to any Person for any loss, damage,
liability or claim of any kind relating to injury or death to Persons
or damage to Property caused by the actions, inaction or negligence of
Borrower and/or its Affiliates and Borrower hereby indemnify and hold
the Administrative Agent and the Lenders harmless on the terms set
forth in Section 11.11 from any such loss, damage, liability or claim.
11.13 No Third Parties Benefited. This Agreement is made
for the purpose of defining and setting forth certain obligations, rights and
duties of Borrower, the Administrative Agent and the Lenders in connection with
the Loans, and is made for the sole benefit of Borrower,
74
<PAGE> 80
the Administrative Agent and the Lenders, and the Administrative Agent's and
the Lenders' successors and assigns. Except as provided in Sections 11.8 and
11.11, no other Person shall have any rights of any nature hereunder or by
reason hereof.
11.14 Confidentiality. Each Lender agrees to hold any
confidential information that it may receive from Borrower pursuant to this
Agreement in confidence, except for disclosure: (a) to other Lenders or
Affiliates of a Lender; (b) to legal counsel and accountants for Borrower or
any Lender; (c) to other professional advisors to Borrower or any Lender,
provided that the recipient has accepted such information subject to a
confidentiality agreement substantially similar to this Section 11.14; (d) to
regulatory officials having jurisdiction over that Lender; (e) as required by
Law or legal process, provided that each Lender agrees to notify Borrower of
any such disclosures unless prohibited by applicable Laws, or in connection
with any legal proceeding to which that Lender and Borrower are adverse
parties; and (f) to another financial institution in connection with a
disposition or proposed disposition to that financial institution of all or
part of that Lender's interests hereunder or a participation interest in its
Notes, provided that the recipient has accepted such information subject to a
confidentiality agreement substantially similar to this Section 11.14. For
purposes of the foregoing, "confidential information" shall mean any
information respecting Borrower or its Subsidiaries reasonably considered by
Borrower to be confidential, other than (i) information previously filed with
any Governmental Agency and available to the public, (ii) information
previously published in any public medium from a source other than, directly or
indirectly, that Lender, and (iii) information previously disclosed by Borrower
to any Person not associated with Borrower which does not owe a professional
duty of confidentiality to Borrower or which has not executed an appropriate
confidentiality agreement with Borrower. Nothing in this Section shall be
construed to create or give rise to any fiduciary duty on the part of the
Administrative Agent or the Lenders to Borrower.
11.15 Further Assurances. Borrower shall, at its expense
and without expense to the Lenders or the Administrative Agent, do, execute and
deliver such further acts and documents as the Requisite Lenders or the
Administrative Agent from time to time reasonably require for the assuring and
confirming unto the Lenders or the Administrative Agent of the rights hereby
created or intended now or hereafter so to be, or for carrying out the
intention or facilitating the performance of the terms of any Loan Document.
11.16 Integration. This Agreement, together with the other
Loan Documents and the letter agreement referred to in Sections 3.2, 3.4, and
3.5, comprises the complete and integrated agreement of the parties on the
subject matter hereof and supersedes all prior agreements, written or oral, on
the subject matter hereof. In the event of any conflict between the provisions
of this Agreement and those of any other Loan Document, the provisions of this
Agreement shall control and govern; provided that the inclusion of supplemental
rights or remedies in favor of the Administrative Agent or the Lenders in any
other Loan Document shall not be deemed a conflict with this Agreement. Each
Loan Document was drafted with the joint participation of the respective
parties thereto and shall be construed neither against nor in favor of any
party, but rather in accordance with the fair meaning thereof.
75
<PAGE> 81
11.17 Governing Law. Except to the extent otherwise
provided therein, each Loan Document shall be governed by, and construed and
enforced in accordance with, the Laws of California applicable to contracts
made and performed in California.
11.18 Severability of Provisions. Any provision in any
Loan Document that is held to be inoperative, unenforceable or invalid as to
any party or in any jurisdiction shall, as to that party or jurisdiction, be
inoperative, unenforceable or invalid without affecting the remaining
provisions or the operation, enforceability or validity of that provision as to
any other party or in any other jurisdiction, and to this end the provisions of
all Loan Documents are declared to be severable.
11.19 Headings. Article and Section headings in this
Agreement and the other Loan Documents are included for convenience of
reference only and are not part of this Agreement or the other Loan Documents
for any other purpose.
11.20 Time of the Essence. Time is of the essence of the
Loan Documents.
11.21 Foreign Lenders and Participants. Each Lender that
is incorporated or otherwise organized under the Laws of a jurisdiction other
than the United States of America or any State thereof or the District of
Columbia shall deliver to Borrower (with a copy to the Administrative Agent),
on or before the Closing Date (or on or before accepting an assignment or
receiving a participation interest herein pursuant to Section 11.8, if
applicable) two duly completed copies, signed by a Responsible Official, of
either Form 1001 (relating to such Lender and entitling it to a complete
exemption from withholding on all payments to be made to such Lender by
Borrower pursuant to this Agreement) or Form 4224 (relating to all payments to
be made to such Lender by the Borrower pursuant to this Agreement) of the
United States Internal Revenue Service or such other evidence (including, if
reasonably necessary, Form W-9) satisfactory to Borrower and the Administrative
Agent that no withholding under the federal income tax laws is required with
respect to such Lender. Thereafter and from time to time, each such Lender
shall (a) promptly submit to Borrower (with a copy to the Administrative
Agent), such additional duly completed and signed copies of one of such forms
(or such successor forms as shall be adopted from time to time by the relevant
United States taxing authorities) as may then be available under then current
United States laws and regulations to avoid, or such evidence as is
satisfactory to Borrower and the Administrative Agent of any available
exemption from, United States withholding taxes in respect of all payments to
be made to such Lender by Borrower pursuant to this Agreement and (b) take such
steps as shall not be materially disadvantageous to it, in the reasonable
judgment of such Lender, and as may be reasonably necessary (including the
re-designation of its Eurodollar Lending Office, if any) to avoid any
requirement of applicable Laws that Borrower make any deduction or withholding
for taxes from amounts payable to such Lender. In the event that Borrower or
the Administrative Agent become aware that a participation has been granted
pursuant to Section 11.8(e) to a financial institution that is incorporated or
otherwise organized under the Laws of a jurisdiction other than the United
States of America, any State thereof or the District of Columbia, then, upon
request made by Borrower or the Administrative Agent to the Lender which
granted such participation, such Lender shall cause such participant financial
institution to deliver the same documents and information to Borrower and the
Administrative Agent as would be required under this Section if such financial
institution were a Lender.
76
<PAGE> 82
11.22 Hazardous Material Indemnity. Borrower hereby agrees
to indemnify, hold harmless and defend (by counsel reasonably satisfactory to
the Administrative Agent) the Administrative Agent and each of the Lenders and
their respective directors, officers, employees, agents, successors and assigns
from and against any and all claims, losses, damages, liabilities, fines,
penalties, charges, administrative and judicial proceedings and orders,
judgments, remedial action requirements, enforcement actions of any kind, and
all costs and expenses incurred in connection therewith (including but not
limited to reasonable attorneys' fees and the reasonably allocated costs of
attorneys employed by the Administrative Agent or any Lender, and expenses to
the extent that the defense of any such action has not been assumed by
Borrower), arising directly or indirectly out of (i) the presence on, in, under
or about any Real Property of any Hazardous Materials, or any releases or
discharges of any Hazardous Materials on, under or from any Real Property and
(ii) any activity carried on or undertaken on or off any Real Property by
Borrower or any of its predecessors in title, whether prior to or during the
term of this Agreement, and whether by Borrower or any predecessor in title or
any employees, agents, contractors or subcontractors of Borrower or any
predecessor in title, or any third persons at any time occupying or present on
any Real Property, in connection with the handling, treatment, removal,
storage, decontamination, clean-up, transport or disposal of any Hazardous
Materials at any time located or present on, in, under or about any Real
Property. The foregoing indemnity shall further apply to any residual
contamination on, in, under or about any Real Property, or affecting any
natural resources, and to any contamination of any Property or natural
resources arising in connection with the generation, use, handling, storage,
transport or disposal of any such Hazardous Materials, and irrespective of
whether any of such activities were or will be undertaken in accordance with
applicable Laws, but the foregoing indemnity shall not apply to Hazardous
Materials on any Real Property, the presence of which is caused by the
Administrative Agent or the Lenders. Borrower hereby acknowledges and agrees
that, notwithstanding any other provision of this Agreement or any of the other
Loan Documents to the contrary, the obligations of Borrower under this Section
shall be unlimited corporate obligations of Borrower and shall not be secured
by any Lien on any Real Property. Any obligation or liability of Borrower to
any Indemnitee under this Section 11.22 shall survive the expiration or
termination of this Agreement and the repayment of all Loans and the payment
and performance of all other Obligations owed to the Lenders.
11.23 Waiver of Right to Trial by Jury. EACH PARTY TO THIS
AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTY HERETO OR
ANY OF THEM WITH RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATED
THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND
CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE
DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY
FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF
THEIR RIGHT TO TRIAL BY JURY.
77
<PAGE> 83
11.24 Purported Oral Amendments. BORROWER EXPRESSLY
ACKNOWLEDGES THAT THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY ONLY BE
AMENDED OR MODIFIED, OR THE PROVISIONS HEREOF OR THEREOF WAIVED OR
SUPPLEMENTED, BY AN INSTRUMENT IN WRITING THAT COMPLIES WITH SECTION 11.2.
BORROWER AGREES THAT IT WILL NOT RELY ON ANY COURSE OF DEALING, COURSE OF
PERFORMANCE, OR ORAL OR WRITTEN STATEMENTS BY ANY REPRESENTATIVE OF THE
MANAGING AGENT OR ANY BANK THAT DOES NOT COMPLY WITH SECTION 11.2 TO EFFECT AN
AMENDMENT, MODIFICATION, WAIVER OR SUPPLEMENT TO THIS AGREEMENT OR THE OTHER
LOAN DOCUMENTS.
78
<PAGE> 84
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
AMERICAN COIN MERCHANDISING, INC.
By: /s/ Jerome M. Lapin
---------------------------------------
Jerome M. Lapin
President and Chief Executive Officer
By: /s/ W. John Cash
---------------------------------------
W. John Cash
Vice President and
Chief Financial Officer
Address for notices as a Lender:
American Coin Merchandising, Inc.
5660 Central Avenue
Boulder, Colorado 80301
Attn: W. John Cash
Chief Financial Officer
Telecopier: (303) 443-2264
Telephone: (303) 444-2559
WELLS FARGO BANK, NATIONAL ASSOCIATION, as
Administrative Agent and a Lender
By: /s/ James K. Edwards
-------------------------------------
James K. Edwards
Vice President
Address for notices as a Lender:
Wells Fargo Bank, National Association
Commercial Lending
633 Seventeenth Street
Denver, Colorado 80270
Attn: James K. Edwards
Telecopier: (303) 293-5163
Telephone: (303) 293-5648
Address for notices to Administrative Agent for borrowings
and payments:
Wells Fargo Bank, National Association
Agency Department
201 Third Street, 8th Floor
San Francisco, California 94103
Telecopier: (415) 512-7059
Telephone: (415) 477-5422
<PAGE> 1
Exhibit 10.37
AMENDMENT NO. 1 TO REDUCING REVOLVING LOAN AGREEMENT
This Amendment No. 1 to Reducing Revolving Loan Agreement (this
"Amendment") is entered into effective June 30, 1998, with reference to the
Reducing Revolving Loan Agreement dated as of June 10, 1998 (the "Loan
Agreement") among American Coin Merchandising, Inc. ("Borrower"), the Lenders
party thereto, and Wells Fargo Bank, National Association, as Administrative
Agent. Capitalized terms used but not defined herein are used with the
meanings set forth for those terms in the Loan Agreement.
Borrower and the Administrative Agent, acting with the consent of
all of the Lenders pursuant to Section 11.2 of the Loan Agreement, agree as
follows:
1. Section 1.1. Section 1.1 of the Loan Agreement is amended
by striking the table set forth in the definition of "Applicable Alternate Base
Rate Margin" and substituting in its place the following:
<TABLE>
<CAPTION>
Applicable
Pricing Level Margin
------------- ------
<S> <C>
I 0
II 0
III 0
IV 15
V 50
VI 75
VII 100
VIII 125
</TABLE>
-1-
<PAGE> 2
2. Section 1.1. Section 1.1 of the Loan Agreement is further
amended by striking the table set forth in the definition of "Applicable
Commitment Fee Rate" and substituting in its place the following:
<TABLE>
<CAPTION>
Applicable
Pricing Level Commitment Fee
------------- --------------
<S> <C>
I 25
II 25
III 25
IV 25
V 37.5
VI 37.5
VII 37.5
VIII 37.5
</TABLE>
3. Section 1.1. Section 1.1 of the Loan Agreement is further
amended by striking the table set forth in the definition of "Applicable
Eurodollar Rate Margin" and substituting in its place the following:
<TABLE>
<CAPTION>
Applicable
Pricing Level Commitment Fee
------------- --------------
<S> <C>
I 75
II 100
III 130
IV 165
V 200
VI 225
VII 250
VIII 275
</TABLE>
4. Section 1.1. Section 1.1 of the Loan Agreement is further
amended by striking the definition of "Applicable Pricing Level" and
substituting in its place the following:
"Applicable Pricing Level" means (a) for the Pricing Period
commencing on the Closing Date and ending on August 15, 1998,
(i) Pricing Level I for purposes of the Applicable
-2-
<PAGE> 3
Commitment Fee Rate and (ii) Pricing Level VIII for purposes
of the Applicable Alternate Base Rate Margin, Applicable
Eurodollar Rate Margin and Applicable Standby Letter of Credit
Fee and (b) for each subsequent Pricing Period, the pricing
level set forth below opposite the Senior Funded Debt Ratio as
of the last day of the Fiscal Quarter most recently ended
prior to the commencement of that Pricing Period:
<TABLE>
<CAPTION>
Pricing Level Senior Funded Debt Ratio
------------- ------------------------
<S> <C>
I Less than .75 to 1.00
II Equal to or greater than .75 to 1.00,
but less than 1.00 to 1.00
III Equal to or greater than 1.00 to 1.00,
but less than 1.25 to 1.00
IV Equal to or greater than 1.25 to 1.00,
but less than 1.50 to 1.00
V Equal to or greater than 1.50 to 1.00,
but less than 1.75 to 1.00
VI Equal to or greater than 1.75 to 1.00,
but less than 2.00 to 1.00
VII Equal to or greater than 2.00 to 1.00,
but less than 2.50 to 1.00
VIII Equal to or greater than 2.50 to 1.00
</TABLE>
provided that (i) in the event that Borrower does not deliver
a Pricing Certificate with respect to any Pricing Period prior
to the commencement of such Pricing Period, then until (but
only until) such Pricing Certificate is delivered the
Applicable Pricing Level for that Pricing Period shall be
Pricing Level VIII and (ii) if any Pricing Certificate is
subsequently determined to be in error, then any resulting
change in the Applicable Pricing Level shall be made
retroactively to the beginning of the relevant Pricing Period.
5. Section 1.1. Section 1.1 of the Loan Agreement is
further amended by striking the definition of "Commitment" and substituting in
its place the following:
-3-
<PAGE> 4
"Commitment" means, subject to Sections 2.5, 2.6, and
2.7, (a) from the Closing Date through the date upon
which Borrower issues the security required by
Section 5.15, $50,000,000 and (b) on and after such
date, $60,000,000.
6. Section 1.1. Section 1.1. of the Loan Agreement
is further amended by adding the following proviso at the end of the definition
of "Indebtedness":
; provided that Indebtedness shall not include amounts
outstanding under Trust Preferred Securities or the
related Junior Subordinated Debentures.
7. Section 1.1. Section 1.1. of the Loan Agreement
is further amended by adding the following proviso at the end of the definition
of "Interest Expense":
; provided, that Interest Expense shall in any event
include (without duplication) dividends paid on Trust
Preferred Securities and interest paid on the related
Junior Subordinated Debentures.
8. Section 1.1. Section 1.1 of the Loan Agreement is
further amended by striking the definition of "Stockholders' Equity" and
substituting in its place the following:
"Stockholders' Equity" means, as of any date of
determination and with respect to any Person, (a) the
consolidated stockholders' equity of the Person as of
that date determined in accordance with GAAP plus (b)
an amount equal to 100% of the aggregate book value
of any outstanding Trust Preferred Securities on that
date; provided that there shall be excluded from
Stockholders' Equity any amount attributable to
Disqualified Stock.
9. Section 1.1. Section 1.1 of the Loan Agreement is
further amended by adding the following new definitions at the appropriate
alphabetical places:
-4-
<PAGE> 5
"Junior Subordinated Debentures" means junior
subordinated debentures issued by Borrower to a Trust
Issuer in a principal amount equal to the Trust
Preferred Securities, the interest payments on which
arising prior to the Maturity Date may be deferred by
Borrower for at least twenty (20) consecutive
calendar quarters absent the existence of a
proceeding under a Debtor Relief Law involving
Borrower.
"Trust Issuer" means one or more business trusts
formed by Borrower as a special purpose grantor trust
for the purpose of facilitating the issuance of Trust
Preferred Securities, and which engages in no
activities other than those incident to such Trust
Preferred Securities.
"Trust Preferred Security" means a preferred security
issued by a Trust Issuer that is not subject to
mandatory redemption, or redemption at the election
of the holder thereof, prior to the date that is one
(1) year after the Maturity Date (except upon payment
or redemption of the Junior Subordinated Debentures)
and for which the funds for the payment of any such
redemption, and for the payment of dividends thereon,
are provided to the Trust Issuer through the Junior
Subordinated Debentures.
10. Section 5.15. Section 5.15 of the Loan Agreement is
amended to read in full as follows:
5.15 Securities Issuance. Issue and sell, not later
than September 30, 1998, for not less than
$25,000,000 a security of Borrower that is either (a)
a Subordinated Obligation or (b) a Trust Preferred
Security, in either case in form and substance
acceptable to the Requisite Lenders.
-5-
<PAGE> 6
11. Section 6.13. Section 6.13 of the Loan Agreement is
amended to read in full as follows:
6.13 Senior Funded Debt Ratio. Permit the Senior
Funded Debt Ratio, as of the last day of any Fiscal
Quarter, to be greater than the ratio set forth below
opposite the period during which such Fiscal Quarter
ends:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Closing Date through
December 31, 1998 3.35 to 1.00
January 1, 1999 through
June 30, 1999 3.10 to 1.00
July 1, 1999 through
December 31, 1999 2.85 to 1.00
January 1, 2000
through
June 30, 2000 2.60 to 1.00
July 1, 2000 and
thereafter 2.50 to 1.00
</TABLE>
12. Section 6.14. Section 6.14 of the Loan Agreement is
amended by striking the table therein set forth and substituting in its place
the following:
-6-
<PAGE> 7
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Closing Date through
December 31, 1999 4.50 to 1.00
January 1, 2000
and thereafter 4.00 to 1.00
</TABLE>
13. Section 6.16. Section 6.16 of the Loan Agreement is
amended to read in full as follows:
6.16 Stockholders' Equity. Permit Stockholders'
Equity, as of the last day of any Fiscal Quarter, to
be less than the sum of (a) $27,500,000 plus (b) 90%
of Net Income in the Fiscal Quarter ending June 30,
1998 and each Fiscal Quarter thereafter (with no
deduction for a net loss in any such Fiscal Quarter)
plus (c) 75% of the proceeds of any issuance by
Borrower of equity securities (except to employees or
former employees of Borrower pursuant to an employee
stock option plan maintained by Borrower) subsequent
to Closing Date plus (d) 90% of the proceeds of any
issuance by Borrower of Trust Preferred Securities
subsequent to the Closing Date.
14. Section 6.22. The Loan Agreement is amended by
adding a new Section 6.22 to read in full as follows:
6.22 Prepayment of Junior Subordinated Debentures.
Prepay or redeem prior to maturity any Junior
Subordinated Debentures, or exercise any right it may
have to shorten the maturity of any Junior
Subordinated Debentures to a date that is earlier
than the date that is one (1) year after the Maturity
Date.
15. Conditions Precedent. The effectiveness of this
Amendment shall be conditioned upon:
(a) the receipt by the Administrative Agent of
all of the following, each properly executed
by an authorized officer of each party
thereto and dated as of the date hereof:
-7-
<PAGE> 8
(i) Counterparts of this Amendment
executed by all parties hereto;
(ii) Written consent of all of the
Lenders as required under Section
11.2 of the Loan Agreement in the
form of Exhibit A to this Amendment;
(iii) Notes executed by Borrower in favor
of each Lender, each in an amount
equal to that Lender's Pro Rata
Share of the Commitment (as
amended), against delivery for
cancellation of the Notes issued on
June 10, 1998;
(iv) A copy of the resolution of the
board of directors of Borrower
authorizing this Amendment,
certified by the Secretary of
Borrower; and
(v) The written opinion of legal counsel
to Borrower stating that, giving
effect to this Amendment, the
opinions expressed in the Opinion of
Counsel are confirmed; and
(b) payment to the Administrative Agent, for the
account of the Lenders according to their Pro
Rata Share of the Commitment, an amendment
fee in the amount agreed upon in a letter
agreement between the Administrative Agent
and Borrower.
16. Representation and Warranty. Borrower represents and
warrants that no Default or Event of Default has occurred and remains
continuing.
17. Confirmation. In all other respects, the terms of
the Loan Agreement and the other Loan Documents are hereby confirmed.
-8-
<PAGE> 9
IN WITNESS WHEREOF, Borrower and the Administrative Agent have
executed this Amendment effective as of June 30, 1998 by their duly authorized
representatives.
AMERICAN COIN MERCHANDISING, INC.
By: /s/ W. John Cash
-------------------------------
W. John Cash
Chief Financial Officer
WELLS FARGO BANK, NATIONAL
ASSOCIATION, as Administrative Agent
By: /s/ James K. Edwards
-------------------------------
James K. Edwards
Vice President
-9-
<PAGE> 10
Exhibit A to Amendment
CONSENT OF LENDER
Reference is hereby made to that certain Reducing Revolving
Loan Agreement dated as of June 10, 1998 (the "Loan Agreement") among
American Coin Merchandising, Inc. ("Borrower"), the Lenders party thereto
and Wells Fargo Bank, National Association, as Administrative Agent.
Capitalized terms used but not defined herein are used with the meanings set
forth for those terms in the Loan Agreement.
The undersigned Lender hereby consents to the execution and
delivery of Amendment No. 1 to Reducing Revolving Loan Agreement by the
Administrative Agent on its behalf effective as of June 30, 1998,
substantially in the form of the most recent draft presented to the
undersigned Lender.
Date: July __, 1998
---------------------------------
[Name of Institution]
By
------------------------------
---------------------------------
[Printed Name and Title]
<PAGE> 1
EXHIBIT 12
American Coin Merchandising, Inc.
Calculation of Ratios of Earnings to Combined Fixed Charges and
Preferred Stock Dividends
(amounts in thousands, except for ratios)
(unaudited)
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
--------------------------------- ---------------
1997 1996 1995 1994 1993 1997 1998
--------------------------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings before income taxes $ 6,685 3,897 2,904 1,082 321 1,399 1,823
Add:
Interest on debt, including interest to
related parties 612 375 383 228 115 111 118
Interest portion of rentals 163 92 63 43 23 41 54
Losses of less than 50%- owned affiliate - - 27 29 24 - -
--------------------------------- -------------
Earnings available for combined fixed charges
and preferred stock dividends $ 7,460 4,364 3,377 1,382 483 1,551 1,995
================================= =============
Fixed charges:
Interest on debt 612 375 383 228 115 111 118
Interest portion of rentals 163 92 63 43 23 41 54
--------------------------------- -------------
Total Combined Fixed Charges $ 775 467 446 271 138 152 172
================================= =============
Ratio of earnings to combined fixed charges 9.63 9.34 7.57 5.10 3.50 10.20 11.60
and preferred stock dividends
</TABLE>
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Auditors
-------------------------------
The Board of Directors
American Coin Merchandising, Inc.:
We consent to the use of our report included herein and to the references to
our firm under the heading "Experts" in the prospectus and prospectus
supplement.
/s/ KPMG Peat Marwick LLP
--------------------------
KPMG Peat Marwick LLP
Denver, Colorado
July 30, 1998
<PAGE> 1
EXHIBIT 23.2
Consent of Independent Accountants
We consent to the inclusion and incorporation by reference in the registration
statement of American Coin Merchandising, Inc. on Form S-3 of our report dated
May 20, 1998, on our audits of the combined financial statements of Suncoast
Toys, Inc., NW Toys Co., and Oregon Coin Company as of December 31, 1997 and
1996 and for the years ended December 31, 1997, 1996 and 1995, which report is
also included in Amendment No. 1 to the current report on Form 8-K/A of American
Coin Merchandising, Inc., dated July 23, 1998. We also consent to the reference
to our firm under the caption "Experts."
/s/ PricewaterhouseCoopers LLP
July 30, 1998
