EXECUTION COPY
SENIOR SUBORDINATED
NOTE PURCHASE AGREEMENT
dated as of
November 1, 1996
among
HANGER ORTHOPEDIC GROUP, INC.
and
The Purchasers listed on the
signature pages hereof
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS ............................ 1
SECTION 1.1. Definitions ............................................. 1
SECTION 1.2. Accounting Terms and Determinations ..................... 17
ARTICLE II
PURCHASE AND SALE OF NOTES AND WARRANTS ............ 17
SECTION 2.1. Commitments to Purchase Notes ........................... 17
SECTION 2.2. Commitments to Warrants ................................. 18
SECTION 2.3. The Closing ............................................. 18
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY ....................... 18
SECTION 3.1. Incorporation, Standing, etc ........................... 18
SECTION 3.2. Capitalization; Ownership ............................. 19
SECTION 3.3. Subsidiaries ........................................... 20
SECTION 3.4. Qualification .......................................... 20
SECTION 3.5. Business and Financial Statements ...................... 20
SECTION 3.6. Changes, etc ........................................... 21
SECTION 3.7. Tax Returns and Payments ............................... 21
SECTION 3.8. Debt ................................................... 21
SECTION 3.9. Title to Properties; Liens ............................. 22
SECTION 3.10. Litigation ............................................. 22
SECTION 3.11. Compliance with Other Instruments ...................... 22
SECTION 3.12. Governmental Consents .................................. 23
SECTION 3.13. Permits, Patents, Trademarks, etc ...................... 23
SECTION 3.14. Representations in Acquisition Agreement ............... 24
SECTION 3.15. Offer of Notes ......................................... 24
SECTION 3.16. Federal Reserve Regulations ............................ 24
SECTION 3.17. Status Under Certain Federal Statutes .................. 25
SECTION 3.18. Compliance with ERISA .................................. 25
SECTION 3.19. Solvency ............................................... 26
SECTION 3.20. Disclosure ............................................. 26
SECTION 3.21. Use of Proceeds ........................................ 26
SECTION 3.22. Environmental Compliance ............................... 26
SECTION 3.23. Note Purchase Agreement ................................ 27
ARTICLE IV
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Page
REPRESENTONS AND WARRANTIES OF PURCHASERS ......... 27
SECTION 4.1. Private Placement ....................................... 27
SECTION 4.2. Margin Compliance ....................................... 27
SECTION 4.3. Accredited Investor ..................................... 27
SECTION 4.4. Source of Funds ......................................... 27
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING.............. 28
SECTION 5.1. Conditions to Purchasers' Obligations to Purchase Notes. 28
SECTION 5.2. Conditions to Company's Obligations to Issue and Sell
the Notes and to Issue the Warrants ......................... 32
ARTICLE VI
COVENANTS......................... 33
SECTION 6.1. Financial Statements, etc .............................. 33
SECTION 6.2. Furnishing of Disclosure Information ................... 38
SECTION 6.3. Books of Record and Account; ........................... 38
SECTION 6.4. Payment of Taxes and Claims; Tax Consolidation ......... 38
SECTION 6.5. Maintenance of Properties; Corporate Existence
and Business......................................... 39
SECTION 6.6. Insurance .............................................. 39
SECTION 6.7. Inspection ............................................. 39
SECTION 6.8. Compliance with Laws, etc .............................. 39
SECTION 6.9. Subsidiary Guarantees .................................. 40
SECTION 6.10. Limitations on Restricted Payments .................... 40
SECTION 6.11. Limitations on Incurrence of Debt and
Issuance of Disqualified Stock...................... 42
SECTION 6.12. Liens ................................................. 44
SECTION 6.13. Consolidation, Merger, Sale of Assets, etc ............ 45
SECTION 6.14. Limitation on Transactions with Affiliates ............ 46
SECTION 6.15. Dividend and Other Payment Restrictions
Affecting Subsidiaries ............................. 46
SECTION 6.16. Limitation on Other Senior Subordinated Indebtedness .. 48
SECTION 6.18. Change of Control ..................................... 48
SECTION 6.19. Asset Sales ........................................... 50
SECTION 6.20. No Restrictive Agreements ............................. 51
SECTION 6.21. Private Placement Numbers ............................. 51
ARTICLE VII
TERMS OF THE NOTES .................... 51
SECTION 7.1. Form of Notes; Issuance of Notes ....................... 51
SECTION 7.2. Registration, Transfer, Exchange and Substitution
of Notes ............................................ 51
SECTION 7.3. Payments on the Notes .................................. 52
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Page
SECTION 7.4. Optional Prepayment .................................... 53
SECTION 7.5. Mandatory Prepayments Upon Equity Offerings ............ 54
SECTION 7.6. Events of Default; Acceleration of Maturity; Waiver
of Default .......................................... 54
SECTION 7.7. Powers and Remedies Cumulative; Delay or Omission Not
Waiver of Default .................................... 56
SECTION 7.8. Waiver of Past Defaults ................................ 57
ARTICLE VIII
SUBORDINATION OF NOTES .................. 57
SECTION 8.1. Notes Subordinated to Senior Indebtedness ............ 57
SECTION 8.2. Payment Over of Proceeds Upon Dissolution etc ........ 57
SECTION 8.3. No Payment When Senior Indebtedness is in Default .... 59
SECTION 8.4. Payment Permitted if No Default ...................... 60
SECTION 8.5. Subrogation to Rights of Holders of Senior
Indebtedness ...................................... 60
SECTION 8.6. Provisions Solely to Define Relative Rights .......... 61
SECTION 8.7. No Waiver of Subordination Provisions ................ 61
SECTION 8.8. Notice to Holders of Notes ........................... 61
SECTION 8.9. Reliance of Holders of Senior Indebtedness ........... 62
SECTION 8.10. Reliance on Judicial order or Certificate of
Liquidating Agent ................................. 62
SECTION 8.11. This Article Not to Prevent Events of Default ........ 62
SECTION 8.12. Reinstatement ........................................ 63
ARTICLE IX
SUBSTITUTION; LIMITATION ON TRANSFERS .......... 63
SECTION 9.1. Substitution of Purchasers Prior to Closing Date ....... 63
SECTION 9.2. Restrictions on Transfer ............................... 63
ARTICLE X
INDEMNIFICATION ..................... 64
SECTION 10.1. Indemnification ....................................... 64
ARTICLE XI
MISCELLANEOUS ....................... 65
SECTION 11.1. Notices ............................................... 65
SECTION 11.2. No Waivers; Amendments ................................ 66
SECTION 11.3. Survival of Provisions ................................ 66
SECTION 11.4. Expenses; Documentary Taxes ........................... 66
SECTION 11.5. Termination; Termination Fees ......................... 66
SECTION 11.6. Confidentiality ....................................... 67
SECTION 11.7. Successors and Assigns ................................ 67
SECTION 11.8. NEW YORK LAW .......................................... 67
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Page
SECTION 11.9. Counterparts; Effectiveness ........................... 67
SECTION 11.10. Entire Agreement ..................................... 67
SECTION 11.11. Consent to Jurisdiction .............................. 68
ARTICLE XII
SMALL BUSINESS ADMINISTRATION MATTERS ............ 68
SECTION 12.1. SBIC Forms ............................................ 68
SECTION 12.2. SBIC Information ...................................... 68
SECTION 12.3. Inspection ............................................ 68
SECTION 12.4. Information ........................................... 68
SECTION 12.5. Use of Proceeds ....................................... 69
SECTION 12.6. Business .............................................. 69
SECTION 12.7. Non-Discrimination .................................... 69
SECTION 12.8. Company Awareness ..................................... 69
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Schedule 3.2 - Capital Stock
Schedule 3.3 - Subsidiaries
Schedule 3.5 - Financial Statements
Schedule 3.8 - Debt
Schedule 3.9 - UCC Financing Statements
Schedule 3.10 - Litigation
Schedule 3.12 - Governmental Consents
Schedule 3.13 - Permits, Patents, Trademarks, etc.
Schedule 3.18 - Multiemployer Plan Contribution Obligations
Schedule 5.1(h) - Consents
Schedule 5.1(l) - Company Projections
Exhibit A - Form of Senior Subordinated Note
Exhibit B - Form of Subsidiary Guaranty Agreement
Exhibit C - Opinion of Freedman, Levy, ▇▇▇▇▇ & ▇▇▇▇▇▇▇
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SENIOR SUBORDINATED
NOTE PURCHASE AGREEMENT
SENIOR SUBORDINATED NOTE PURCHASE AGREEMENT, dated as of November 1,
1996 among HANGER ORTHOPEDIC GROUP, INC., a Delaware corporation (together with
its successors, the "Company") and the Purchasers listed on the signature pages
hereof (the 'Purchasers").
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. The following terms, as used herein, having
the following meanings:
"Acquired Debt" means, with respect to any specified Person, (i) Debt
of any other Person existing at the time such other Person merged with or into
or became a Restricted Subsidiary of such specified Person, including Debt
incurred in connection with, or in contemplation of, such other Person merging
with or into or becoming a Restricted Subsidiary of such specified Person and
(ii) Debt encumbering any asset acquired by such specified Person.
"Acquisition" shall mean the acquisition by the Company of 100% of
the issued and outstanding shares of capital stock of Southern pursuant to the
merger of Newco with and into Southern in accordance with the Acquisition
Agreement.
"Acquisition Agreement" shall mean the Agreement and Plan of Merger,
dated as of July 29, 1996, between the Company, Newco and Southern as in effect
on the date hereof.
"Acquisition Costs" shall mean all costs and expenses incurred by the
Company in connection with the Acquisition and the financing thereof, including,
without limitation, (a) payments in respect of the purchase price pursuant to
the Acquisition Agreement; and (b) all fees, commissions and expenses relating
to the Acquisition and the financing thereof (including, without limitation,
investment banking, brokerage, investment advisory, finder's, accounting,
publicity, appraisal, engineering, environmental audit, legal, syndication,
placement, commitment and interest rate hedging fees, commissions and expenses).
"Affiliate" shall mean, with respect to any designated Person, any
other Person that has a relationship with the designated Person whereby either
of such Persons directly or indirectly controls or is controlled by or is under
common control with the other of such Persons, excluding the Purchasers and the
Senior Lenders. The term "control" means the
2
possession, directly or indirectly, of the direction of the management or
policies of any Person, whether through ownership of voting securities, by
contract or otherwise.
"Agent Bank" means Banque Paribas, in its capacity as agent under the
Credit Agreement, and any successor agent thereunder.
"Agreement" shall mean this Senior Subordinated Note Purchase
Agreement, as the same may be amended from time to time.
"Asset Sale" means:
(a) the sale, conveyance, transfer or other disposition (whether
in a single transaction or a series of related transactions) of property or
assets (including by way of a sale and leaseback) of the Company or any
Restricted Subsidiary other than in the ordinary course of business (each
referred to in this definition as a "disposition") or
(b) the issuance or sale of Equity Interests of any Restricted
Subsidiary (whether in a single transaction or a series of related
transactions), in each case, other than:
(i) a disposition of obsolete equipment in the ordinary
course of business;
(ii) the disposition of all or substantially all of the
assets of the Company in a manner permitted pursuant to the provisions
described under Section 6.13 or any disposition that constitutes a
Change of Control pursuant to this Agreement;
(iii) any disposition that is a Restricted Payment or that is
a dividend or distribution permitted under the covenant described under
Section 6.10 or any Investment that is not prohibited thereunder or any
disposition of cash or Cash Equivalents;
(iv) any disposition, or related series of dispositions, of
assets with an aggregate fair market value of less than $1,000,000;
(v) any sale of Equity Interests in, or Indebtedness or
other securities of, an Unrestricted Subsidiary; and
(vi) foreclosures on assets.
"Basic Documents" shall mean this Agreement, the Subsidiary Guaranty
Agreement, the Acquisition Agreement, the Credit Agreement and Warrants.
"Business Day" shall mean any day on which commercial banks are not
authorized or required to close in New York City.
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"Capital Stock" means with respect to any Person, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock of such Person, including, without limitation, if such Person is
a partnership, partnership interests (whether general or limited) and any other
interest or participation that confers on a Person the right to receive a share
of the profits and losses of, or distributions of assets of, such partnership.
"Capitalized Lease Obligation" shall mean the obligation to pay rent
or other amounts under a lease of (or other agreement conveying the right to
use) real and/or personal property which obligations are required to be
classified and accounted for as a capital lease on a balance sheet of the lessee
under GAAP and, for purposes of this Agreement, the amount of such obligations
shall be the capitalized amount thereof, determined in accordance with GAAP.
"Cash Equivalents" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof, (iii) certificates of
deposit, time deposits and eurodollar time deposits with maturities of one year
or less from the date of acquisition, bankers' acceptances with maturities not
exceeding one year and overnight bank deposits, in each case with any commercial
bank having capital and surplus in excess of $500,000,000, (iv) repurchase
obligations for underlying securities of the types described in clauses (ii) and
(iii) entered into with any financial institution meeting the qualifications
specified in clause (iii) above, (v) commercial paper rated A-1 or the
equivalent thereof by ▇▇▇▇▇'▇ or S&P and in each case maturing within one year
after the date of acquisition, (vi) investment funds investing 95% of their
assets in securities of the types described in clauses (i)-(v) above, (vii)
readily marketable direct obligations issued by any state of the United States
of America or any political subdivision thereof having one of the two highest
rating categories obtainable from either ▇▇▇▇▇'▇ or S&P, (viii) Indebtedness or
Preference Stock issued by Persons with a rating of "A" or higher from S&P or
"A2" or higher from ▇▇▇▇▇'▇ and (ix) Cash Equivalents, as defined under the
Credit Agreement, as in effect on the Closing Date.
"Change of Control" shall occur at any time that (i) any "person" (as
such term is used in Sections 13(d) and 14(d) of the Exchange Act), in a single
transaction or through a series of related transactions, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of more than 50% of the total Voting Stock of the Company; (ii)
the Company consolidates or merges with or into another corporation or conveys,
transfers or leases all or substantially all of its assets to any Person, or any
corporation consolidates or merges with or into the Company, in any such event
pursuant to a transaction in which the outstanding Voting Stock of the Company
is changed into or exchanged for cash, securities or other property, other than
any such transaction where (A) the outstanding Voting Stock of the Company is
changed into or exchanged for (x) Voting Stock of the surviving corporation
which is not Disqualified Stock and/or (y) cash, securities or other property in
an amount which could be paid by the Company as a Restricted Payment and (B) the
holders of the Voting Stock of the Company immediately prior to such transaction
own, directly or indirectly, not less than 50% of the Voting Stock of the
surviving corporation immediately after such transaction, (iii) during any
period of two consecutive
4
years, individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election by such
Board of Directors or whose nomination for election by the stockholders of the
Company was approved by a vote of at least 50% of the directors then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the Company then in
office; or (iv) the Company is liquidated or dissolved or adopts a plan of
liquidation.
"Closing" and "Closing Date" shall have the meanings set forth in
Section 2.2(a).
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Stock" shall mean the shares of common stock, par value $0.1
per share, of the Company.
"Company Financial Statements" shall have the meaning ascribed to such
term in Section 3.5(b).
"Company Projections" shall have the meaning specified in Section
5.1(m).
"Consolidated" shall mean, with respect to any Person, the
consolidation of the accounts of such Person and its Subsidiaries in accordance
with GAAP, including in the case of the Company and its Subsidiaries, principles
of consolidation consistent with those applied in the preparation of the
Company's financial statements unless the context provides which Subsidiaries
are to be Consolidated.
"Consolidated Depreciation and Amortization Expense" means with
respect to any Person for any period, the total amount of depreciation and
amortization expense and other noncash charges (excluding any noncash item that
represents an accrual, reserve or amortization of a cash expenditure for a
future period) of such Person and its Restricted Subsidiaries for such period on
a consolidated basis and otherwise determined in accordance with GAAP.
"Consolidated Income Tax Expense" for any Person for any period means,
without duplication, the aggregate amount of net taxes based on income or
profits for such period of the operations of such Person and its Restricted
Subsidiaries with respect to such period in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any period, the
sum of: (a) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued (except to the extent
accrued in a prior period), to the extent such expense was deducted in computing
Consolidated Net Income (including amortization of original issue discount,
non-cash interest payments, the interest component of Capitalized Lease
Obligations, and net payments (if any) pursuant to Hedging Obligations,
excluding amortization of deferred financing fees) and (b) consolidated
capitalized interest of such
5
Person and its Restricted Subsidiaries for such period, whether paid or accrued,
to the extent such expense was deducted in computing Consolidated Net Income.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, and otherwise determined
in accordance with GAAP; provided, however, that (i) the Net Income for such
period of any Person that is not a Subsidiary, or is an Unrestricted Subsidiary,
or that is accounted for by the equity method of accounting, shall be included
only to the extent of the amount of dividends or distributions or other payments
paid in cash (or to the extent converted into cash) to the referent Person or a
Wholly Owned Restricted Subsidiary thereof in respect of such period, (ii) the
Net Income of any Person acquired in a pooling of interests transaction shall
not be included for any period prior to the date of such acquisition and (iii)
the Net Income for such period of any Restricted Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or similar distributions
by that Restricted Subsidiary of its Net Income is not at the date of
determination permitted without any prior governmental approval (which has not
been obtained) or, directly or indirectly, by the operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders, unless such restriction with respect to the payment of dividends
or in similar distributions has been legally waived.
"Contingent Obligations" means, with respect to any Person, any
obligation of such Person guaranteeing any leases, dividends or other
obligations that do not constitute Indebtedness ("primary obligations") of any
other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (a) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (b) to advance or
supply funds (i) for the purchase or payment of any such primary obligation or
(ii) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, or (c)
to purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the primary
obligor to make payment of such primary obligation against loss in respect
thereof.
"Credit Agreement" shall mean the Credit Agreement dated as of
November 1, 1996 among the Company, JEH Acquisition Corporation, the banks from
time to time parties thereto and the Agent Bank, together with all related
documents, instruments and agreements executed in connection therewith
(including, without limitation, any guarantee agreements and security
documents), in each case as such agreements, documents or instruments may be
amended (including any amendment or restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including,
without limitation, increasing the amount of available borrowings thereunder or
adding subsidiaries of the Company as additional borrowers or guarantors
thereunder) all or any portion of the Debt under such agreement or any successor
or replacement agreement and whether by the same or any other agent, lender or
group of lenders.
6
"CVCA" shall mean Chase Venture Capital Associates, L.P., a California
limited partnership.
"Debt" shall mean with respect to any Person, (a) any indebtedness of
such Person, whether or not contingent (i) in respect of borrowed money, (ii)
evidenced by bonds. notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof), (iii) representing the
balance deferred and unpaid of the purchase price of any property (including
Capitalized Lease Obligations), except any such balance that constitutes an
accrued expense or trade payable or any other monetary obligation of a trade
creditor (whether or not an Affiliate), or (iv) representing any Hedging
Obligations, if and to the extent any of the foregoing Debt (other than letters
of credit and Hedging Obligations) would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP, (b) to the extent not
otherwise included, any Contingent Obligations (other than by endorsement of
negotiable instruments for collection in the ordinary course of business) and
(c) to the extent not otherwise included, Debt of another Person secured by a
Lien on any asset owned by such Person (whether or not such Debt is assumed by
such Person); provided, however, that Contingent Obligations incurred in the
ordinary course of business shall be deemed not to constitute Debt.
"Default" shall mean any condition or event which constitutes an Event
of Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Disinterested Director" means, with respect to any transaction or
series of related transactions, a member of the Board of Directors of the
Company who does not have any material direct or indirect financial interest in
or with respect to such transaction or series of related transactions.
"Disqualified Stock" means, with respect to any Person, any Capital
Stock of such Person which, by its terms (or by the terms of any security into
which it is convertible or for which it is putable or exchangeable), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fluid obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to November 1, 2004; provided,
however, that if such Capital Stock is either (i) redeemable or repurchasable
solely at the option of such Person or (ii) issued to employees of the Company
or its Subsidiaries or to any plan for the benefit of such employees, such
Capital Stock shall not constitute Disqualified Stock unless so designated.
"EBITDA" shall mean for any period the Consolidated Net Income for
such period plus the sum of the following for any Person (determined on a
Consolidated basis in accordance with GAAP and without duplication) to the
extent deducted in calculating Consolidated Net Income: (i) Consolidated Income
Tax Expense, (ii) Consolidated Interest Expense, (iii) Consolidated Depreciation
and Amortization Expense and (iv) all other non-cash charges (excluding any such
non-cash charge constituting an extraordinary item or loss or any non-cash item
which require an accrual of or reserve for cash charges in future
7
periods) and less any non-cash items which have the effect of increasing
(decreasing in the case of a loss) Consolidated Net Income for such period.
"Environmental Laws" shall mean any and all federal, state, local, and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to the environment or the release of any
materials into the environment, including but not limited to those related to
hazardous substances or wastes, air emissions and discharges to waste or public
systems.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" shall mean any sale or issuance after the Closing
Date of equity of the Company or any of its Subsidiaries (other than equity
issued on the Closing Date to the shareholders of Southern in connection with
the Acquisition).
"Equity Offering Proceeds" shall mean 100% of the cash proceeds (net
of underwriting discounts and commissions and all other reasonable costs
associated with such transaction) from any Equity Offering.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"Event of Default" shall have the meaning ascribed to such term in
Section 7.6.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar Federal statute, and the rules and regulations of the
SEC thereunder, all as the same shall be in effect at the time.
"Existing Debt" means Debt of the Company or its Restricted
Subsidiaries in existence on the Closing Date, plus interest accruing thereon,
after application of the net proceeds of the sale of the Notes until such
amounts are repaid.
"Existing Loan Documents" shall mean any and all agreements, notes,
pledges, guarantees or other documents governing the Refinanced Indebtedness (as
defined in the Credit Agreement).
"Facility Letter of Credit" shall mean any letter of credit issued
pursuant to the Credit Agreement.
"Financial Statements" shall mean the collective reference to the
Southern Financial Statements and the Company Financial Statements.
8
"Fiscal Quarter" shall mean the three month period ending on March 31,
June 30, September 30 or December 31, as applicable.
"Fiscal Year" shall mean the fifty-two week period ending on December
31.
"Fixed Assets" of any Person shall mean any real property, plant or
equipment used by such Person in the ordinary course of its business.
"Fixed Charge Coverage Ratio" means, with respect to any Person for
any period, the ratio of EBITDA of such Person for such period to the Fixed
Charges of such Person for such period. In the event that the Company or any of
its Restricted Subsidiaries incurs, assumes, guarantees or redeems any Debt
(other than repayments of revolving credit borrowings with respect to which the
related commitment remains outstanding) or issues or redeems Preference Stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the event for which the calculation of
the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed
Charge Coverage Ratio shall be calculated giving pro forma effect to such
incurrence, assumption, guarantee or redemption of Debt, or such issuance or
redemption of Preference Stock, as if the same had occurred at the beginning of
the applicable four-quarter period. For purposes of making the computation
referred to above, Investments, acquisitions, dispositions which constitute all
or substantially all of an operating unit of a business and discontinued
operations (as determined in accordance with GAAP) that have been made by the
Company or any of its Restricted Subsidiaries, including all mergers,
consolidations and dispositions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be calculated on a pro forma basis assuming that all such Investments,
acquisitions, dispositions, discontinued operations, mergers, consolidations
(and the reduction of any associated fixed charge obligations and the change in
EBITDA resulting therefrom) had occurred on the first day of the four-quarter
reference period and without regard to clause (ii) of the definition of
Consolidated Net Income. If since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made any Investment, acquisition, disposition which constitutes all or
substantially all of an operating unit of a business, discontinued operation,
merger or consolidation that would have required adjustment pursuant to this
definition, then the Fixed Charge Coverage Ratio shall be calculated giving pro
forma effect thereto for such period as if such Investment, acquisition,
disposition, discontinued operation, merger or consolidation had occurred at the
beginning of the applicable four-quarter period and without regard to clause
(ii) of the definition of Consolidated Net Income. For purposes of this
definition, whenever pro forma effect is to be given to a transaction, the pro
forma calculations shall be made in good faith by a responsible financial or
accounting officer of the Company. If any Debt bears a floating rate of interest
and is being given pro forma effect, the interest of such Debt shall be
calculated as if the rate in effect on the Calculation Date had been the
applicable rate for the entire period (taking into account any Hedging
Obligations applicable to such Debt). Interest on a Capitalized Lease Obligation
shall be deemed to accrue at an interest rate reasonably determined by a
responsible financial or accounting officer of the Company to be the rate of
interest implicit in such Capitalized Lease Obligation in accordance with GAAP.
9
Interest on Debt that may optionally be determined at an interest rate based
upon a factor of a prime or similar rate, a eurocurrency interbank offered rate,
or other rate, shall be deemed to have been based upon the rate actually chosen,
or, if none, then based upon such optional rate chosen as the Company may
designate.
"Fixed Charges" shall mean, for any period, the sum of (a)
Consolidated Interest Expense of such Person for such period and (b) all cash
dividend payments (excluding items eliminated in consolidation) on any series of
Preference Stock of such Person.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Closing Date. For the purposes of this
Agreement, the term "consolidated" with respect to any Person shall mean such
Person consolidated with its Restricted Subsidiaries, and shall not include any
Unrestricted Subsidiary.
"Guarantee" shall mean, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of such Person with respect to any
indebtedness, lease, dividend or other obligation of another, including, without
limitation, any such obligation directly or indirectly guaranteed, endorsed
(otherwise than for collection or deposit in the ordinary course of business) or
discounted or sold with recourse by such Person, or in respect of which such
Person is otherwise directly or indirectly liable, including, without
limitation, any such obligation of a partnership in which such Person is a
general partner, and any such obligation in effect guaranteed by such Person
through any agreement (contingent or otherwise) to purchase, repurchase or
otherwise acquire such obligation or any security therefor, or to provide funds
for the payment or discharge of such obligation (whether in the form of loans,
advances, stock purchases, capital contributions or otherwise), or to maintain
the solvency or any balance sheet or other financial condition of the obligor of
such obligation, or to make payment for any products, materials or supplies or
for any transportation or services regardless of the non-delivery or
non-furnishing thereof, in any such case if the purpose or intent of such
agreement is to provide assurance that such obligation will be paid or
discharged, or that any agreements relating thereto will be complied with, or
that the holders of such obligation will be protected against loss in respect
thereof.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) currency exchange or interest rate swap
agreements, currency exchange or interest rate cap agreements and currency
exchange or interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in currency
exchange or interest rates.
"Interest Payment Date" shall mean June 30 and December 31 of each
year, commencing June 30, 1997.
10
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the form of loans
(including guarantees), advances or capital contributions (excluding advances to
customers, commission, travel and similar advances to officers and employees
made in the ordinary course of business), purchases or other acquisitions of
securities issued by any other Person and investments that are required by GAAP
to be classified on the balance sheet of the Company in the same manner as the
other investments included in this definition to the extent such transactions
involve the transfer of cash or other property. For purposes of the definition
of "Unrestricted Subsidiary" and the covenant contained in Section 6.10, (i)
"Investments" shall include the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of a
Subsidiary of the Company at the time that such Subsidiary is designated an
Unrestricted Subsidiary; provided, however, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue
to have a permanent "Investment" in an Unrestricted Subsidiary equal to the
amount (if positive) equal to (x) the Company's Investment in such Subsidiary at
the time of such redesignation less (y) the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of such Subsidiary at the time of such redesignation; and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair value at the time of such transfer, in each case as determined in good
faith by the Board of Directors.
"Lien" shall mean, as to any Person, any mortgage, lien, pledge,
adverse claim, charge, security interest or other encumbrance in or on, or any
interest or title of any vendor, lessor, lender or other secured party to or of
such Person under any conditional sale or other title retention agreement or
capital lease with respect to, any property or asset owned or held by such
Person, or the signing or filing of a financing statement which names such
Person as debtor, or the signing of any security agreement authorizing any other
party as the secured party thereunder to file any financing statement. For the
purposes of this Agreement, a Person shall be deemed to be the owner of any
assets which it has placed in trust for the benefit of the holders of Debt of
such Person and such trust shall be deemed to be a Lien if such Debt is deemed
to be extinguished under GAAP but such Person remains legally liable therefor.
"Moody's" means ▇▇▇▇▇'▇ Investors Service, Inc.
"Multiemployer Plan" shall mean any Plan which is a "multiemployer
plan" (as such term is defined in Section 4001 (a)(3) of ERISA).
"Net Income" of any Person shall mean, for any period, such Person's
after-tax net income determined in accordance with GAAP.
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale, net
of the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and brokerage and sales
commissions), and any relocation expenses incurred as a result thereof, taxes
paid or payable as a result thereof (after taking into account any available tax
11
credits or deductions and any tax sharing arrangements), amounts required to be
applied to the repayment of principal, premium (if any) and interest on
Indebtedness required (other than required by clause (i) of Section 6.19(b)) to
be paid as a result of such transaction and any deduction of appropriate amounts
to be provided by the Company as a reserve in accordance with GAAP against any
liabilities associated with the asset disposed of in such transaction and
retained by the Company after such sale or other disposition thereof, including,
without limitation, pension and other post-employment benefit liabilities and
liabilities related to environmental matters or against any indemnification
obligations associated with such transaction.
"Newco" shall mean JEH Acquisition Corporation, a corporation
organized and existing under the laws of the State of Georgia and a wholly-owned
subsidiary of the Company.
"Nonvoting Stock" shall mean the Company's non-voting, non-convertible
Class C Preferred Stock and the Company's non-voting, non-convertible Class F
Preferred Stock, each par value $.0l per share.
"Noteholders" or "Holders" shall mean the registered holders from time
to time of the Notes.
"Notes" shall mean (a) the Company's $8,000,000 aggregate principal
amount of Subordinated Notes originally issued hereunder or (b) any Subsequent
Notes issued hereunder, each substantially in the form of Exhibit A hereto, or
any note delivered in substitution or exchange for any such Note.
"Obligations" means any principal, interest, premium, penalties, fees,
expenses, indemnification, reimbursements (including, without limitation,
reimbursement obligations with respect to letters of credit and bankers'
acceptances), damages and other liabilities payable under the documentation
governing any Debt.
"Officers' Certificate" shall mean for any Person a certificate
executed on behalf of such Person by the Chairman of the Board or its President
or one of its Vice Presidents and its Chief Financial Officer.
"Original Notes" shall have the meaning ascribed to such term in
Section 5.1(a).
"Pari Passu Indebtedness" means (a) with respect to the Notes, Debt
which ranks pari passu in right of payment to the Notes and (b) with respect to
the Subsidiary Guaranty Agreement, Debt which ranks pari passu in right of
payment to such Subsidiary Guaranty Agreement.
"Paribas Principal, Inc." means Paribas Principal, Inc.
12
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
governmental authority succeeding to any of its functions.
"Permitted Business" shall mean a line of business in which the
Company is engaged on the Closing Date and reasonably related extensions
thereof.
"Permitted Investments" means (a) any Investment in the Company or any
Restricted Subsidiary that in each case is a Permitted Business; (b) any
Investment in cash and Cash Equivalents; (c) any Investment by the Company or
any Restricted Subsidiary of the Company in a Person that is a Permitted
Business if as a result of such Investment (i) such Person becomes a Restricted
Subsidiary of the Company or (ii) such Person, in one transaction or a series of
related transactions, is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated into,
the Company or a Restricted Subsidiary of the Company; (d) any Investment in
securities or other assets not constituting cash or Cash Equivalents and
received in connection with an Asset Sale made pursuant to the provisions of
Section 6.18 or any other disposition of assets not constituting an Asset Sale;
(e) any Investment existing on the Closing Date; (f) any Investment by
Restricted Subsidiaries in other Restricted Subsidiaries and Investments by
Subsidiaries that are not Restricted Subsidiaries in other Subsidiaries that are
not Restricted Subsidiaries; (g) advances to employees not in excess of $750,000
outstanding at any one time; (h) any Investment acquired by the Company or any
of its Restricted Subsidiaries (i) in exchange for any other Investment or
accounts receivable held by the Company or any such Restricted Subsidiary in
connection with or as a result of a bankruptcy, workout, reorganization or
recapitalization of the issuer of such other Investment or accounts receivable
or (ii) as a result of a foreclosure by the Company or any of its Restricted
Subsidiaries with respect to any secured Investment or other transfer of title
with respect to any secured Investment in default; (i) Hedging Obligations; (j)
loans and advances to officers, directors and employees for business-related
travel expenses, moving expenses and other similar expenses, in each case
incurred in the ordinary course of business; and (k) Investments the payment for
which consists exclusively of Equity Interests (exclusive of Disqualified Stock)
of the Company.
"Person" shall mean any individual, corporation, partnership, trust,
joint venture, unincorporated association or other enterprise or any government
or any agency, instrumentality or political subdivision thereof.
"Plan" shall mean an "employee pension benefit plan" (as defined in
Section 3 of ERISA).
"Preference Stock" shall mean with respect to any Person any shares of
such Person which shall be entitled to preference or priority over any other
shares of such Person in respect of either the payment of dividends or the
distribution of assets upon liquidation or both.
13
"Preferred Stock" shall mean the Company's non-voting, non-convertible
Class C Preferred Stock and the Company's non-voting, non-convertible Class F
Preferred Stock, each par value $.0l per share.
"Purchasers" shall mean the Purchasers listed on the signature pages
hereto.
"Related Person" shall mean any corporation or trade or business that
is a member of the same controlled group of corporations (within the meaning of
section 414(b) of the Code) as the Company or is under common control (within
the meaning of section 414(c) of the Code) with the Company or is a member of
any affiliated service group (within the meaning of section 414(m) of the Code)
which includes the Company or is otherwise treated as part of the controlled
group which includes the Company (within the meaning of section 414(o) of the
Code).
"Reimbursement Obligations" shall mean, at any time, the aggregate of
the obligations of the Company to the Senior Lenders and the Agent Bank in
respect of all unreimbursed payments or disbursements made by the Lenders and
the Agent under or in respect of any letters of credit issued pursuant to the
Credit Agreement.
"Reportable Event" means an event described in Section 4043(c) of
ERISA with respect to a Plan that is subject to Title IV of ERISA other than
those events as to which the 30-day notice period is waived under subsection
.13, .14, .16, .18, .19 or .20 of PBGC Regulation Section 4043.
"Required Holders" shall mean, at any time, Noteholders of at least
50.1% of the aggregate principal amount of the Notes then outstanding.
"Required Lenders" shall mean the "Required Banks" under the Credit
Agreement.
"Restricted Investment" means an investment other than a Permitted
Investment.
"Restricted Subsidiary" shall mean any Subsidiary of the Company which
is not an Unrestricted Subsidiary; provided, however, that upon the occurrence
of any Unrestricted Subsidiary ceasing to be an Unrestricted Subsidiary, such
Subsidiary shall be included in the definition of "Restricted Subsidiary."
"Restricted Payment" shall have the meaning set forth in Section 6.10.
"Revolving Credit Commitment" shall mean the obligation of the Senior
Lenders to make Revolving Credit Loans and issue Facility Letters of Credit
under the Credit Agreement.
"Revolving Credit Loans" shall mean the revolving credit loans made
pursuant to the Credit Agreement.
14
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the SEC thereunder,
all as the same shall be in effect at the time.
"Security Agreement" shall have the meaning ascribed to such term in
the Credit Agreement.
"Security Documents" shall have the meaning ascribed to such term in
the Credit Agreement.
"Senior Indebtedness" shall mean, without duplication, (i) all
Obligations of the Company at any time payable under or in respect of, the
Credit Agreement; (ii) all Debt and other obligations of the Company permitted
to be incurred by the Company under the terms of this Agreement, unless the
instrument under which such Debt is incurred expressly provides that it is on a
parity with or subordinated in right of payment to the Notes; and (iii)
post-petition interest accruing on Indebtedness under (i) and (ii) above, at the
applicable contract rate (including the default rate), after the filing of a
petition initiating any bankruptcy, insolvency or similar proceeding, whether or
not a claim for post-filing or post-petition interest is allowed in such
proceeding. Notwithstanding the foregoing, the term Senior Indebtedness shall
not include (a) Debt of the Company which, when incurred and without respect to
any election under Section 1111(b) of ▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇ Code, was without
recourse to the Company, (b) any Debt of the Company to an Affiliate of the
Company (including Subsidiaries), (c) any Debt of the Company incurred in
violation of this Agreement, (d) Debt to any officer, director or employee of
the Company, (e) Trade Payables, (f) Debt evidenced by the Notes, (g) Capital
Stock of the Company, (h) any liability for federal, state, or other taxes owed
or owing by the Company and (i) any Debt, guarantee or obligation of the Company
which is subordinate or junior in right to any other Debt, guarantee or
obligation of the Company.
"Senior Lenders" shall mean each of the banks or financial
institutions which have commitments or outstanding amounts under the Credit
Agreement.
"Senior Loans" shall have the meaning ascribed to "Loans" under the
Credit Agreement.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the Closing Date.
"Solvent" shall mean, with respect to any Person on a particular date,
that on such date (a) the fair value of the property of such Person is greater
than the total amount of liabilities, including, without limitation, contingent
liabilities, of such Person, (b) the present fair saleable value of the assets
of such Person is not less than the amount that will be required to pay the
probable liabilities of such Person on its debts as they become absolute
15
and matured, (c) such Person is able to realize upon its assets and pay its
debts and other liabilities, contingent obligations and other commitments as
they mature in the normal course of business, (d) such Person does not intend
to, and does not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature, and (e) such
Person is not engaged in a business or a transaction, and is not about to engage
in a business or transaction, for which such Person's property would constitute
unreasonably small capital after giving due consideration to the prevailing
practice in the industry in which such Person is engaged.
"Southern" shall mean ▇.▇. ▇▇▇▇▇▇ Inc. of Georgia, a Georgia
corporation, and its successors.
"Southern Financial Statements" shall have the meaning ascribed to
such term in Section 3.5(a).
"Specified Senior Indebtedness" shall mean all Senior Indebtedness
from time to time outstanding under the Credit Agreement.
"Subordinated Indebtedness" means any Debt of the Company which is by
its terms subordinated in right of payment to the Notes.
"S&P" means Standard and Poor's Ratings Group.
"Subordinated Obligations" shall mean all Obligations payable under
the documentation governing the Notes, including, without limitation, any
amounts received upon the exercise of rights of recision or other rights of
action (including claims for damages) or otherwise, to the extent relating to
the purchase price of the Notes.
"Subsequent Notes" shall have the meaning ascribed to such term in
Section 7.3(c).
"Subsidiary" shall mean, with respect to any Person, any corporation,
association, partnership, joint venture, joint adventure or other business
entity whether now existing or hereafter organized or acquired in which such
Person or one or more Subsidiaries of such Person owns sufficient voting
securities to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity.
"Subsidiary Guarantors" shall mean the Subsidiaries of the Company
from time to time parties to the Subsidiary Guaranty Agreement and their
respective successors.
"Subsidiary Guaranty Agreement" shall mean the Subsidiary Guaranty
Agreement dated as of November l , 1996 among the Subsidiary Guarantors and the
Purchasers listed on the signature pages thereto, substantially in the form of
Exhibit B hereto.
16
"Trade Payable" shall mean accounts payable or any other indebtedness
or monetary obligations to trade creditors created or assumed by the Company or
any Subsidiary of the Company in the ordinary course of business in connection
with the obtaining of materials or services.
"Transactions" means the transactions contemplated by the Basic
Documents.
"Unfunded Current Liability" of any Plan shall mean the amount, if
any, by which the actuarial present value of the accumulated plan benefits under
the Plan as of the close of its most recent plan year exceeds the fair market
value of the assets allocable thereto, each determined in accordance with
Statement of Financial Accounting Standards No. 87, based upon the actuarial
assumptions used by the Plan's actuary in the most recent annual valuation of
the plan.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company
which at the time of determination is an Unrestricted Subsidiary (as designated
by the Board of Directors of the Company, as provided below) and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the Company
may designate any Subsidiary of the Company (including any Subsidiary and any
newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary
unless such subsidiary owns any Equity Interests of, or owns, or holds any Lien
on, any property of, any Subsidiary of the Company (other than any Subsidiary of
the Subsidiary to be so designated), provided that (a) any Unrestricted
Subsidiary must be an entity of which shares of the capital stock or other
equity interests (including partnership interests) entitled to cast at least a
majority of the votes that may be cast by all shares or equity interests having
ordinary voting power for the election of directors or other governing body are
owned, directly or indirectly, by the Company, (b) the Company certifies that
such designation complies with Section 6.10 and (c) each of (II) the Subsidiary
to be so designated and ([1) its Subsidiaries has not at the time of
designation, and does not thereafter, create, incur, issue, assume, guarantee or
otherwise become directly or indirectly liable with respect to any Debt pursuant
to which the lender has recourse to any of the assets of the Company or any of
its Restricted Subsidiaries. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that,
immediately after giving effect to such designation, the Company could incur at
least $1.00 of additional Debt pursuant to the Fixed Charge Coverage Ratio test
described under Section 6.10 on a pro forma basis taking into account such
designation.
"Voting Stock" means stock of the class or classes pursuant to which
the holders hereof have the general voting power under ordinary circumstances to
elect at least a majority of the board of directors, managers or trustees of a
corporation (irrespective of whether or not at the time stock of any other class
or classes shall have or might have voting power by reason of the happening of
any contingency).
"Warrants" shall mean (a) the Warrant, dated as of November 1, 1996,
between the Company and CVCA and (b) the Warrant, dated as of November 1, 1996,
between the Company and Paribas Principal, Inc., each substantially in the form
of Exhibit B hereto, and any Warrants issued upon transfer, division or
combination thereof, or in substitution therefor.
17
"Warrantholder" shall mean any person holding a Warrant.
"Weighted Average Life to Maturity" means, when applied to any Debt or
Disqualified Stock, as the case may be, at any date, the number of years
obtained by dividing (a) the sum of the products obtained by multiplying (x) the
amount of each then remaining installment, sinking fund, serial maturity or
other required payments of principal, including payment at final maturity, in
respect thereof, by (y) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such payment,
by (b) the then outstanding principal amount or liquidation preference, as
applicable, of such Debt or Disqualified Stock, as the case may be.
"Wholly-Owned" shall mean, as applied to any Subsidiary, a Subsidiary
all the outstanding shares (other than directors' qualifying shares, if required
by law) of every class of stock of which are at the time owned by the Company or
by one of the Wholly-Owned Subsidiaries or by the Company and one or more
Wholly-Owned Subsidiaries.
"Wholly Owned Restricted Subsidiary" is any Wholly Owned Subsidiary
that is a Restricted Subsidiary.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such
Person 95% of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person and one
or more Wholly Owned Subsidiaries of such Person.
SECTION 1.2. Accounting Terms and Determinations. (a) Except as
otherwise expressly provided herein, all accounting terms used herein shall be
interpreted, and all financial statements and certificates and reports as to
financial matters required to be delivered to the Noteholders hereunder shall
(unless otherwise disclosed to the Noteholders in writing at the time of
delivery thereof in the manner described in paragraph (b) below) be prepared, in
accordance with GAAP. All calculations made for the purposes of determining
compliance with the provisions of this Agreement shall (except as otherwise
expressly provided herein) be made by application of GAAP applied on a basis
consistent with those used in the preparation of the financial statements
furnished to the Noteholders pursuant to Section 6.1 hereof (or at any time
prior to the delivery of the initial such financial statements, consistent with
those in effect on the date hereof).
(b) To enable the ready and consistent determination of compliance
with the covenants set forth herein, unless otherwise required by law, the
Company will not change the last day of its Fiscal Year, or its Fiscal Quarters
as defined herein.
ARTICLE II
PURCHASE AND SALE OF NOTES AND WARRANTS
18
SECTION 2.1. Commitments to Purchase Notes. (a) Upon the basis of the
representations and warranties herein contained of each Purchaser, but subject
to the terms and conditions hereinafter stated, the Company agrees to issue and
sell to each Purchaser listed on the signature pages hereto and each Purchaser,
upon the basis of the representations and warranties herein contained of the
Company, but subject to the terms and conditions hereinafter stated, agrees
severally but not jointly, to purchase from the Company the principal amount of
Notes and set forth below such Purchaser's name on the signature pages hereof.
(b) The purchase price for the Notes shall, in the case of each
Purchaser, be the principal amount of Notes being purchased by such Purchaser.
SECTION 2.2. Commitments to Warrants. Upon the basis of the
representations and warranties herein contained of each Purchaser, but subject
to the terms and conditions hereinafter stated, the Company agrees to issue to
each Purchaser listed on the signature pages hereto the Warrants for the number
of shares set forth below such Purchaser's name on the signature pages hereof.
SECTION 2.3. The Closing. (a) The purchases and sales of the Notes and
the issuance of the Warrants will both take place at a closing (the "Closing")
at the offices of White & Case, 1155 Avenue of the Americas, New York, New York,
at 9:00 a.m., New York City time on November 1, 1996 or on such other Business
Day thereafter as agreed upon by the Company and the Purchasers. The Company
shall notify the Purchasers of the date and time of the Closing not less than
two Business Days prior to the date thereof (or within such other time period as
the parties hereto may agree). The date and time of Closing are referred to
herein as the "Closing Date."
(b) Each Purchaser shall, not later than the Closing Date, deliver to
the Company in immediately available funds an amount equal to the aggregate
purchase price of the Notes being purchased by such Purchaser from the Company.
(c) At the Closing, the Company shall deliver to each Purchaser, (a)
the Warrants (b) against payment of the purchase price therefor Notes in
definitive form and registered in such names and in such denominations as such
Purchaser shall have requested not later than one Business Day prior to the
Closing Date. The authorized denominations for the Notes are $1,000,000 and any
larger multiple of $100,000.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company hereby represents and warrants to each Purchaser that as
of the date hereof and after giving effect to the Acquisition and the other
transactions contemplated hereby and thereby:
19
SECTION 3.1 Incorporation, Standing, etc. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority (i) to own
and operate its properties, (ii) to carry on its business as now conducted and
as proposed to be conducted following the Acquisition, (iii) to enter into this
Agreement, the Acquisition Agreement and the Subsidiary Guarantee Agreement,
(iv) to issue and sell the Notes, (v) to issue the Warrants and (vi) to carry
out the terms of the Basic Documents.
SECTION 3.2. Capitalization; Ownership. Immediately following the
Acquisition, the authorized capital stock of the Company will consist of (i)
25,000,000 shares of Common Stock, of which (a) 9,315,634 shares (including
1,000,000 shares issued in connection with the Acquisition) will be outstanding
and validly issued, fully paid and nonassessable, (b) 1,600,000 shares will be
reserved for issuance upon exercise of the Warrants, (c) 480,000 shares will be
reserved for issuance upon the exercise of options granted under the Company's
1991 Stock Option Plan at an exercise price of the market price of Common Stock
as of the date hereof, (d) 100,000 shares will be reserved for issuance upon the
exercise of options granted to the Company's management under the Company's 1991
Stock Option Plan at an exercise price of the market price of Common Stock as of
the date hereof, (e) 153,945 shares will be reserved for issuance upon the
exercise of warrants exercisable through December 31, 2001 at a price of $4.16
per share, (f) 322,699 shares will be reserved for issuance upon the exercise of
warrants exercisable through December 31, 2001 at a price of $7.65 per share,
(g) 773,950 shares will be reserved for issuance upon the exercise of options
granted under the Company's 1991 Stock Option Plan at prices ranging from $2.75
to $12.25 per share, (h) 113,750 shares will be reserved for issuance upon the
exercise of options granted under the Company's 1993 Non-Employee Directors
Stock Option Plan at prices ranging from $3.00 to $6.00 per share and (i) 70,000
shares will be reserved for issuance upon the exercise of non-qualified options
granted other than pursuant to the Company's 1991 Stock Option Plan or the
Parent's 1993 Non-Employee Directors Stock Option Plan and exercisable at prices
ranging from $3.00 to $12.00 per share; (ii) 300 shares of Class C Preferred
Stock, par value $.0l per share, of which 300 shares will be outstanding and
validly issued to the Persons listed in Schedule 3.2 hereto and will be fully
paid and nonassessable and (iii) 100,000 shares of Class F Preferred Stock, par
value $.0l per share, of which no shares will be outstanding. Schedule 3.2
hereto lists the Persons who will hold more than 5% of any class of such capital
stock immediately following the Acquisition. Except as set forth above, no
shares of capital stock or other equity securities of the Company are issued,
reserved for issuance or outstanding. All outstanding shares of capital stock of
the Company are, and all shares which may be issued pursuant to the Company's
stock option plans in existence on the date hereof will be, when issued, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. Except as set forth above, there are no outstanding bonds,
debentures, notes or other indebtedness or other securities of the Company
having the right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which shareholders of the Company
may vote. Except as set forth above, there are no outstanding securities,
options, warrants, calls, rights, commitments, agreements, arrangements or
undertakings of any kind to which the Company or any of its subsidiaries is a
party or by which any of them is bound obligating the Company or any of its
subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold,
20
additional shares of capital stock or other equity or voting securities of the
Company or of any of its subsidiaries or obligating the Company or any of its
subsidiaries to issue, grant, extend or enter into any such security, option,
warrant, call, right, commitment, agreement, arrangement or undertaking.
SECTION 3.3. Subsidiaries. Schedule 3.3 correctly lists as to each
Subsidiary of the Company (a) its name, (b) the jurisdiction of its
incorporation, (c) the percentage of its issued and outstanding shares owned by
the Company or another such Subsidiary (specifying such other Subsidiary), and
(d) whether it is a Restricted Subsidiary of the Company. Each such Subsidiary
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has all requisite corporate power
and authority to own and operate its properties and to carry on its business as
now conducted and as proposed to be conducted following the Acquisition and to
enter into the Subsidiary Guaranty Agreement to which such Subsidiary is a
party. All the outstanding shares of capital stock of each Subsidiary of the
Company are validly issued, fully paid and nonassessable, and all such shares
indicated in Schedule 3.3 as owned by the Company or by any other such
Subsidiary are so owned beneficially and of record by the Company or by such
other Subsidiary free and clear of any Lien except as contemplated hereby. The
income of Hanger Europe N.V. during its previous fiscal year represented less
than 5% of the Consolidated Net Income of the Company.
SECTION 3.4. Qualification. Each of the Company and its Subsidiaries
is duly qualified and in good standing as a foreign corporation authorized to do
business in each jurisdiction (other than the jurisdiction of its incorporation)
in which its ownership, lease or operation of property or the conduct of its
business as now conducted and as proposed to be conducted following the
Acquisition require such qualification, except those jurisdictions in which the
failure of the Company or such Subsidiary so to qualify would not, individually
or in the aggregate, have a material adverse effect on the business, operations,
affairs, condition, properties or prospects of the Company or such Subsidiary.
SECTION 3.5. Business and Financial Statements. (a) Southern has
delivered to the Purchasers complete and correct copies of (i) the audited
balance sheets of Southern as of December 31, 1994 and December 31, 1995 and the
related statements of operations for the Fiscal Years then ended and (ii) the
unaudited historical balance sheet of Southern as of June 30, 1996 and the
related statements of operations and cash flows for the period then ended
(collectively, the "Southern Financial Statements"). Except as disclosed on
Schedule 3.5, to the best knowledge of the Company, the Southern Financial
Statements have been prepared in accordance with GAAP (except as otherwise
specified therein) applied on a consistent basis throughout the periods
specified and present fairly the financial position, results of operations and
cash flows, of Southern as of the respective dates and for the respective
periods specified. The Company Projections are based on good faith estimates and
assumptions which the management of the Company and Southern believe to be
reasonable. In preparing the Company Projections, such estimates and assumptions
have been applied in a consistent manner.
21
(b) The Company has delivered to the Purchasers complete and correct
copies of (i) the audited balance sheets of the Company as of December 31 1994
and December 31, 1995 and the related statement of operations and cash flows for
the Fiscal Years then ended and (ii) the unaudited historical balance sheets of
the Company as of March 31, 1996 and June 30, 1996 and the related statement of
operations and cash flows for the period then ended (collectively, the "Company
Financial Statements"). Except as disclosed on Schedule 3.5, to the best
knowledge of the Company, the Company Financial Statements have been prepared in
accordance with GAAP (except as otherwise specified therein) applied on a
consistent basis throughout the periods specified and present fairly the
financial position, results of operations and cash flows, of the Company as of
the respective dates and for the respective periods specified.
(c) The pro forma financial statements of the Company and its
subsidiaries included in the Company's Information Memorandum, dated as of
October 17, 1996, relating to the Transactions, present fairly the information
shown therein, have been prepared in accordance with the SEC's rules and
guidelines with respect to pro forma financial statements and have been properly
compiled on the bases described therein, and the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred to
therein.
SECTION 3.6. Changes, etc. (a) Since June 30, 1996, there has been no
change in the business, operations, affairs, condition, properties or prospects
of the Company and its Subsidiaries which has been materially adverse to the
Company and its Subsidiaries, other than such changes as are contemplated by or
disclosed herein. To the best knowledge of the Company, after reasonable inquiry
and review, since June 30, 1996, there has been no change in the business,
operations, affairs, conditions, properties or prospects of the Company and its
Subsidiaries which has been materially adverse to the Company and its
Subsidiaries, other than such changes as are contemplated by or disclosed
herein.
SECTION 3.7. Tax Returns and Payments. Each of the Company and its
Subsidiaries and, to the best knowledge of the Company, Southern and its
Subsidiaries has filed all tax returns required by law to be filed by them and
have paid all taxes, assessments and other governmental charges levied upon each
of the Company, Southern and their respective Subsidiaries or any of their
respective properties, assets, income or franchises which are due and payable.
There are no tax liens upon any assets of each of the Company and Southern and
their respective Subsidiaries except for statutory liens for taxes accruing but
not yet due and payable. The charges, accruals and reserves on the books of the
Company, Southern and their respective Subsidiaries in respect of federal, state
or other income taxes for all fiscal periods are adequate in all material
respects, and the Company does not know of any unpaid assessment for additional
federal, state or other income taxes for any period or any basis for any such
assessment.
SECTION 3.8. Debt. Schedule 3.8 correctly summarizes, as of the date
hereof, all Debt (other than the Notes and the Debt issued under the Credit
Agreement) of the Company and its Subsidiaries (including Southern and its
Subsidiaries) (a) outstanding, or proposed to be outstanding at the Closing and
after giving effect to the Acquisition and the
22
other transactions contemplated thereby and hereby, or (b) for which the Company
and any of its Subsidiaries has commitments, or will have commitments at the
Closing and after giving effect to the Acquisition and the other transactions
contemplated thereby and hereby. As of the date hereof and after giving effect
to the Acquisition and the other transactions contemplated thereby and hereby,
neither the Company nor any of its Subsidiaries will be in default with respect
to any Debt or any instrument or agreement relating thereto, and no instrument
or agreement applicable to or binding on the Company or such Subsidiary will
contain any restriction on the incurrence by the Company or any such Subsidiary
of Debt except this Agreement and the Credit Agreement.
SECTION 3.9. Title to Properties, Liens. The Company and each
Subsidiary of the Company will have good and, in the case of real property,
marketable title to all property necessary to the conduct of its business, and
none of such properties or assets will be subject to any Liens except such as
are permitted by Section 6.12. At the time of Closing and after giving effect to
the Acquisition, the Company and each Subsidiary of the Company will enjoy
peaceful and undisturbed possession under all leases of real property on which
facilities owned or operated by them are situated, and all such leases will be
valid and subsisting and in full force and effect and no default on the part of
the Company or any Subsidiary of the Company shall exist thereunder. Except to
perfect security interests of the character permitted by Section 6.12, at the
time of the Closing and after giving effect to the Acquisition and the other
transactions contemplated hereby, (i) except as described in Schedule 3.9, no
presently effective financing statement under the Uniform Commercial Code which
names the Company or any Subsidiary of the Company as debtor or lessee will be
on file in any jurisdiction in which the Company or any Subsidiary of the
Company will own or lease real property or in which the inventory of the Company
or any Subsidiary of the Company will be located after the Acquisition or, to
the Company's best knowledge, in any other jurisdiction, except financing
statements in respect of Liens which will be discharged prior to or concurrently
with the Acquisition, and (ii) except as described in Schedule 3.9, neither the
Company nor any Subsidiary of the Company has signed any presently effective
financing statement or any presently effective security agreement authorizing
any secured party thereunder to file any such financing statement.
SECTION 3.10. Litigation. Except as described in Schedule 3.10 there
is no action or proceeding pending or, to the knowledge of the Company,
threatened (or any basis therefor known to the Company) or to the best knowledge
of the Company, any investigation which questions the validity of the Basic
Documents, or any action taken or to be taken pursuant to the Basic Documents,
or which is reasonably likely to result, either in any case or in the aggregate,
in any adverse change in the business, operations, condition, properties or
prospects of the Company and its Subsidiaries, taken as a whole, or in any
material liability on the part of the Company or any Subsidiary of the Company.
SECTION 3.11. Compliance with Other Instruments. (a) Neither the
execution, delivery or performance by the Company, Southern or any of their
Subsidiaries of any the Basic Documents to which any of them are a party, nor
compliance by any of them with the terms and provisions thereof, (i) will
contravene any provision of any applicable law, statute, rule or regulation or
any order, writ, injunction or decree of any court or
23
governmental instrumentality, (ii) will conflict with or result in any breach of
any of the terms, covenants, conditions or provisions of, or constitute a
default under, or result in the creation or imposition or (or the obligation to
create or impose) any Lien (except pursuant to the Credit Agreement) upon any of
the property or assets of the Company, Southern or any of their Subsidiaries
pursuant to the terms of any indenture, mortgage, deed of trust, credit
agreement or loan agreement, or any other agreement, contract or instrument to
which the Company, Southern or their Subsidiaries is a party or by which it or
any of their property or assets is bound or to which they my be subject or (iii)
will violate any provision of the Certificate of Incorporation of By-Laws (or
similar organizational documents) of the Company, Southern or any of their
Subsidiaries.
(b) On the date hereof and after giving effect to the Acquisition and
the other transactions contemplated hereby, neither the Company nor any
Subsidiary of the Company will be in violation of any term of any agreement or
instrument to which it is a parry or by which it is bound, or any applicable
law, ordinance, rule or regulation of any governmental authority, or of any
applicable order, judgment or decree of any court, arbitrator or governmental
authority (including, without limitation, any such law, ordinance, rule,
regulation, order, judgment or decree relating to environmental protection and
pollution control, occupational health and safety requirements), the consequence
of any of which violation is reasonably likely to have a material adverse effect
on the business, operations, condition, properties or prospects of the Company
and its Subsidiaries taken as a whole. Neither the execution, delivery and
performance of the Basic Documents nor the consummation of the Acquisition and
the other transactions contemplated hereby or thereby will result in any
violation of or be in conflict with or constitute a default under any such term
or result in the creation of (or impose any obligation on the Company or any of
its Subsidiaries to create) any Lien upon any of the properties of the Company
or any of its Subsidiaries pursuant to any such term other than the Security
Documents; and there are no such terms which, either in any case or in the
aggregate, material adversely affect, or in the future is reasonably likely to
materially adversely affect, the business, operations, condition, properties or
prospects of the Company and its Subsidiaries taken as a whole.
SECTION 3.12. Governmental Consents. Except as disclosed in Schedule
3.12, no consent, approval or authorization of, or declaration or filing with,
any governmental authority on the part of the Company or any of its Subsidiaries
is required for the valid execution and delivery of the Basic Documents, or the
consummation of the Acquisition and the other transactions contemplated thereby
or hereby, or the valid offer, issue, sale and delivery of the Notes pursuant
hereto.
SECTION 3.13. Permits, Patents, Trademarks, etc. (a) The Company,
together with its Subsidiaries, has a license to use or otherwise has the right
to use, free and clear of pending or threatened Liens, all the material patents,
patent applications, trademarks, service marks, trade names, trade secrets,
copyrights, proprietary information, computer programs, data bases, licenses,
franchises and formulas, or rights with respect to the foregoing (collectively,
"Intellectual Property"), and has obtained all licenses and other rights of
whatever nature, necessary for the present conduct of its business, without any
known conflict with the rights of others which, or the failure to obtain which,
as the case may be, could
24
reasonably be expected to have a material adverse effect on the performance,
business, assets, nature of assets, liabilities, operations, properties,
condition (financial or otherwise) or prospects of the Company and its
Subsidiaries taken as a whole.
(b) The Company, together with its Subsidiaries, has the right to
practice under and use all Intellectual Property used in connection with
Southern which Southern had a right to practice under and use immediately prior
to the Acquisition.
(c) Neither the Company nor any of its Subsidiaries has knowledge of
any claim by any third party contesting the validity, enforceability, use or
ownership of the Intellectual Property, or of any existing state of facts that
would support a claim that use by the Company or any of its Subsidiaries of any
such Intellectual Property has infringed or otherwise violated any Intellectual
Property right of any other Person and that to the best knowledge of the Company
and its Subsidiaries no claim is threatened except for such claims that could
not individually or in the aggregate reasonably be expected to have a material
adverse effect on the performance, business, assets, nature of assets,
liabilities, operations, properties, condition (financial or otherwise) or
prospects of the Company and its Subsidiaries taken as a whole.
SECTION 3.14. Representations in Acquisition Agreement. To the best
knowledge of the Company, the representations and warranties made in and
pursuant to the Acquisition Agreement by Southern were true and correct in all
material respects when made, are true and correct in all material respects as of
the date hereof, and will be true and correct in all material respects as of the
Closing, and such representations and warranties made by Southern are hereby
incorporated herein by reference with the same effect as though set forth herein
in their entirety.
SECTION 3.15. Offer of Notes. Neither the Company nor any Person
acting on its behalf has directly or indirectly offered the Notes or any part
thereof or any similar securities for sale to, or solicited any offer to buy any
of the same from, or otherwise approached or negotiated in respect thereof with,
anyone other than the Purchasers. Neither the Company nor any Person acting on
its behalf has taken or will take any action which would subject the issuance
and sale of the Notes to the provisions of Section 5 of the Securities Act, or
to the provisions of any state securities law requiring registration of
securities, notification of the issuance or sale thereof or confirmation of the
availability of any exemption from such registration.
SECTION 3.16. Federal Reserve Regulations. Neither the Company nor any
of its Subsidiaries will, directly or indirectly, use any of the proceeds of the
sale of the Notes or the Warrants, as the case may be, for the purpose, whether
immediate, incidental or ultimate, of buying any "margin stock" or of
maintaining, reducing or retiring any Debt originally incurred to purchase a
stock that is currently any "margin stock", or for any other purpose which might
constitute this transaction a "purpose credit", in each case within the meaning
of Regulation G of the Board of Governors of the Federal Reserve System (12
C.F.R. 207, as amended), or Regulation U of such board (12 C.F.R. 221, as
amended), or otherwise take or permit to be taken any action which would involve
a violation of such
25
Regulation G or Regulation U or of Regulation T (12 CF.R. 220, as amended) or
Regulation X (12 C.F.R. 224, as amended) or any other regulation of such board.
No Debt being reduced or retired out of the proceeds of the sale of the Notes or
the Warrants, as the case may be, was incurred for the purpose of purchasing or
carrying any such "margin stock", and neither the Company nor any of its
Subsidiaries owns or has any present intention of acquiring any such "margin
stock."
SECTION 3.17. Status Under Certain Federal Statutes. The Company is
not (a) 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", as such terms are defined in the Public Utility Holding Company Act of
1935, as amended, (b) a "public utility", as such term is defined in the Federal
Power Act, as amended, or (c) an "investment company", or a company "controlled"
by an "investment company", within the meaning of the Investment Company Act of
1940, as amended. Neither the Company nor any of its Subsidiaries is a "rail
carrier", or a "person controlled by or affiliated with a rail carrier", within
the meaning of Title 49 U.S.C., and the Company is not a "carrier" to which 49
U.S.C. Section 11301(b)(l) is applicable.
SECTION 3.18. Compliance with ERISA. (a) Neither the Company, Southern
nor any of their Subsidiaries has breached the fiduciary rules of ERISA or
engaged in any prohibited transaction with respect to the assets of any Plan in
connection with which the Company, Southern or any of their Subsidiaries could
be subjected to or incur liability in respect of (in the case of any such
breach) a suit for damages or (in the case of any such prohibited transaction)
either a civil penalty assessed under section 502(i) of ERISA or a tax imposed
by section 4975 of this Code, which suit, penalty or tax, in any case, would be
materially adverse to the Company and its Subsidiaries, taken as a whole.
(b) Neither the Company, Southern nor any Related Person has incurred
nor do any of them expect to incur any liability to the PBGC, other than for the
payment of premiums, or to any Plan, other than for the payment of contributions
in the ordinary course. Each Plan is in compliance in all material respects
with, and has been operated and administered in accordance with the applicable
provisions of, ERISA, the Code and any other applicable Federal or state law
except to the extent the failure to so comply, or to so operate or administer
any such Plan, would not be materially adverse to the Company and its
Subsidiaries, taken as a whole.
(c) Full payment has been timely made of all amounts which the
Company, Southern or any Related Person is required under applicable law, the
terms of each Plan or any applicable collective bargaining agreement to have
paid as contributions to such Plan as of the date hereof and no accumulated
funding deficiency (as defined in section 302 of ERISA or section 412 of the
Code), whether or not waived, has occurred or is expected to occur with respect
to any Plan (other than a Multiemployer Plan or a "multiple employer Plan").
Neither the Company, Southern nor any Related Person is subject to any lien
arising under ERISA or Section 412(n) of the Code. The present value of the
benefit liabilities (whether or not vested) under each Plan subject to Title IV
of ERISA (other than a Multiemployer Plan or a "multiple employer Plan") did not
exceed the current value of the
26
assets of such Plan allocable to such benefit liabilities by more than $l00,000
and the aggregate present value of the benefit liabilities under all Plans
subject to Title IV of ERISA (other than Multiemployer Plans and "multiple
employer Plans") did not exceed the current value of the assets of such Plans,
in all cases, determined as of the end of such Plans' most recently ended plan
year on the basis of actuarial assumptions which would be used in a termination
of such Plan. The terms "benefit liabilities" and "current value" have the
respective meanings specified in section 3 or 4001 of ERISA, as applicable.
(d) Except as set forth in Schedule 3.18, neither the Company,
Southern nor any Related Person is or has ever been obligated to contribute to
any "multiple employer plan" (within the meaning of section 4063 of ERISA) or to
any Multiemployer Plan.
(e) The execution and delivery of this Agreement and the Subsidiary
Guaranty Agreement, and the issue and sale of the Notes hereunder will not
constitute any transaction which is subject to the prohibitions of section 406
of ERISA or in connection with which a tax could be imposed pursuant to section
4975 of the Code. The representation by the Company in the preceding sentence is
made in reliance upon and subject to the accuracy of the representation in
Section 4.3 as to the source of the funds used to pay the purchase price of the
Notes purchased by the Purchasers.
SECTION 3.19. Solvency. The Company is, and immediately after the
Closing (after giving effect to the Transactions) will be, Solvent.
SECTION 3.20. Disclosure. Neither this Agreement, the Financial
Statements, the Pro Forma Financial Statements nor any other document,
certificate or instrument delivered to you by or on behalf of the Company in
connection with the transactions contemplated hereby, all such information taken
as a whole, contains (in the case of the Southern Financial Statements, to the
best knowledge of the Company) any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements contained
herein or therein not misleading. There is no fact known to the Company which
materially adversely affects or in the future is reasonably likely to have a
material adverse effect on the business, operations, condition, properties or
prospects of the Company and its Subsidiaries, taken as a whole, which has not
been set forth herein or in the other documents, certificates and instruments
delivered to the Purchasers by or on behalf of the Company specifically for use
in connection with the transactions contemplated hereby.
SECTION 3.21. Use of Proceeds. Subject to Section 12.5, the Company
will apply the proceeds of the sale of the Notes solely to refinance Debt
outstanding under the Existing Loan Documents, pay related fees, commissions and
expenses, finance ongoing working capital requirements and other general
corporate purposes of the Company and its Subsidiaries.
SECTION 3.22. Environmental Compliance. Each of the Company and its
Subsidiaries has been complying, and to the best knowledge of the Company, each
of Southern and its Subsidiaries has been complying, since its incorporation
with, and, upon consummation of the Acquisition, will be in compliance with, all
Environmental Laws in each
27
jurisdiction where it has done business, is presently doing business or will be
doing business after the Acquisition and where the consequence of such violation
would have a material adverse effect on the business, operations, condition,
properties or prospects of the Company and its Subsidiaries taken as a whole.
SECTION 3.23. Note Purchase Agreement. This Agreement has been duly
authorized by all necessary corporate action on the part of the Company. This
Agreement has been executed and delivered by the Company and constitutes the
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except that such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws of general application relating to or affecting the rights and
remedies of creditors and by general principles of equity.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASERS
Each Purchaser severally, and not jointly, hereby represents and
warrants to the Company as follows:
SECTION 4.1. Private Placement. The Notes to be acquired by such
Purchaser pursuant to this Agreement are being acquired for its own account and
not as nominee or agent for any other Person and not for offer or sale in any
manner that would be in violation of the securities laws of the United States of
America or any state thereof, without prejudice, however, to its right at all
times to sell or otherwise dispose of all or any part of said Notes under a
registration under the Securities Act or under an exemption from such
registration available under such Securities Act. The Purchasers understand that
the Notes have not been registered under the Securities Act and may be resold
only if registered pursuant to the provisions of the Securities Act or if an
exemption from registration is available, except under circumstances where
neither such registration nor such exemption is required by law, and that the
Company is not required to register the Notes.
SECTION 4.2. Margin Compliance. Such Purchaser is not relying,
directly or indirectly, on any "margin stock" (as defined in Regulation G of the
Federal Reserve Board) as collateral for the Notes.
SECTION 4.3. Accredited Investor. Such Purchaser is an "accredited"
investor within the meaning of Regulation D promulgated under the Securities
Act.
SECTION 4.4. Source of Funds. If any part of the funds to be used to
purchase the Notes constitutes assets of any employee benefit plan within the
meaning of Section 3 of ERISA, such Notes are being purchased pursuant to an
available exemption from the provisions of Section 406 of ERISA and Section 4975
of the Code.
28
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
SECTION 5.1. Conditions to Purchasers' Obligations to Purchase Notes.
The obligation of each Purchaser to purchase the Notes to be purchased by it
hereunder is subject to the satisfaction, at or prior to the Closing Date, of
the following conditions:
(a) Notes. Such Purchaser shall have received duly executed
certificates representing the Notes being purchased by such Purchaser
pursuant hereto (the "Original Notes").
(b) Warrants. Such Purchaser shall have received a duly executed
counterpart of each of the Warrants and the Company shall have complied
with all agreements on its part contained therein and delivered all
documents called for thereunder on or prior to the Closing Date.
(c) Corporate Action. Such Purchaser shall have received certified
copies of the charter and by-laws (or equivalent documents) of the Company
and each Subsidiary Guarantor and of all corporate action taken by the
Company and each Subsidiary Guarantor (including, without limitation, a
certificate of the secretary of the Company and each Subsidiary Guarantor
setting forth the resolutions of its Board of Directors authorizing the
transactions contemplated thereby) authorizing the making and performance
of each of the Basic Documents to which each of the Company and the
Subsidiary Guarantor is a party and (in the case of the Company)
authorizing the issuance of the Notes and the Warrants hereunder.
(d) Incumbency. The Company and each Subsidiary Guarantor shall have
delivered a certificate to each Purchaser in respect of each of the name
and signature of each of the officers (i) who is authorized to execute on
its behalf the Basic Documents to which it is a party and (ii) who will,
until replaced by another officer or officers duly authorized for that
purpose, act as its representative for the purposes of signing documents
and giving notices and other communications in connection with such Basic
Documents (and each Purchaser may conclusively rely on such certificates
until it receives notice in writing from the Company to the contrary).
(e) Acquisition Agreement. The Acquisition Agreement shall have been
duly executed and delivered by the Company, as the case may be, and the
other parties thereto and shall be in full force and effect, and no term or
condition has been amended, modified or waived without the prior written
consent of the Purchasers. Such Purchaser shall have received copies of the
Acquisition Agreement, each as originally executed and delivered by the
parties, together with all exhibits and schedules thereto, and each
agreement, certificate, opinion of counsel or other writing required under
the Acquisition Agreement to be delivered or filed in connection with the
consummation of the Acquisition on or prior to the date hereof, each of
the foregoing documents certified as complete and correct by the Company.
29
(f) Acquisition Certificate. Such Purchaser shall have received an
Officers' Certificate to the effect that: (i) the Acquisition Agreement as
originally executed and delivered by the parties thereto and delivered to
such Purchaser, or any provision thereof, has not been amended, waived or
otherwise modified without the prior written consent of the Purchasers; and
(ii) (x) each of the conditions precedent to the consummation of the
Acquisition contained in the Acquisition Agreement have been satisfied (or
waived with the prior written consent of the Purchasers), (y) all
governmental and third party authorization, consents, approvals, exemptions
or other actions required in connection with the Acquisition shall have
been duly received or taken; and (z) the Acquisition has been duly
consummated substantially in accordance with the terms of the Acquisition
Agreement.
(g) Adverse Litigation, Etc. There shall be no suit, action,
investigation, inquiry or other proceeding by any governmental body or any
other Person or any other legal or administrative proceeding pending or
threatened which (a) seeks to enjoin or otherwise prevent the consummation
of, or to recover any damages or obtain relief as a result of, the
Acquisition or the financing thereof or the other transactions contemplated
hereby, or (b) is related to the Acquisition, this Agreement, the
Subsidiary Guaranty Agreement, any other Basic Document or the Notes and
would, in your reasonable opinion, have a reasonable likelihood of having a
material adverse effect on either of the parties hereto or any of the
transactions contemplated hereby or thereby.
(h) Consents. Except as set forth in Schedule 5.1(h), all necessary
governmental and third party consents and approvals in connection with the
execution, delivery, performance, validity and enforceability of each of
the Basic Documents have been obtained and are in full force and effect.
(i) Insurance. Such Purchaser shall have received an Officer's
Certificate from the Company dated the Closing Date certifying that
insurance with respect to its properties and business complying with the
provisions of Section 6.6 is in full force and effect.
(j) Credit Agreement. The Company and the Senior Lenders shall have
entered into the Credit Agreement, the terms and provisions of which shall
be satisfactory to such Purchaser, and such Purchaser shall have received
a copy of the Credit Agreement certified by the Company as being complete
and correct. The Credit Agreement shall be in full force and effect as on
the date hereof, no term or condition of the Credit Agreement or any other
document or agreement delivered pursuant to the Credit Agreement shall
have been amended, modified or waived without the prior written consent of
the Purchasers, and the Company shall have borrowed such amounts pursuant
to the Credit Agreement (not exceeding $57,000,000, which together with the
proceeds of the sale of the Notes and the Common Stock shall be sufficient
to consummate the Acquisition). The Senior Lenders shall have confirmed to
the Company that (i) the Closing Date (as defined in the Credit
30
Agreement) has occurred and (ii) the conditions set forth in Section 5 of
the Credit Agreement have been fulfilled to their satisfaction.
(k) Capitalization. Prior to or concurrently with the Closing, (i)
pursuant to the terms of the Acquisition Agreement, the Company shall have
sold to the shareholders of Southern for cash or the fair market value of
contributed property one million shares of Common Stock for an aggregate of
$5,250,000.
(l) Financial Statements. Such Purchaser shall have received copies of
(i) the consolidated pro forma balance sheet and pro forma five-year
financial projections of the Company and its Subsidiaries as at the Closing
Date attached hereto as Schedule 5.1(l) (the "Company Projections") giving
effect to the issuance and sale of the Notes, borrowings under the Credit
Agreement, the Acquisition, the other Transactions and the other
transactions contemplated hereby, which Company Projections, pro forma
balance sheets and pro forma financial projections shall be in form and
substance satisfactory to the Purchasers and (ii) the due diligence report
by Coopers & ▇▇▇▇▇▇▇ relating to the historical financial statements of
Southern and the pro forma financial statements provided by Southern, in
form and substance satisfactory to the Purchasers.
(m) Payment of Acquisition Costs. Such Purchaser shall have received
evidence satisfactory to such Purchaser that all Acquisition Costs required
to be paid by the Company on or prior to the Closing Date shall have been
paid.
(n) Representations and Warranties. The representations and
warranties of (i) the Company contained or incorporated herein, (ii)
Southern contained or incorporated by reference herein and (iii) of each
Subsidiary Guarantor contained or incorporated in the Subsidiary Guaranty
Agreement and otherwise made in writing by or on behalf of the Company,
Southern or any Subsidiary Guarantor in connection with the transactions
contemplated hereby shall be true and correct when made and on and as of
the Closing Date as if made on and as of such date.
(o) No Default. As of the Closing Date and after giving effect to the
Acquisition and the transactions contemplated by the Basic Documents, no
Default shall have occurred and be continuing.
(p) Performance of Basic Documents. The Company and each Subsidiary
shall have performed and complied with all agreements and conditions
required by any of the Basic Documents to be performed or complied with by
it at or prior to the Closing Date.
(q) Officers' Certificate. Such Purchaser shall have received an
Officers' Certificate from the Company dated the Closing Date (i) to the
effect set forth in subsections (o), (p) and (q) of this Section and (ii)
certifying that after giving effect to the Acquisition and the other
transactions contemplated hereby (including the sale of the Notes), the
Company will be in compliance with all limitations on the incurrence
31
by the Company of Debt contained in any instrument or agreement applicable
to or binding the Company or any of its Subsidiaries.
(r) Solvency Certificate. Such Purchaser shall have received a
certificate from the chief financial officer or controller of the Company,
in the form of Exhibit K to the Credit Agreement, supporting the
conclusions that, after giving effect to the Acquisition, the Credit
Agreement, this Agreement and the transactions and financings contemplated
thereby, the Company and its subsidiaries taken as a whole are not
insolvent and will not be rendered insolvent by the Debt to be incurred in
connection with the Acquisition, the Credit Agreement, this Agreement and
the transactions and financings contemplated thereby, will not be left with
unreasonably small capital with which to engage in their respective
businesses and will not have incurred debts beyond their ability to pay such
debts as they mature.
(s) Compliance with Regulatory Matters. The offering and sale of the
Notes to be issued at the Closing, the actions to be taken in connection
with the consummation of the Acquisition on or prior to the Closing and the
other transactions contemplated hereby shall have complied with all
applicable requirements of federal, state and local laws, including,
without limitation, Regulation G of the Board of Governors of the Federal
Reserve System (12 C.F.R. 207, as amended), Regulation U of such board (12
C.F.R. 221, as amended), Regulation T of such board (12 C.F.R. 220, as
amended) or Regulation X of such board (12 C.F.R. 224, as amended), and
such Purchaser shall have received evidence thereof satisfactory to it.
(t) Compliance with Securities Laws. The offering and sale of the
Notes to be issued at the Closing and the other actions taken in connection
with the consummation of the Acquisition shall have complied with all
applicable requirements of Federal and state securities laws, and such
Purchaser shall have received evidence thereof satisfactory to it.
(u) No Contravention. The purchase of the Notes by any Purchaser shall
not violate any law, rule or regulation applicable to such Purchaser.
(v) Opinions of Counsel. Such Purchaser shall have received an opinion
dated the Closing Date and satisfactory to it of Freedman, Levy, Krill &
▇▇▇▇▇▇▇, counsel to the Company and the Subsidiary Guarantors,
substantially in the form of Exhibit C hereto and covering such other
matters relating to the transactions contemplated hereby as it may
reasonably request. In addition, such Purchaser shall have received copies
of the opinions delivered in connection with the Acquisition, accompanied
by letters from counsel rendering such opinions stating that such
Purchaser is entitled to rely on such opinions as if they were addressed to
such Purchaser.
(w) Subsidiary Guaranty Agreements. Such Purchaser shall have received
the Subsidiary Guaranty Agreement, duly executed by each of the Subsidiary
Guarantors party thereto.
32
(x) Tax Assumptions, etc. Such Purchaser shall have reviewed and
determined that each of the following is satisfactory to it: (i) the
Company tax assumptions, (ii) the ownership, capital, corporate,
organizational and legal structure of the Company and its Subsidiaries and
(iii) material contracts.
(aa) No Adverse Legislation, Action or Decision, etc. No legislation
shall have been enacted by either house of Congress or by any state
legislature, no other action shall have been taken by any United States or
state or local governmental authority, whether by order, regulation, rule,
ruling or otherwise, and no decision shall have been rendered by any court
of competent jurisdiction in the United States which would materially
adversely affect the Notes or the Warrants being purchased by the
Purchasers hereunder as an investment.
(bb) Existing Loan Documents. The Company shall have satisfied in full
all amounts then due and payable under the Existing Loan Documents and the
Company shall have caused all Liens securing and all Guarantees of the
obligations thereunder to be released and terminated.
(cc) Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be satisfactory to such
Purchaser and its counsel, and such Purchaser and its counsel shall have
received all such counterpart originals or certified or other copies of such
documents as it or they may reasonably request.
(dd) Other Documents. Such Purchaser shall have received such other
documents relating to the transactions contemplated hereby or by any of the
Basic Documents as it may reasonably request.
(ee) Fees. The Company shall have paid to the Purchasers, for their
accounts, such other fees as have been agreed to in writing by the Company
and the Purchasers.
SECTION 5.2. Conditions to Company's Obligations to Issue and Sell the
Notes and to Issue the Warrants. The obligations of the Company to issue and
sell the Notes and to issue the Warrants pursuant to this Agreement to any
Purchaser are subject to the satisfaction, at or prior to the Closing Date, of
the following conditions:
(a) The representations and warranties of such Purchaser contained
herein shall be true and correct in all material respects on and as of the
Closing Date as if made on and as of such date, except that any such
representation or warranty stated to relate to a specific earlier date
will be true and correct as of such earlier date; and
(b) Such Purchaser shall have performed and complied in all material
respects with all agreements required by this Agreement to be performed or
complied with by such Purchaser at or prior to the Closing Date.
33
ARTICLE VI
COVENANTS
The Company hereby agrees as follows for the benefit of each Noteholder
for so long as any amount is payable with respect to any Note of which it is the
Holder:
SECTION 6.1. Financial Statements, etc. The Company will deliver to each
Noteholder holding Notes on the date hereof so long as such Noteholder or its
nominee shall hold any Notes and to any other Noteholder holding at least
$250,000 outstanding principal amount of Notes at the time outstanding:
(a) as soon as practicable, and in any event within 45 days after the
end of each fiscal month in each Fiscal Year, the consolidated balance
sheet of the Company and the Restricted Subsidiaries as at the end of such
period and the related consolidated statements of income of the Company
and the Restricted Subsidiaries for such period and setting forth in
comparative form the consolidated historical figures for the corresponding
periods of the previous Fiscal Year (or, in the case of the balance sheet,
at the end of the previous Fiscal Year) and the corresponding figures
included in the Company Projections, all in reasonable detail and certified
as complete and correct by the chief financial officer of the Company and
as fairly presenting the financial condition and results of operation of
the Company and its Restricted Subsidiaries in accordance with GAAP,
consistently applied, as at the end of, and for, such period (subject to
normal year-end audit adjustments and the omission of footnotes), and (ii)
as soon as practicable, and in any event within 45 days after the end of
each fiscal month in each Fiscal Year, the consolidated balance sheet of
the Unrestricted Subsidiaries as at the end of such period and the related
consolidated statements of income and retained earnings and of cash flows
of the Unrestricted Subsidiaries for such period and (in the case of the
first eleven calendar months in any Fiscal Year) for the period from the
beginning of such Fiscal Year to the end of such fiscal month, setting
forth in comparative form the consolidated figures for the corresponding
periods of the previous Fiscal Year (or, in the case of the balance sheet,
at the end of the previous Fiscal Year), all in reasonable detail and
certified as complete and correct by the chief financial officer of the
Company and as fairly presenting the financial condition and results of
operation of the Company and its Unrestricted Subsidiaries in accordance
with GAAP, consistently applied, as at the end of, and for, such period
(subject to normal year-end audit adjustments and the omission of
footnotes);
(b) within 60 days after the end of each of the first three Fiscal
Quarters in each Fiscal Year, the consolidated balance sheet of the Company
and the Restricted Subsidiaries as at the end of such period and the related
consolidated statements of income and retained earnings and cash flows and
changes in financial position of the Company and the Restricted
Subsidiaries for such period and (in the case of the second and third
Fiscal Quarters) for the period from the beginning of the current
34
Fiscal Year to the end of such Fiscal Quarter, setting forth in comparative
form the consolidated figures for the corresponding periods of the previous
Fiscal Year (or, in the case of such balance sheet, at the end of the
previous Fiscal Year) and setting forth in each case comparisons with the
Company Projections for the period for which such financial statements are
being provided, all in reasonable detail and certified as complete and
correct by the chief financial officer of the Company and as fairly
presenting the financial condition and results of operation of the Company
and its Restricted Subsidiaries in accordance with GAAP, consistently
applied, as at the end of, and for, such period (subject to normal year-end
audit adjustments and the omission of footnotes);
(c) within 120 days after the end of each Fiscal Year, the
consolidated balance sheet of the Company and the Restricted Subsidiaries
as at the end of such year and the related consolidated statements of
income and retained earnings and cash flows and changes in financial
position of the Company and the Restricted Subsidiaries for such Fiscal
Year, setting forth in each case in comparative form the consolidated
figures for the previous Fiscal Year, all in reasonable detail and in the
case of such consolidated financial statements, accompanied by an
unqualified report thereon of Coopers & ▇▇▇▇▇▇▇ or other independent public
accountants of recognized national standing selected by the Company, which
report shall state that such financial statements present fairly the
financial position of the Company and the Restricted Subsidiaries as at the
dates indicated and the results of their operations and cash flows for the
periods indicated in conformity with GAAP applied on a basis consistent
with prior years (except as otherwise specified in such report) and that
the audit by such accountants in connection with such financial statements h
as been made in with generally accepted auditing standards;
(d) within 60 days after the end of each of the first three Fiscal
Quarters in each Fiscal Year, the consolidated balance sheets of the
Unrestricted Subsidiaries as at the end of such period and the related
consolidated statements of income and retained earnings and cash flows of
the Unrestricted Subsidiaries for such period and (in the case of the
second and third Fiscal Quarters) for the period from the beginning of the
current Fiscal Year to the end of such Fiscal Quarter, setting forth in
comparative form the consolidated figures for the corresponding periods of
the previous Fiscal Year (or, in the case of such balance sheets, at the
end of the previous Fiscal Year), all in reasonable detail and certified
as complete and correct by the chief financial officer of the Company;
(e) within 120 days after the end of each Fiscal Year, the
consolidated balance sheet of the Unrestricted Subsidiaries as at the end
of such year and the related consolidated statements of income and
retained earnings and cash flows of the Unrestricted Subsidiaries for such
Fiscal Year, setting forth in each case in comparative form the
consolidated figures for the previous Fiscal Year, all in reasonable
detail and in the case of such consolidated financial statements,
accompanied by the report thereon of Coopers & ▇▇▇▇▇▇▇ or other independent
public accountants of recognized national standing selected by the Company,
which report
35
shall state that such financial statements present fairly the financial
position of the Unrestricted Subsidiaries as at the dates indicated and the
results of their operations and cash flows for the periods indicated in
conformity with GAAP applied on a basis consistent with prior years (except
as otherwise specified in such report) and that the audit by such
accountants in connection with such financial statements has been made in
accordance with generally accepted auditing standards;
(f) together with each delivery of financial statements pursuant to
subdivisions (b), (c), (d) and (e) above, an Officers' Certificate (i)
stating that the signers have reviewed the terms hereof and of the Notes
and have made, or caused to be made under their supervision, a review of
the transactions and condition of the Company and its Subsidiaries during
the accounting period covered by such financial statements and that such
review has not disclosed the existence during or at the end of such
accounting period, and that the signers do not have knowledge of the
existence as at the date of such Officers' Certificate, of any condition or
event which constitutes a Default or Event of Default, or, if any such
condition or event existed or exists, specifying the nature and period of
existence thereof and what action the Company has taken or is taking or
proposes to take with respect thereto, and (ii) demonstrating in reasonable
detail compliance during and at the end of such accounting period with the
restrictions contained in this Agreement;
(g) as soon as available, and in any event within 60 days after the
end of each Fiscal Year, a financial plan of the Company and its
Subsidiaries consisting of the operating budget, proposed capital
expenditures, and projected cash flow and profit and loss statements on a
quarterly and month-by-month basis for the immediately succeeding Fiscal
Year, in form customarily prepared by the Company, such budget and
projections to be accompanied by an Officer's Certificate specifying the
assumptions on which budget and projections were prepared and stating that
such officer has no reason to question the reasonableness of any material
assumptions on which such budget and projections were prepared;
(h) promptly upon receipt thereof, copies of all reports submitted to
the Company by independent public accountants in connection with each
annual, interim or special audit of the books of the Company or any of its
Subsidiaries made by such accountants, including, without limitation, any
comment letter submitted to management by such accountants in connection
with their annual audit and any report as to material inadequacies in
accounting controls (including reports as to the absence of any such
inadequacies) submitted by independent public accountants in connection
with any audit of the Company or any of its Subsidiaries;
(i) promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent or made available
generally by the Company to its public security holders (if any) or by any
Subsidiary of the Company to its security holders other than the Company
or another Subsidiary, of all regular and periodic reports and all
registration statements (other than on Form S-8) and prospectuses filed by
the Company or any such Subsidiary with any securities
36
exchange or with the SEC or any governmental authority succeeding to any
of its functions, and of all press releases and other written statements
made available generally by the Company or any such Subsidiary to the
public concerning material developments in the business of the Company or
such Subsidiary;
(j) promptly and in any event, within 5 days of any officer of the
Company obtaining knowledge of any condition or event which constitutes a
Default or Event of Default, or that the holder of any Note has given any
notice or taken any other action with respect to a claimed default
hereunder, or that any Person has given any notice to the Company or any
of its Subsidiaries or taken any other action with respect to a claimed
default of the type referred to in Section 7.6(e), an Officers'
Certificate describing the same and the period of existence thereof and
specifying what action the Company has taken or is taking or proposes to
take with respect thereto;
(k) as soon as possible and, in any event, within ten (10) days after
the Company, any Subsidiary of the Company or any Related Person knows or
has reason to know of the occurrence of any of the following, a certificate
of the chief financial officer of the Company setting forth the full
details as to such occurrence and the action, if any that the Company, such
Subsidiary or such Related Party is required or proposes to take, together
with any notices required or proposed to be given to or filed with or by
the Company, the Subsidiary, the Related Party, the PBGC, a Plan
participant of the Plan administrator with respect thereto: that a
Reportable Event has occurred; that an accumulated funding deficiency,
within the meaning of Section 412 of the Code of Section 302 of ERISA, has
been incurred or any application may be or has been made for a waiver or
modification of the minimum funding standard (including any required
installment payments) or an extension of any amortization period under
Section 412 of the Code or Section 303 or 304 of ERISA with respect to a
Plan; that any contribution required to be made with respect to a Plan has
not been timely made; that a Plan has been or may be terminated,
reorganized, partitioned or declared insolvent under Title IV of ERISA;
that a Plan has an Unfunded Current Liability; that proceedings may be or
have been instituted to terminate or appoint a trustee to administer a Plan
which is subject to Title IV of ERISA; that a proceeding has been
instituted pursuant to Section 515 of ERISA to collect a delinquent
contribution to a Plan; that the Company, any Subsidiary of the Company or
any ERISA Affiliate will or may incur any liability (including any
indirect, contingent, or secondary liability) to or on account of the
termination of or withdrawal from a Plan under Section 4062, 4063, 4064,
6069, 4201, 4204 or 4212 or ERISA or with respect to a Plan under Section
401(a)(29), 4971, 4975 or 4980 of the Code of Section 409 or 502(i) or
502(l) of ERISA or with respect to a group health plan (as defined in
Section 607(l) of ERISA or Section 4980B(g)(2) of the Code) under Section
4980B of the Code; or that the Borrower or any Subsidiary of the Borrower
may incur any material liability pursuant to any employee welfare benefit
plan (as defined in Section 3(l) of ERISA) that provides benefits to
retired employees or other former employees (other than as required by
Section 601 of ERISA) or any Plan. The company will deliver to each
Noteholder a complete copy of the annual report (on Internal Revenue
Service Form 5500-series) of each Plan (including, to the extent required,
the related
37
financial and actuarial statements and opinions and other supporting
statements, certifications, schedules and information) required to be filed
with the Internal Revenue Service. In addition to any certificates or
notices delivered to the Noteholders pursuant to the first sentence hereof,
copies of annual reports and any material notices received by the Company,
any Subsidiary of the Company and any Related Party with respect to any
Plan shall be delivered to the Noteholders no later than ten (10) days
after the date such report has been filed with the Internal Revenue
Services or such notice has been received by the Company, the Subsidiary
or the Related Party, as applicable.
(l) promptly upon the occurrence of any of the following events, an
Officers' Certificate describing such event: (i) the Company or any
Subsidiary of the Company shall have filed any amendment to its charter
documents or changed its jurisdiction of incorporation, or (ii) the Company
or any Subsidiary of the Company shall have changed its corporate name, or
(iii) the Company or any Subsidiary of the Company shall have changed its
principal place of business or its chief executive offices, or (iv) the
Company or any Subsidiary of the Company shall have become a party to any
suit, action or proceeding which, if adversely determined, would have a
materially adverse effect on the business, operations, condition,
properties or prospects of the Company and its Subsidiaries taken as a
whole, or (v) the Company or any of its Subsidiaries shall have opened or
closed other than in the ordinary course of business any material place of
business, or (vi) any strike, walkout, work stoppage or other material
employee disruption relating to any plant or facility owned or leased by
the Company or any of its Subsidiaries, or the expiration of any labor
contract to which the Company or any of its Subsidiaries is a party or by
which it is bound (unless there exists a new labor contract in substitution
therefor), or (vii) the Company or any of its Subsidiaries shall have
obtained knowledge that any of its insurance policies will be cancelled or
not renewed and such cancellation or failure to renew could have a material
adverse effect on the business, operations, condition, properties or
prospects of the Company or any of its Subsidiaries (unless there exists,
or the Company or such Subsidiary reasonably expects to obtain upon such
policy's termination, a similar insurance policy in substitution therefor);
(m) as soon as practicable and in any event no later than December 31,
1996, a copy of the unaudited balance sheet of the Company at the time of
the Closing after giving effect to the Acquisition and the other
transactions contemplated hereby, certified as fairly presenting the
condition of the Company in all material respects (subject to year end
adjustments and the omission of footnotes) by the chief financial officer
of the Company;
(n) on or before April 15 of each year and at such other times as any
holder of Notes may reasonably request, a statement setting forth the
amount, if any, of any distribution with respect to any stock of the
Company made or deemed to be made pursuant to the Code during the calendar
year preceding such year that constitutes a dividend within the meaning of
section 316 of the Code, and promptly after request the certification
referred to in Treasury Regulations section 1.897-2(h) to the
38
effect that the interest of such holder in the Company is not a United
States real property interest;
(o) within 5 days after receipt by the Company of a written request
from any Noteholder holding Notes on the date hereof, so long as such
Noteholder or its nominee shall be a Noteholder, or any other holder of at
least 1,000,000 principal amount of Notes at the time outstanding, the
Company shall request, and promptly upon receipt thereof, provide to all
holders of the Notes, the most current statement of withdrawal liability
from each Multiemployer Plan provided that the Company shall not be
obligated to request or deliver such statement for any Multiemployer Plan
more than once in any Fiscal Year; and
(p) with reasonable promptness, such other information and data with
respect to the Company or any Subsidiary as from time to time may be
reasonably requested.
SECTION 6.2. Furnishing of Disclosure Information. For so long as the
Company is subject to the reporting requirements of Section 13 or 15 of the
Exchange Act, the Company covenants that it will file reports required to be
filed by it under Section 13(a) or 15(d) of the Exchange Act and the rules and
regulations adopted by the SEC thereunder, that if it ceases to be so required
to file such reports, it will upon the request of any Noteholder (i) make
publicly available such information as is necessary to permit sales pursuant
to Rule 144 under the Securities Act, (ii) deliver such information to a
prospective purchaser as is necessary to permit sales pursuant to Rule 144A
under the Securities Act and it will take such further action as any
Noteholder may reasonably request, and (iii) take such further action that is
reasonable in the circumstances, in each case, to the extent required from time
to time to enable such Noteholder to sell its Notes without registration under
the Securities Act within the limitation of the exemptions provided by (x)
Rule 144 under the Securities Act, as such Rule may be amended from time to
time, (y) Rule 144A under the Securities Act, as Rule may be amended from time
to time, or (z) any similar rules or regulations hereafter adopted by the SEC.
Upon the request of any Noteholder, the Company will deliver to such Noteholder
a written statement as to whether it has complied with such requirements.
SECTION 6.3. Books of Record and Account; Reserves. The Company will,
and will cause each of its Subsidiaries to, keep proper books of record and
account and set aside appropriate reserves, all in accordance with GAAP.
SECTION 6.4. Pavement of Taxes and Claims; Tax Consolidation. (a) The
Company will, and will cause each of its Subsidiaries to, pay all taxes,
assessments and other governmental charges imposed upon it or any of its
properties or assets or in respect of any of its franchises, business, income
or profits when the same become due and payable as shown on the return
therefor as prepared in good faith by the Company, and all claims (including,
without limitation, claims for labor, services, materials and supplies) for
sums which have become due and payable and which by law have or might become a
Lien upon any of its properties or assets, provided that no such charge or
claim need be paid if being
39
contested in good faith by appropriate proceedings promptly initiated and
diligently conducted and if such reserves or other appropriate provision, if
any, as shall be required by GAAP shall have been made therefor.
(b) The Company will not consent to or permit the filing of or be a
party to any consolidated income tax return on behalf of itself or, in the
case of the Company, on behalf of any of its Subsidiaries with any Person
(other than a consolidated return of the Company and the Subsidiaries of the
Company).
SECTION 6.5. Maintenance of Properties; Corporate Existence and
Business. The Company will maintain or cause to be maintained in good repair,
working order and condition all material properties used or useful in the
business of the Company and its Subsidiaries and from time to time will make
or cause to be made all appropriate repairs, renewals, replacements and
improvements thereof in order that such business may be conducted in the
ordinary course. The Company will at all times preserve and keep in full force
and effect its corporate existence, and rights and franchises material to its
business, and those of each of its Subsidiaries. The Company will not, and will
not permit, any of its Subsidiaries to engage in any business other than a
Permitted Business.
SECTION 6.6. Insurance. The Company will, and will cause each of its
Subsidiaries to, carry and maintain in full force and effect at all times with
financially sound and reputable insurers (or, as to workers' compensation or
similar insurance, in an insurance fund or by self-insurance authorized by the
jurisdiction in which its operations are carried on) insurance against such
other risks as are customarily insured against by corporations of established
reputation engaged in the same or similar businesses and similarly situated.
Such insurance may be subject to co-insurance, deductibility or similar clauses
which, in effect, result in self-insurance of certain losses, provided that such
self-insurance is in accord with the practices of corporations similarly
situated and adequate insurance reserves are maintained in connection with such
self-insurance.
SECTION 6.7. Inspection. The Company will permit any authorized
representatives designated by each Noteholder holding Notes on the date hereof,
so long as such Noteholder or its nominee shall be a Noteholder, or by any
other Noteholder holding at least $1,000,000 in principal amount of Notes at
the time outstanding, without expense to the Company, to visit and inspect any
of the properties of the Company or any of its Subsidiaries, including its and
their books of account, and to make copies and take extracts therefrom, and to
discuss its and their affairs, finances and accounts with its and their
officers and independent public accountants (and by this provision the Company
authorizes such accountants to discuss with such representatives the affairs,
finances and accounts of the Company and its Subsidiaries, whether or not the
Company is present), all at such reasonable times and as often as may be
reasonably requested.
SECTION 6.8. Compliance with Laws. etc. The Company covenants that it
will, and will cause each of its Subsidiaries to, comply with the requirements
of all applicable laws, rules, regulations and orders of any governmental
authority, the noncompliance with which could reasonably be expected to
have a material adverse effect on the business,
40
financial condition, assets, properties or operations of the Company and its
Subsidiaries taken as a whole.
SECTION 6.9. Subsidiary Guarantees. The Company shall cause each
Person that becomes a Restricted Subsidiary of the Company after the Closing
Date (if such Person guarantees Obligations arising under the Credit Agreement)
to execute and deliver to each Noteholder the Subsidiary Guaranty Agreement
pursuant to which such Restricted Subsidiary shall become a Subsidiary
Guarantor and shall guarantee on a senior subordinated basis the obligations
of the Company under the Notes hereunder. Such Subsidiary Guaranty Agreement
shall be appropriately completed, accompanied by such corporate or partnership
resolutions, as the case may be, authorizing the execution and delivery of the
Subsidiary Guaranty Agreement and evidence as to its due execution.
Notwithstanding the foregoing, Hanger Europe N.V. shall not be required to
execute and deliver to each Noteholder a Subsidiary Guaranty Agreement.
SECTION 6.10. Limitations on Restricted Payments. The Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly: (i) declare or pay any dividend or make any distribution on
account of the Company's or any of its Restricted Subsidiaries' Equity
Interests (other than (1) dividends or distributions by the Company payable in
Equity Interests (other than Disqualified Stock) of the Company or (2)
dividends or distributions by a Restricted Subsidiary of the Company so long
as, in the case of any dividend or distribution payable on or in respect of any
class or series of securities issued by a Subsidiary other than a Wholly Owned
Subsidiary, the Company or a Restricted Subsidiary of the Company receives at
least its pro rata share of such dividend or distribution in accordance with
its Equity Interests in such class or series of securities); (ii) purchase,
redeem, defease or otherwise acquire or retire for value any Equity Interests
of the Company; (iii) make any principal payment on, or redeem, repurchase,
defease or otherwise acquire or retire for value in each case, prior to any
scheduled repayment, or maturity, any Subordinated Indebtedness; or (iv) make
any Restricted Investment (all such payments and other actions set forth in
clauses (i) through (iv) above being collectively referred to as "Restricted
Payments"), unless, at the time of such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) immediately before and immediately after giving effect to such
transaction on a pro forma basis, the Company could incur $1.00 of additional
Debt under the provisions of the first paragraph of Section 6.11; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries after
the Closing Date (including Restricted Payments permitted by clause (i) below
of the next succeeding paragraph, but excluding all other Restricted Payments
permitted by the next succeeding paragraph), is less than the sum of (U) 50% of
the Consolidated Net Income of the Company for the period (taken as one
accounting period) from the fiscal quarter that first begins after the Closing
Date to the end of the Company's most recently ended fiscal quarter for which
41
internal financial statements are available at the time of such Restricted
Payment (or, in the case such Consolidated Net Income for such period is a
deficit, minus 100% of such deficit), plus (V) 100% of the aggregate net cash
proceeds and the fair market value, as determined in good faith by the Board of
Directors, of marketable securities received by the Company since the Closing
Date from the issue or sale of Equity Interests (including Retired Capital Stock
(as defined below)), or debt securities of the Company that have been converted
into such Equity Interests of the Company (other than Refunding Capital Stock
(as defined below) or Equity Interests or convertible debt securities of the
Company sold to a Restricted Subsidiary of the Company and other than
Disqualified Stock or debt securities that have been converted into Disqualified
Stock), plus (W) 100% of the aggregate amounts contributed to the capital of the
Company, plus (X) 100% of the aggregate amounts received in cash and the fair
market value of marketable securities (other than Restricted Investments)
received from (i) the sale or other disposition of Restricted Investments made
by the Company and its Restricted Subsidiaries or (ii) a dividend from, or the
sale of the stock of, an Unrestricted Subsidiary, plus (Y) other Restricted
Payments in an aggregate amount not to exceed $5,000,000.
The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at the date of declaration such payment would have
complied with the provisions of this Agreement;
(ii) the redemption, repurchase, retirement or other acquisition of any
Equity Interests (the "Retired Capital Stock") or Subordinated Indebtedness
of the Company or any Restricted Subsidiary in exchange for, or out of the
proceeds of, the substantially concurrent sale (other than to a Restricted
Subsidiary of the Company) of Equity Interests of the Company (other than
any Disqualified Stock) (the "Refunding Capital Stock");
(iii) the redemption, repurchase or other acquisition or retirement of
Subordinated Indebtedness of the Company made by exchange for, or out of
the proceeds of the substantially concurrent sale of, new Debt of the
Company so long as (A) the principal amount of such new Debt does not
exceed the principal amount of the Subordinated Indebtedness being so
redeemed, repurchased, acquired or retired for value in the amount of any
premium required to be paid under the terms of the instrument governing the
Subordinated Indebtedness being so redeemed, repurchased, acquired or
retired), (B) such Debt is subordinated to Senior Indebtedness and the
Notes at least to the same extent as such Subordinated Indebtedness so
purchased, exchanged, redeemed, repurchased, acquired or retired for value,
(C) such Debt has a final scheduled maturity date later than the final
scheduled maturity date of the Notes and (D) such Debt has a Weighted
Average Life to Maturity equal to or greater than the remaining Weighted
Average Life to Maturity of the Notes; and
(iv) repurchases of Equity Interests deemed to occur upon exercise of
stock options if such Equity Interests represent a portion of the exercise
price of such options;
42
provided, further, that at the time of, and after giving effect to, any
Restricted Payment permitted under clauses (i), (ii), (iii) and (iv), no Default
or Event of Default shall have occurred and be continuing or would occur as a
consequence thereof; and provided further that for purposes of determining the
aggregate amount expended for Restricted Payments in accordance with clause (c)
of the immediately preceding paragraph, only the amounts expended under clause
(i) shall be included.
As of the Issuance Date, all of the Company's Subsidiaries will be
Restricted Subsidiaries. The Company will not permit any Unrestricted
Subsidiary to become a Restricted Subsidiary except pursuant to the last
sentence of the definition any Restricted Subsidiary as an Unrestricted
Subsidiary, all outstanding Investments by the Company and its Restricted
Subsidiaries (except to the extent repaid) in the Subsidiary so designated will
be deemed to be Restricted Payments in an amount equal to the book value of
such Investment at the time of such designation. Such designation will only be
permitted if a Restricted Payment in such amount would be permitted at such
time and if such Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary. Unrestricted Subsidiaries will not be subject to any of the
restrictive covenants set forth in this Agreement.
SECTION 6.11. Limitations on Incurrence of Debt and Issuance of
Disqualified Stock. The Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, Guarantee or otherwise become directly or indirectly liable with
respect to (collectively, "incur" and correlatively, an "incurrence" of) any
Debt (including Acquired Debt) or any shares of Disqualified Stock; provided,
however, that the Company may incur Debt or issue shares of Disqualified Stock
if the Fixed Charge Coverage Ratio for the Company and its Restricted
Subsidiaries for the most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date of
such incurrence would have been at least 2.00 to 1.00 determined on a pro forma
basis (including a pro forma application of the net proceeds therefrom), as if
the additional Debt had been incurred or the Disqualified Stock had been
issued, as the case may be, and the application of proceeds had occurred at the
beginning of such four-quarter period.
The foregoing limitations will not apply to:
(a) the incurrence (i) by the Company and Southern of Debt under the
Credit Agreement and the issuance of letters of credit thereunder (with
letters of credit being deemed to have a principal amount equal to the
face amount thereof) up to an aggregate principal amount of $90,000,000
outstanding at any one time, less principal repayments of term loans and
permanent commitment reductions with respect to revolving and acquisition
loans and letters of credit under the Credit Agreement made after the
Closing Date, if any (excluding any principal repayments or commitment
reductions to the extent refinanced at the time of payment under a replaced
Credit Agreement); provided that Southern shall be limited to the
incurrence of $44,000,000 of Debt under the Credit Agreement; provided,
further that the amount of Debt permitted to be incurred pursuant to the
Credit Agreement by the Company in accordance with this clause (a) shall be
in addition to any Indebtedness permitted to be
43
incurred under the Credit Agreement in reliance on, and in accordance with,
clause (i) of this Section 6.l;
(b) the obligations of the Restricted Subsidiaries and the Company
incurred in connection with guarantees entered into in connection with the
Credit Agreement;
(c) Existing Indebtedness;
(d) the incurrence by the Company of Debt represented by the Notes and
the obligations of the Restricted Subsidiaries under the Subsidiary
Guaranty Agreement;
(e) Debt incurred by the Company or any of its Restricted Subsidiaries
constituting reimbursement obligations with respect to letters of credit is
sued in the ordinary course of business, including without limitation
letters of credit in respect of workers' compensation claims or
self-insurance, or other Debt with respect to reimbursement type
obligations regarding workers' compensation claims;
(f) Debt arising from agreements of the Company or a Restricted
Subsidiary providing for indemnification, adjustment of purchase price or
similar obligations, in each case, incurred or assumed in connection with
the disposition of any business, assets or a Subsidiary, other than
Guarantees of Debt incurred by any Person acquiring all or any portion of
such business, assets or a Subsidiary for the purpose of financing such
acquisition; provided that the maximum assumable liability in respect of
all such Debt shall at no time exceed the gross proceeds actually received
by the Company and its Restricted Subsidiaries in connection with such
disposition;
(g) Debt of the Company to a Restricted Subsidiary and Debt of a
Restricted Subsidiary to the Company or another Restricted Subsidiary;
provided however, that any subsequent issuance or transfer of any Capital
Stock or any other event which results in any such Restricted Subsidiary
ceasing to be a Restricted Subsidiary or any other subsequent transfer of
any such Debt (except to the Company or a Restricted Subsidiary) shall be
deemed, in each case to be an incurrence of Debt at the time the Restricted
Subsidiary ceased to be a Restricted Subsidiary;
(h) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
in the ordinary course of business;
(i) Debt not otherwise permitted hereunder in an amount under this
clause (i) not to exceed $10,000,000 at any one time;
(j) Debt or Disqualified Stock of Persons that are acquired by the
Company or any of its Restricted Subsidiaries or merged into a Restricted
Subsidiary in accordance with the terms of this Agreement; provided that
such Debt or Disqualified Stock is not incurred in contemplation of such
acquisition or merger; and provided further that the Fixed Charge Coverage
Ratio for the Company and its Restricted Subsidiaries for the
44
most recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date of such transaction
would have been at least 2.00 to 1.00 determined on a pro forma basis, as if
such transaction had occurred at the beginning of such four-quarter period
and such Debt or Disqualified Stock and the EBITDA of such merged or
acquired Person had been included for all purposes in such pro forma
calculation;
(k) any Guarantee by the Company of Debt or other obligations of any
of its Restricted Subsidiaries so long as the incurrence of such Debt
incurred by such Restricted Subsidiary is permitted under the terms of the
Indenture;
(l) Debt (including Capitalized Lease Obligations) incurred by the
Company or any of its Restricted Subsidiaries to finance the purchase,
lease or improvement of property (real or personal) or equipment (whether
through the direct purchase of assets or the Capital Stock of any Person
owning such assets) in an aggregate principal amount which, when aggregated
with the principal amount of all other Debt then outstanding and incurred
pursuant to this clause (l) (including any refinancing thereof), does not
exceed $5,000,000;
(m) Indebtedness in respect of Hedging Obligations to establish a
fixed or maximum interest rate for an aggregate notional amount of at least
50% of the outstanding principal amount of the Term Loans for a period of
at least three years; and
(n) the incurrence by the Company or any of its Restricted
Subsidiaries of Debt which serves to refund, refinance or restructure any
Debt incurred as permitted under the first paragraph of this covenant or
any other Debt incurred as permitted under the first paragraph of this
covenant and clauses (c), (d) and (j) above, or any Debt issued to so
refund, refinance or restructure such Debt including additional Debt
incurred to pay premiums and fees in connection therewith (the
"Refinancing Indebtedness") prior to its respective maturity; provided
however that such Refinancing Indebtedness (a) has a Weighted Average Life
to Maturity at the time such Refinancing Indebtedness is incurred which is
not less than the remaining Weighted Average Life to Maturity of Debt being
refunded or refinanced and (b) to the extent such Refinancing Indebtedness
refinances Subordinated Indebtedness or Pari Passu Indebtedness, such
Refinancing Indebtedness is subordinated or pari passu to the Notes at
least to the same extent as the Debt being refinanced or refunded; and
provided further that subclauses (a) and (b) of this clause (k) will not
apply to any refunding or refinancing of any Senior Indebtedness.
SECTION 6.12. Liens. The Company will not directly or indirectly
create, incur, assume or suffer to exist any Lien that secures obligations
under any Pari Passu Indebtedness or Subordinated Indebtedness on any asset or
property of the Company or such Restricted Subsidiary, or any income or profits
therefrom, or assign or convey any right to receive income therefrom, unless
the Notes are equally and ratably secured with the obligations so secured or
until such time as such obligations are no longer secured by a Lien.
45
The Restricted Subsidiaries of the Company will not, directly or
indirectly, create, incur, assume or suffer to exist any Lien that secures
obligations under any Pari Passu Indebtedness or Subordinated Indebtedness of
such Restricted Subsidiary on any asset or property of such Restricted
Subsidiary or any income or profits therefrom, or assign or convey any right to
receive income therefrom, unless the Guarantee of such Restricted Subsidiary
under the Subsidiary Guaranty Agreement is equally and ratably secured with the
obligations so secured or until such time as such obligations are no longer
secured by a Lien.
SECTION 6.13. Consolidation, Merger, Sale of Assets, etc. The Company
may not consolidate or merge with or into or wind up into (whether or not the
Company is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions to, any Person unless (i) the
Company is the surviving corporation or the Person formed by or surviving any
such consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition will have been
made is a corporation organized or existing under the laws of the United
States, any state thereof, the District of Columbia, or any territory thereof;
(ii) the Person formed by or surviving any such consolidation or merger (if
other than the Company) or the Person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of the Company under this Agreement and the Notes pursuant to
documents or instruments in form reasonably satisfactory to the Required
Holders under this Agreement and the Notes; (iii) immediately after such
transaction no Default or Event of Default exists; and (iv) the Company or any
Person formed by or surviving any such consolidation or merger, or to which
such sale, assignment, transfer, lease, conveyance or other disposition will
have been made will, at the time of such transaction and after giving pro forma
effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Debt pursuant to the Fixed Charge Coverage Ratio test set forth in
the covenant described under Section 6.11. Notwithstanding the foregoing
clauses (iii) and (iv), (a) any Restricted Subsidiary may consolidate with,
merge into or transfer all or part of its properties and assets to the Company
and (b) the Company may merge with an Affiliate incorporated solely for the
purpose of reincorporating the Company in another jurisdiction.
Each Subsidiary Guarantor shall not, and the Company will not permit a
Subsidiary Guarantor to, consolidate or merge with or into or wind up into
(whether or not such Subsidiary Guarantor is the surviving corporation), or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions to, any Person unless (i) such Subsidiary Guarantor is the
surviving corporation or the Person formed by or surviving any such
consolidation or merger (if other than such Subsidiary Guarantor) or to which
such sale, assignment, transfer, lease, conveyance or other disposition will
have been made is a corporation organized or existing under the laws of the
United States, any state thereof, the District of Columbia, or any territory
thereof (such Subsidiary Guarantor or such Person, as the case may be, being
herein called the "Successor Guarantor"); (ii) the Successor Guarantor (if other
than such Subsidiary Guarantor) expressly assumes all the obligations of such
Subsidiary Guarantor under the Subsidiary Guaranty Agreement pursuant to
documents or instruments in form reasonably satisfactory to the
46
Required Holders; (iii) immediately after such transaction no Default or Event
of Default exists; and (iv) the Company shall have delivered to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that such
consolidation, merger or transfer and such documents (if any) comply with this
Agreement. The Successor Guarantor will succeed to and be substituted for, such
Subsidiary Guarantor under this Agreement and the Subsidiary Guaranty Agreement.
SECTION 6.14. Limitation on Transactions with Affiliates. The Company
will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, enter into any transaction or series of related transactions
(including, without limitation, the sale, purchase, exchange or lease of assets,
property or services) with any Affiliate of the Company (other than the Company
or a Wholly Owned Restricted Subsidiary) unless (a) such transaction or series
of related transactions is in writing and on terms that are no less favorable to
the Company or such Restricted Subsidiary, as the case may be, than those that
would be available in a comparable transaction in arm's-length dealings with an
unrelated third party, (b) with respect to any transaction or series of related
transactions involving aggregate value in excess of $1,000,000, the Company
delivers an Officers' Certificate to the Noteholders certifying that such
transaction or series of related transactions complies with clause (a) above and
such transaction or series of transactions has been approved by a majority of
the board of directors of the Company, (c) with respect to any transaction or
series of related transactions involving aggregate payments in excess of
$2,000,000, such transaction or series of related transactions has been approved
by the Disinterested Directors of the Company (or in the event there is only one
Disinterested Director, by such Disinterested Director) and (d) with respect to
any transaction or series of related transactions involving aggregate payments
in excess of $5,000,000, such transaction or series of related transactions has
been approved by the Disinterested Directors of the Company (or in the event
there is only one Disinterested Director, by such Disinterested Director) and
the Company delivers to the Noteholders a written opinion of an investment
banking firm of national standing or other recognized independent expert with
experience appraising the terms and conditions of the type of transaction or
series of related transactions for which an opinion is required stating that the
transaction or series of related transactions is fair to the Company or such
Restricted Subsidiary from a financial point of view; provided, however, that
the provision with respect to clause (d) above shall not apply to (A) any
transaction with an officer or director of the Company entered into in the
ordinary course of business (including compensation or employee benefit
arrangements with any officer or director of the Company) or (B) any agreements,
transactions or series of related transactions in existence on the date of this
Agreement and any renewal or extension thereof under substantially the same
terms as the original terms.
SECTION 6.15. Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause to become
effective any consensual encumbrance or consensual restriction on the ability
of any such Restricted Subsidiary to:
(a)(i) pay dividends or make any other distributions to the Company or
any of its Restricted Subsidiaries on its Capital Stock or any other
interest participation in,
47
or measured by, its profits or (ii) pay any Debt owed to the Company or any
of its Restricted Subsidiaries;
(b) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(c) sell, lease, or transfer any of its properties or assets to the
Company, or any of its Restricted Subsidiaries, except (in each case) for
such encumbrances or restrictions existing under or by reason of:
(1) contractual encumbrances or restrictions in effect on the Closing
Date, including pursuant to the Credit Agreement and its related
documentation;
(2) this Agreement and the Notes;
(3) by reason of customary non-assignment or subletting provisions in
leases entered into in the ordinary course of business and consistent with
past practices;
(4) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions acquired;
(5) applicable law or any applicable rule, regulation or order;
(6) Existing Indebtedness and Debt or Capital Stock of Restricted
Subsidiaries that are acquired by or merged with or into the Company or any
of its Restricted Subsidiaries after the Issuance Date; provided that such
Debt or Capital Stock is in existence at the time of such acquisition and
was not incurred, assumed or issued in contemplation of such acquisition or
merger;
(7) other Debt permitted to be incurred subsequent to the Closing Date
pursuant to Section 6.11; provided that any such restrictions are ordinary
and customary with respect to the type of Debt being incurred (under the
relevant circumstances);
(8) contracts for the sale of assets, including, without limitation
customary restrictions with respect to a Restricted Subsidiary pursuant to
agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of such Subsidiary;
(9) secured Debt otherwise permitted to be incurred pursuant to the
covenants described under Section 6.11 and Section 6.12 that limit the
right of the debtor to dispose of the assets securing such Debt;
(10) customary provisions contained in leases and other agreements
entered into in the ordinary course of business;
48
(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business;
and
(12) any encumbrances or restrictions imposed by any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings of the contracts, instruments or obligations
referred to in clauses (1) through (11) above, provided that such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are, in the good faith judgment of
the Company's Board of Directors, no more restrictive with respect to such
dividend and other payment restrictions than those contained in the
dividend or other payment restrictions prior to such amendment,
modification, restatement, renewal, increase, supplement, refunding,
placement or refinancing.
SECTION 6.16. Limitation on Other Senior Subordinated Indebtedness. The
Company will not, directly or indirectly, incur any Debt (including Acquired
Debt) that is subordinate in right of payment to any Debt of the Company unless
such Debt is either (a) Pari Passu Indebtedness or (b) subordinate in right of
payment to the Notes, in the same manner and at least to the same extent as the
Notes are subordinate to Senior Indebtedness.
SECTION 6.17. Limitation on Preference Stock of Restricted
Subsidiaries. The Company will not permit any of Its Restricted Subsidiaries to
issue, directly or indirectly, any Preference Stock, except (i) Preference
Stock issued to and held by the Company or a Wholly Owned Restricted
Subsidiary, except that any subsequent issuance or transfer of any Capital
Stock which results in any Wholly Owned Restricted Subsidiary ceasing to be a
Wholly Owned Restricted Subsidiary or any transfer of such Preference Stock to
a Person no a Wholly Owned Restricted Subsidiary will be deemed an issuance of
Preference Stock; (ii) Preference Stock issued by a Person prior to the time
(a) such Person became a Restricted Subsidiary of the Company, (b) such person
merges with or into a Restricted Subsidiary or (c) another person merges with
or into such Person (in a transaction in which such Person becomes a Restricted
Subsidiary), in each case if such Preference Stock was not issued in
anticipation of such transaction; and (iii) Preference Stock issued in exchange
for, or the proceeds of which are used to refund Debt or refinance Preference
Stock issued pursuant to clauses (i) or (ii) (other than Disqualified Stock);
provided that (a) the liquidation value of such Preference Stock so issued
shall not exceed the principal amount or the liquidation value of the Debt or
Preference Stock, as the case may be, so refunded or refinanced and (b) the
Preference Stock so issued (i) shall have a stated maturity not earlier than
the stated maturity of the Debt or Preference Stock being refunded or
refinanced and (2) shall have a Weighted Average Life to Maturity equal to or
greater than the remaining Weighted Average Life to Maturity of the Debt or
Preference Stock being refinanced or refunded.
SECTION 6.18. Change of Control. (a) Upon the occurrence of a Change of
Control, the Company will make an offer to purchase all or any part (equal to
$1,000 or an integral multiple thereof) of the Notes pursuant to the offer
described below (the "Change of Control Offer") at a price in cash (the "Change
of Control Payment") equal to 100% of the aggregate principal amount thereof
plus accrued and unpaid interest thereon, if any, to the date of purchase. With
in 30 days following any Change of Control, the Company will mail a
49
notice to each Noteholder with the following information: (1) a Change of
Control Offer is being made pursuant to the covenant entitled "Change of
Control,' and that all Notes properly tendered pursuant to such Change of
Control Offer will be accepted for payment; (2) the purchase price and the
purchase date, which will be no earlier than 30 days nor later than 60 days from
the date such notice is mailed, except as may be otherwise required by
applicable law (the "Change of Control Payment Date"); (3) any Note not properly
tendered will remain outstanding and continue to accrue interest; (4) unless the
Company defaults in the payment of the Change of Control Payment, all Notes
accepted for payment pursuant to the Change of Control Offer will cease to
accrue interest on the Change of Control Payment Date; (5) Noteholders electing
to have any Notes purchased pursuant to a Change of Control Offer will be
required to surrender the Notes, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the Notes completed, and at the address
specified in the notice prior to the close of business on the third Business Day
preceding the Change of Control Payment Date; (6) Noteholders will be entitled
to withdraw their tendered Notes and their election to require the Company to
purchase such Notes, provided, that the Company receives, not later than the
close of business on the last day of the offer period, a telegram, telex,
facsimile transmission or letter setting forth the name of the Noteholder, the
principal amount of Notes tendered for purchase, and a statement that such
Holder is withdrawing his tendered Notes and his election to have such Notes
purchased; and (7) that Holders whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered, which unpurchased portion must be equal to $1,000 in
principal amount or an integral multiple thereof.
(b) Prior to complying with the provisions of this covenant, but in any
event within 30 days following a Change of Control, the Company will either
repay all outstanding amounts under the Credit Agreement or offer to repay in
full all outstanding amounts under the Credit Agreement and repay the
obligations held by each lender who has accepted such offer or obtain the
requisite consents, if any, under the Credit Agreement to permit the
repurchase of the Notes required by this covenant.
(c) The Company will comply with the requirements of Rule 14e-l under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws or regulations are applicable in connection with the repurchase
of the Notes pursuant to a Change of Control Offer. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
this Agreement, the Company will comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations hereunder.
On the Change of Control Payment Date, the Company will, to the extent
permitted by law, (1) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit an amount equal
to the aggregate Change of Control Payment in respect of all Notes or portions
thereof so tendered and (3) cancel the Notes so accepted together with an
Officers' Certificate stating that such Notes or portions thereof have been
tendered to and purchased by the Company. The Company will promptly mail to
each Noteholder the Change of Control Payment for such Notes, and the Company
will promptly mail to each Noteholder a new Note equal in principal amount to
any
50
unpurchased portion of the Notes surrendered, if any, provided, that each such
new Note will be in a principal amount of $1,000 or an integral multiple
thereof.
SECTION 6.19. Asset Sales. (a) The Company will not, and will not
permit any of its Restricted Subsidiaries to, cause, make or suffer to exist
an Asset Sale, unless (x) the Company, or its Restricted Subsidiaries, as the
case may be, receives consideration at the time of such Asset Sale at least
equal to the fair market value (as determined in good faith by the Company) of
the assets sold or otherwise disposed of and (y) at least 75% of the proceeds
from such Asset Sale when received consists of cash or Cash Equivalents;
provided that, the amount of any liabilities (as shown on the Company's or such
Restricted Subsidiary's most recent balance sheet) of the Company or any
Restricted Subsidiary (other than liabilities that are by their terms
subordinated to the Notes) that are assumed by the transferee of any such
assets and (b) any notes or other obligations received by the Company or any
such Restricted Subsidiary from such transferee that are immediately converted
by the Company or such Restricted Subsidiary into cash or Cash Equivalents (to
the extent of the cash received), shall be deemed to be cash for the purposes
of this provision.
(b) Within 365 days after the Company's or any Restricted Subsidiary's
receipt of the Net Proceeds of any Asset Sale, the Company or such Restricted
Subsidiary may apply the Net Proceeds from such Asset Sale, at its option, (i)
to permanently reduce Obligations under the Credit Agreement (and, if
applicable, to correspondingly reduce commitments with respect thereto) or
other Senior Indebtedness or Pari Passu Indebtedness, (ii) to an investment in
any one or more businesses, capital expenditures or acquisitions of other
assets in each case, used or useful in a Permitted Business or (iii) to an
investment in properties or assets that replace the properties and assets that
are the subject of such Asset Sale. Pending the final application of any such
Net Proceeds, the Company or such Restricted Subsidiary may temporarily reduce
Indebtedness under a revolving credit facility, if any, or otherwise invest
such Net Proceeds in Cash Equivalents. Any Net Proceeds from the Asset Sale
that are not invested as provided and within the time period set forth in the
first sentence of this paragraph will be deemed to constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $5,000,000, the
Company shall make an offer to all Noteholders (an "Asset Sale Offer") to
purchase the maximum principal amount of Notes, that is an integral multiple of
$1,000, that may be purchased out of the Excess Proceeds at an offer price in
cash in an amount equal to 100% of the principal amount thereof, plus accrued
and unpaid interest, if any, to the date fixed for the closing of such offer.
The Company will commence an Asset Sale Offer with respect to Excess Proceeds
within ten business days after the date that Excess Proceeds exceeds $5,000,000
by mailing a notice to the Noteholders. To the extent that the aggregate amount
of Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company may use any remaining Excess Proceeds for general
corporate purposes. If the aggregate principal amount of Notes surrendered by
Noteholders thereof exceeds the amount of Excess Proceeds, the Company shall
select the Notes to be purchased in the manner described below in paragraph
(c). Upon completion of any such Asset Sale Offer, the amount of Excess
Proceeds shall be reset at zero.
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(c) If less than all of the Notes are to be redeemed in an Asset Sale
Offer at any time, selection of such Notes for redemption ▇▇▇▇ be made by the
Company on a pro rata basis, by lot or by such other method as the Company
shall deem fair and appropriate (and in such manner as complies with
applicable legal requirements); provided that no Notes of $1,000 or less shall
be redeemed in part.
(d) Notices of an Asset Sale Offer shall be mailed by first class mail,
postage prepaid, at least 30 but not more than 60 days before the purchase date
to each Noteholder to be purchased or redeemed at such Noteholder's registered
address. If any Note is to be purchased or redeemed in part only, any notice of
purchase or redemption that relates to such Note shall state the portion of the
principal amount thereof that has been or is to be purchased or redeemed. A new
Note in principal amount equal to the unpurchased portion of any Note purchased
in part will be issued in the name of the Noteholder thereof upon cancellation
of the original Note. On and after the purchase date, unless the Company
defaults in payment of the purchase or redemption price, interest shall cease
to accrue on Notes or portions thereof purchased.
SECTION 6.20. No Restrictive Agreements. Except for the Credit
Agreement, the Company will not and will not permit any of its Subsidiaries to
enter into any agreement that would restrict or prohibit the amendment,
modification, waiver or termination of this Agreement, the Notes, the Warrants
or the Subsidiary Guaranty Agreement.
SECTION 6.21. Private Placement Numbers. Upon request by any Purchaser,
the Company shall obtain for the Notes a Private Placement Number issued by
Standard & Poor's CUSIP Service Bureau.
ARTICLE VII
TERMS OF THE NOTES
SECTION 7.1. Form of Notes; Issuance of Notes. The Notes shall be in
registered form in the form of Exhibit A hereto and shall be transferrable in
accordance with the limitations set forth in this Agreement.
SECTION 7.2. Registration, Transfer, Exchange and Substitution of
Notes. (a) The Company shall keep at its principal office a register (the
"Register") in which shall be entered the names and addresses and account
numbers of the registered holders of the Notes and particulars of the
respective Notes held by them and of all transfers of such Notes. References to
the "Noteholder" or "Holder" shall mean the Person listed in the Register as
the payee of any Note unless the payee shall have presented such Note to the
Company for transfer and the transferee shall have been entered in the
Register as a subsequent holder. The ownership of the Notes shall be proved by
the Register. For the purpose of paying interest and principal and all other
amounts due on the Notes, the Company shall be entitled to rely on the names
and addresses in the Register.
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(b) If any Note is presented at the Company's office for the purpose of
transfer or exchange (accompanied in the case of a transfer by a written
instrument of transfer duly executed by or on behalf of the Noteholder), the
Company, at its own expense, will deliver in exchange one or more new Notes in
any authorized denominations, as requested by the Noteholder, of like tenor and
aggregate unpaid principal amount. Any Note or Notes issued in the transfer or
exchange shall carry the same rights to interest (unpaid and to accrue) carried
by the Note or Notes so exchanged or transferred so that there will not be any
loss or gain of interest on the Note or Notes surrendered.
(c) Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of any Note, and upon surrender and
cancellation of such Note, if mutilated, the Company will pay any unpaid
principal and interest (and any prepayment charge) then or theretofore due and
payable on such Note and will deliver in lieu of such Note a new Note of like
tenor for any remaining balance.
SECTION 7.3. Payments on the Notes. (a) The Company shall pay the
principal amount of the Notes and all accrued but unpaid interest on such
amount to the Noteholder on November 1, 2004 (the "Maturity Date").
(b) Interest on the Notes will accrue at the rate of 8% per annum and
will be payable on each June 30 and December 31, commencing June 30, 1997, to
the Noteholders of record of Notes at the close of business on the June 15 and
December 15 preceding such Interest Payment Dates. Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the Closing Date. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months.
(c) Interest payable on any Interest Payment Date (except on the
Maturity Date) may be paid by the Company to the Noteholders either (i)
entirely in cash in the amount of 8.00% per annum of the unpaid principal
amount of the Notes on such Interest Payment Date or, at the option of the
Company, (ii) in a combination of (A) cash in an amount at least equal to the
3.2% per annum of the unpaid principal amount of the Notes (inclusive of
Subsequent Notes) on such Interest Payment Date and (B) newly-issued Notes
(each, a "Subsequent Note") issued to the Noteholders in an aggregate principal
amount equal to the remaining amount of accrued interest on the Notes for such
period (inclusive of Subsequent Notes) on such Interest Payment Date. Interest
payable on the Maturity Date shall only be payable in cash.
(d) Interest on principal of, premium, if any, and interest on the
Notes that is not paid when due shall accrue from and including the date the
same became due to but excluding the date the same is paid in full at the rate
per annum which is 2% above the otherwise applicable interest rate on the Notes
("Default Interest"). Default Interest shall be payable on demand to the
Noteholders either (i) entirely in cash or at the option of the Company (ii) in
a combination of (A) cash in an amount at least equal to 40% of Default Interest
and (B) Subsequent Notes issued to the Noteholders in an aggregate principal
amount equal to the remaining amount of the Default Interest (inclusive of
Subsequent Notes).
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(e) All payments on the Notes shall be made by wire transfer of
immediately available funds by 11:00 am on the date when due to the account of
the Noteholder at a bank in the United States specified in writing by the
Noteholder to the Company or in the case of a Purchaser to the account
specified beneath such Purchaser's name on the signature pages hereof (or to
such other account as such Purchaser may specify in writing to the Company) and
shall be in lawful funds of the United States of America; provided that the
Noteholders must surrender Notes to the Company to collect principal payments.
(f) All payments made by the Company hereunder or under any Note will
be made free and clear of, and without deduction or withholding for, any
present or future taxes, levies, imposts, duties, fees, assessments or other
charges of whatever nature or hereafter imposed by any taxing jurisdiction or
by any political subdivision or taxing authority thereof or therein with
respect to such payments, and all interest, penalties or similar liabilities
assessed with respect thereto. If any taxes are so levied or imposed, the
Company agrees to pay the full amount of such taxes, and such additional
amounts as may be necessary so that every payment of all amounts due under this
Agreement or any Note after withholding or deduction for or on account of any
taxes, will not be less than the amount provided for herein or in such Note. If
any amounts are payable in respect of taxes pursuant to the preceding sentence,
the Company agrees to reimburse each Noteholder, upon the written request of
such Noteholder, for taxes imposed on or measured by the net income or net
profits of such Noteholder pursuant to the laws of the jurisdiction in which
such Noteholder is located or under the laws of any political subdivision or
taxing authority of any such jurisdiction in which such Noteholder is organized
or in which the principal office or applicable lending office of such
Noteholder is located and for any withholding of taxes as such Noteholder shall
determine are payable by, or withheld from, such Noteholder, in respect of such
amounts so paid to or on behalf of such Noteholder pursuant to the preceding
sentence and in respect of any amounts paid to or on behalf of such Noteholder
pursuant to this sentence.
(g) Each Noteholder that is not a United States person for U.S. federal
income tax purposes agrees to deliver to the Company on or prior to the Closing
Date, or in the case of a Noteholder that is an assignee or transferee of an
interest under this Agreement, on the date of such Assignment, (i) two accurate
and complete original signed copies of Internal Revenue Service Form 4224 or
1001 (or successor forms) certifying to such Noteholder's entitlement to a
complete exemption from United States withholding tax with respect to payments
to be made under this Agreement and under any note. All Noteholders a party to
this Agreement or any Assignment shall provide additional original signed
copies of Form 4224 or 1001 when a lapse in time or a change in circumstances
renders the previously filed forms inaccurate or obsolete, or said Noteholders
shall notify the Company and the Agent of its inability to deliver such forms or
certificates.
SECTION 7.4. Optional Prepayment. The Company may, at any time, at its
option on not less than 30 and not more than 60 Business Days' notice to each
Noteholder, prepay the Notes in whole but not in part at a price equal to the
principal amount of such Notes outstanding with accrued but unpaid interest
through the date of prepayment (in cash).
54
At least two and not more than Five Business Days prior to the date of
prepayment specified in the Company's notice, the Company will give each
Noteholder further written notice specifying the amount (if any) payable on such
date with respect to such principal amount to be prepaid.
SECTION 7.5. Mandatory Prepayments Upon Equity Offerings. Upon the
repayment in full of all Obligations under the Credit Agreement and permanent
reduction of all lending commitments under the Credit Agreement to zero or to
the extent permitted by the Credit Agreement, in the event that the Company
shall complete an Equity Offering, the Company shall, within two Business Days
after receipt of any related Equity Offering Proceeds, apply, or cause to be
applied, such Equity Offering Proceeds to prepay on a pro rata basis the
principal amount of the Notes which is equal to the amount of such Equity
Offering Proceeds. The Notes to be prepaid pursuant to this Section 7.5 shall
be prepaid at the principal amount of such Notes together with interest
accrued to the date of prepayment.
SECTION 7.6. Events of Default; Acceleration of Maturity; Waiver of
Default. In case one or more of the following events (each an "Event of
Default") (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 or otherwise) shall have occurred and
be continuing:
(a) if the Company shall default in the payment of any principal or
premium, if any, on any Note when the same becomes due and payable, whether
at maturity or at a date fixed for prepayment or by declaration or
otherwise; or
(b) if the Company shall default in the payment of any interest on any
Note or on any other amount payable under this Agreement for more than 30
days after the same becomes due and payable; or
(c) if the Company shall default in the performance of or compliance
with any term contained herein other than those referred to above in this
Section 7.6, and such default shall not have been remedied within 40 days
after receipt by the Company of written notice of such default from any
holders representing 25% in aggregate principal amount of the Notes; or
(d) if any representation or warranty made by or on behalf of the
Company or any Subsidiary Guarantor herein or in the Subsidiary Guaranty
Agreement, as the case may be, shall be false on the date as of which it
was made except to the extent such falsehood does not have a material
adverse effect on the business, operations, affairs, condition, properties
or prospects of the Company or such Subsidiary Guarantor; or
(e) (i) there shall have occurred one or more defaults by the Company
or any of its Restricted Subsidiaries (as principal or as guarantor or
other surety) in the payment of the principal of (or premium, if any) on
any Debt aggregating at least
55
$1,000,000 or more when the same becomes due and payable at its final
maturity or (ii) Debt of the Company or any of its Restricted Subsidiaries
aggregating $1,000,000 or more shall have been accelerated or otherwise
declared due and payable prior to its maturity (which acceleration or
declaration is not rescinded, annulled or otherwise cured within 20 days
of receipt by the Company or such Restricted Subsidiary of notice of any
such acceleration, declaration or demand); or
(f) if the Company or any Significant Subsidiary shall (i) admit in
writing its inability to pay its debts as they become due, (ii) file, or
consent by answer or otherwise to the filing against it of, a petition for
relief or reorganization or arrangement or any other petition in
bankruptcy, for liquidation or to take advantage of any bankruptcy or
insolvency law of any jurisdiction, (iii) make any general assignment for
the benefit of its creditors, (iv) consent to the appointment of a
custodian, receiver, trustee or other officer with similar powers with
respect to it or with respect to any substantial part of its property, or
(v) take corporate action for the purpose of any of the foregoing; or
(g) if a court or governmental authority of competent jurisdiction
shall enter an order appointing, without consent by the Company or any
Significant Subsidiary of the Company a custodian, receiver, trustee or
other officer with similar powers with respect to it or with respect to any
substantial part of its property, or constituting an order for relief or
approving a petition for relief or reorganization or any other petition in
bankruptcy or for liquidation or to take advantage of any bankruptcy or
insolvency law of any jurisdiction, or ordering the dissolution or
winding-up if any such petition shall be filed against the Company or any
Significant Subsidiary of the Company and such petition is not controverted
within 15 days or is not discharged or dismissed within 60 days; or
(h) if a final judgment which, with other outstanding final judgments
against the Company or its Significant Subsidiaries exceeds $5,000,000
shall be entered against the Company or any Significant Subsidiary of the
Company and if, within 60 days after entry thereof, such judgment shall not
have been discharged or execution thereof stayed pending appeal, or if,
within 60 days after the expiration of any such stay, such judgment shall
not have been discharged; or
(i) Cessation of all or any portion of the Subsidiary Guaranty
Agreement to be in full force and effect or the declaration of all or any
portion of the Subsidiary Guaranty Agreement to be null and void and
unenforceable or the finding that all or any portion of such Subsidiary
Guaranty Agreement is invalid or the denial of any Subsidiary Guarantor of
its liability under the Subsidiary Guarantee Agreement (other than by
reason of release of a Subsidiary Guarantor in accordance with its terms).
then, and in each and every such case (other than an Event of Default with
respect to the Company specified in subsections (f) or (g) hereof), unless the
principal of all of the Notes shall have already become due and payable, the
holders of not less than 25% in aggregate principal amount of the Notes then
outstanding, by notice in writing to the Company (the
56
"Acceleration Notice"), may declare the Notes to be due and payable immediately,
and upon any such declaration there shall become immediately due and payable an
amount (the "Default Amount") equal to the sum of the entire principal amount of
the Notes plus interest accrued thereon; provided that, so long as any Specified
Senior Indebtedness is outstanding, such declaration shall not become effective
until the earlier of (i) 15 days after delivery of the Acceleration Notice to
the Company if at such time the Default or Event of Default which gave rise to
the Acceleration Notice has not been cured or waived, and (ii) acceleration of
any Specified Senior Indebtedness. If an Event of Default specified in
subsection (f) or (g) occurs, the Default Amount on the Notes shall become and
be immediately due and payable without any declaration or other act on the part
of any Noteholder.
The provision, however, is subject to the condition that if at any time
after the principal of the Notes shall have been so declared due and payable,
and before any judgment or decree for the payment of the moneys due shall have
been obtained or entered as hereinafter provided, the Company shall pay or shall
deposit in trust for the benefit of the Noteholders a sum sufficient to pay all
matured installments of interest upon all the Notes and the principal of any and
all Notes which shall have become due otherwise than by acceleration (with
interest upon such principal and, to the extent that payment of such interest is
enforceable under applicable law, on overdue installments of interest, at the
same rate as the rate of interest specified herein, to the date of such payment
or deposit), and if any and all Events of Default under this Note, other than
the non-payment of the principal of the Notes which shall have become due by
acceleration, shall have been cured, waived or otherwise remedied as provided
herein, then and in every such case the Required Holders, by written notice to
the Company, may waive all defaults and rescind and annul such declaration and
its consequences, but no such waiver or rescission and annulment shall extend to
or shall affect any subsequent default or shall impair any right consequent
thereon.
The Company shall promptly upon receipt of an Acceleration Notice
provide written notice to the Agent Bank of the receipt of such Acceleration
Notice. Failure to deliver such notice shall not affect the validity of the
notice delivered by the Noteholders in accordance with the provisions referred
to above.
SECTION 7.7. Powers and Remedies Cumulative; Delay or Omission Not
Waiver of Default. No right or remedy herein conferred upon or reserved to the
Noteholders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
No delay or omission of the Noteholders to exercise any right or power
accruing upon any Event of Default occurring and continuing as aforesaid shall
impair any such right or power or shall be construed to be a waiver of any such
Event of Default or an acquiescence therein; and every power and remedy given
by the Notes or by law may be exercised from time to time, and as often as
shall be deemed expedient, by the Noteholders.
57
SECTION 7.8. Waiver of Past Defaults. Prior to the declaration of the
acceleration of maturity of the Notes as provided in Section 7.6, the Required
Holders may on behalf of the Holders of all the Notes waive any past Default or
Event of Default hereunder and its consequences, except a Default in the payment
of principal of or interest on any of the Notes. In the case of any such waiver,
the Company and the Holders of the Notes shall be restored to their former
positions and rights hereunder, respectively; but no such waiver shall extend to
any subsequent or other Default or impair any right consequent thereon.
Upon any such waiver, such Default shall cease to exist and be deemed
to have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured, and not to have occurred for
every purpose of this Note; but no such waiver shall extend to any subsequent
or other Default or Event of Default or impair any right consequent thereon.
ARTICLE VIII
SUBORDINATION OF NOTES
SECTION 8.1. Notes Subordinated to Senior Indebtedness. Any term or
provision of this Agreement or the Notes to the contrary notwithstanding, the
Company covenants and agrees, and each holder of any Note, whether upon
original issue or upon transfer, assignment or exchange thereof, by its
acceptance thereof, shall be deemed likewise to have covenanted and agreed,
that, to the extent and in the manner hereinafter set forth in this Article
VIII, the Subordinated Obligations are hereby expressly made subordinate and
subject in right of payment to the prior payment in full in cash or cash
equivalents of all Senior Indebtedness of the Company and shall not be
subordinated to any indebtedness of the Company other than Senior Indebtedness
of the Company.
SECTION 8.2. Pavement Over of Proceeds Upon Dissolution, etc. (a) Upon
any payment, distribution or transfer of assets of the Company of any kind or
character, whether in cash, property or securities, to creditors upon (i) any
insolvency or bankruptcy case or proceeding, or any receivership, liquidation,
reorganization, readjustment, composition or other similar case or proceeding in
connection therewith, relative to the Company or to its creditors, as such, or
to its assets, or (ii) any liquidation, dissolution or other winding up of the
Company, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy proceedings, or (iii) any assignment for the benefit of
creditors or any other marshalling of assets and liabilities of the Company,
then and in any such event:
(1) all amounts due or to become due upon all Senior Indebtedness
shall first be paid in full in cash or cash equivalents before any payment
is made on account of the Subordinated Obligations, or to acquire any of
the Notes for cash or property; and
(2) any payment, distribution or transfer of assets of the Company of
any kind or character, whether in cash, property or securities, to which
the holders of the
58
Notes would be entitled but for the provisions hereof, including any such
payment, distribution or transfer which may be payable or deliverable by
reason of the payment of any other Debt of the Company being subordinated
to the payment of the Notes (except for any such payment, distribution or
transfer of equity or debt securities, the payment of which debt
securities is subordinated, to at least the same extent as provided in this
Article VIII with respect to the Notes, to the payment of all Senior
indebtedness and to any securities issued in respect of such Senior
Indebtedness then outstanding and which equity or debt securities are not
redeemable or payable until one year after the maturity of the Senior
Indebtedness, as such maturity may have been extended in the case or
proceeding referred to in this Section 8.2 and after the maturity of any
such securities issued in respect of Senior Indebtedness) shall be paid by
the liquidating trustee or agent or other person making such payment,
distribution or transfer, whether a trustee in bankruptcy, a receiver or
liquidating trustee or otherwise, directly to the holders of Senior
Indebtedness or their representative or representatives or to the trustee
or trustees under any indenture under which any instruments evidencing any
of such Senior Indebtedness may have been issued, ratably according to the
aggregate amounts remaining unpaid on account of the Senior Indebtedness,
to the extent necessary to make payment in full in cash or cash equivalents
of all Senior Indebtedness remaining unpaid, after giving effect to any
concurrent payment, distribution or transfer to the holders of such Senior
Indebtedness.
(b) In the event that, notwithstanding the foregoing, the holder of any
Note shall have received any such payment, distribution or transfer of assets
of the Company of any kind or character, whether in cash, property or
securities (other than the securities referred to in the parenthetical of the
foregoing subclause (2)), including any such payment, distribution or transfer
which may be payable, deliverable or transferrable by reason of the payment of
any other Debt of the Company being subordinated to the payment of the Notes,
before all Senior Indebtedness is paid in full in cash or cash equivalents or
payment thereof provided for, then and in such event such payment, distribution
or transfer shall be paid over, delivered or transferred forthwith to the
trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee,
agent or other Person making payment, distribution or transfer of assets of the
Company for application to the payment of all Senior Indebtedness remaining
unpaid, to the extent necessary to pay all Senior Indebtedness in full in cash
or cash equivalents, after giving effect to any concurrent payment,
distribution or transfer to or for the holders of Senior Indebtedness.
(c) The consolidation of the Company with, or the merger of the Company
into, another corporation or the liquidation or dissolution of the Company
following the conveyance or transfer of its properties and assets as an
entirety, or substantially as an entirety, to another corporation upon the
terms and conditions set forth in Section 6.13 shall not be deemed a
dissolution, winding up, liquidation, reorganization, assignment for the
benefit of creditors or marshalling of assets and liabilities of the Company
for the purposes of this Article VIII if the corporation formed by such
consolidation or into which the Company is merged or the corporation which
acquires by conveyance or transfer such properties and assets as an entirety,
or substantially as an entirety, as the case may be, shall, as a part of
59
such consolidation, merger, conveyance or transfer, comply with the conditions
set forth in Section 6.13.
(d) Any term or provision of this Section 8.2 to the contrary
notwithstanding, if any case or proceeding referred to above is commenced by
or against the Company, and if the holders of the Notes do not file a proper
claim or proof of claim in the form required in such case or proceeding prior
to 30 days before the expiration of time to file such claims or proofs or fail
to respond to any objection of any party or applicable order in such case or
proceeding in a timely manner, then so long as any Senior Indebtedness remains
outstanding, any holder of Senior Indebtedness is hereby authorized and
empowered (in its own name or in the name of any holder of the Notes or
otherwise), but shall have no obligation, to file such proof of claim or
respond to such objection or order on behalf of such holders of the Notes, as
their interests may appear
SECTION 8.3. No Payment When Senior Indebtedness is in Default. In the
event that (a) any payment with respect to any Obligations with respect to any
Specified Senior Indebtedness is not made when due (whether at maturity, by
acceleration or otherwise) (a "Senior Pavement Default"), or (b) unless the
foregoing clause (a) shall apply, any other default occurs and is continuing
with respect to Specified Senior Indebtedness permitting the holders of such
Specified Senior Indebtedness to declare such Specified Senior Indebtedness due
and payable prior to the date on which it would otherwise have become due and
payable (a "Non-payment default"), then no direct or indirect payment by or on
behalf of the Company or any Subsidiary Guarantor or from any of the Company's
assets, any judgments or any other sources (in cash, property or securities or
by set-off or otherwise, other than the payment, distribution or transfer of
equity or debt securities, the payment of which debt securities is subordinated,
at least to the same extent as provided in this Article VIII with respect to the
Notes, to the payment of all Senior Indebtedness and to any securities issued in
respect of such Senior Indebtedness) shall be made or agreed to be made on
account of the principal of, or premium, if any, or interest on or other amounts
with respect to any Subordinated Obligations, or as a sinking fund for
Subordinated Obligations, or in respect of any redemption, retirement, purchase
or other acquisition or defeasance of any Subordinated Obligations (x) in case
of a Senior Payment Default described in clause (a), unless and until such
defaulted Senior Indebtedness shall have been paid in the amount then due or
discharged or until the holders of such Senior Indebtedness or their agents have
waived in writing the benefits of this Section 8.3 in respect of such Senior
Payment Default, or (y) in case of any non-payment default specified in clause
(b), from the earlier of the date the Company receives written notice of such
non-payment default from the Required Lenders or the Agent Bank (a "Blockage
Notice") until the earlier of (1)179 days after such date and (2) the date, if
any, on which the Specified Senior Indebtedness to which such non-payment
default relates is discharged or such non-payment default is waived (and no
other non-payment default is then in existence) in writing by the holders of
such Specified Senior Indebtedness or otherwise cured (the "Blockage Period"),
provided, however, that (i) only one Blockage Notice may be given during any one
360-day period and (ii) a further Blockage Notice relating to the same or any
other non-payment default which had given rise to, or had occurred and was
continuing during, any prior Blockage Period shall not be effective for purposes
of this clause (y) unless such non-payment default shall in the interim have
been cured or waived for a
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period of at least 90 consecutive days. At the expiration of a Blockage Period
the Company shall, subject to foregoing provisions, promptly pay to the holders
of the Notes all amounts which it would have been obligated to pay during such
period but for the operation of such provisions.
In the event that, notwithstanding the foregoing, any payment,
distribution or transfer shall be collected or received by the holder of any
Note, in contravention of the foregoing provisions of this Section 8.3, then
and in such event such payment, distribution or transfer shall be paid over and
delivered forthwith to the Agent Bank on behalf of the holders of Specified
Senior Indebtedness or to the holders of Senior Indebtedness, in either case,
for application to the payment of Senior Indebtedness remaining unpaid, to the
extent necessary to pay all Senior Indebtedness remaining unpaid in full in cash
or cash equivalents, after giving effect to any concurrent payment, distribution
or transfer to or for the holders of Senior Indebtedness and until so paid over
and delivered, the same shall be held in trust by any such holder of a Note as
the property of the holders of such Senior Indebtedness.
The provisions of this Section 8.3 shall not apply to any payment with
respect to which Section 8.2 would be applicable.
SECTION 8.4. Payment Permitted if No Default. Nothing contained in this
Article VIII or elsewhere in this Agreement or in any of the Notes shall
prevent the Company, at any time except during the pendency of any case or
proceeding referred to in Section 8.2 or under the conditions described in
Section 8.3, from making payments on the scheduled payment dates or thereafter
at any time of the Subordinated Obligations.
SECTION 8.5. Subrogation to Rights of Holders of Senior Indebtedness.
Upon the payment in full in cash or cash equivalents of all Senior
Indebtedness, the holders of the Notes shall be subrogated (equally and
ratably with the holders of all Debt of the Company which by its express terms
is subordinated to Senior Indebtedness of the Company to the same extent as the
Notes are subordinated and which is entitled to like rights of subrogation) to
the rights of the holders of such Senior Indebtedness to receive payments,
distributions or transfers of cash, property and securities applicable to the
Senior Indebtedness until the principal of and interest on the Notes shall be
paid in full. For purposes of such subrogation, (a) no payments, distributions
or transfers to the holders of Senior Indebtedness of any cash, property or
securities to which the holders of the Notes would be entitled except for the
provisions of this Article VIII, and no payments over pursuant to the
provisions of this Article VIII to the holders of Senior Indebtedness by
holders of the Notes, shall, as among the Company, its creditors other than
holders of Senior Indebtedness, and the holders of the Notes, be deemed to be
a payment, distribution or transfers by the Company to or on account of the
Senior Indebtedness, and (b) no payments, distributions or transfers of cash,
property or securities to or for the benefit of the holders of the Notes
pursuant to the subrogation provision of this Article VIII, which would
otherwise have been paid to the holders of Senior Indebtedness, shall be
deemed to be a payment by the Company to or for the account of the Notes.
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In the event that, notwithstanding the foregoing, any payment,
distribution or transfer shall be collected or received by any holder of Senior
Indebtedness to which the Noteholders would otherwise have been entitled under
this Section 8.5, this Section 8.5, then and in such case, the Noteholders
shall be entitled to receive from such holders of Senior Indebtedness any
payments, distributions or transfer received by such holders of Senior
Indebtedness in excess of the amount required to make payment in full of such
Senior Indebtedness.
SECTION 8.6. Provisions Solely to Define Relative Rights. The
provisions of this Article VIII are solely and are intended solely for the
purpose of defining the relative rights of the holders of the Notes on the one
hand and the holders of Senior Indebtedness on the other hand. Nothing
contained in this Article VIII or elsewhere in this Agreement or in the Notes
is intended to or shall (a) impair, as among the Company, its creditors other
than holders of Senior Indebtedness and the holders of the Notes, the
obligation of the Company, which is absolute and unconditional, to pay to the
holders of the Notes the principal of and interest on the Notes as and when the
same shall become due and payable in accordance with their terms; or (b) affect
the relative rights against the Company of the holders of the Notes and
creditors of the Company other than the holders of Senior Indebtedness; or (c)
prevent the holder of any Note from exercising all remedies otherwise permitted
by this Agreement (including without limitation Section 7.6 hereof) and by
applicable law upon default under this Agreement, subject to the rights under
this Article VIII of the holders of Senior Indebtedness, under the conditions
specified in Sections 8.2 and 8.3, to receive cash, property and securities
otherwise payable or deliverable to such holder.
SECTION 8.7. No Waiver of Subordination Provisions. No right of any
present or future holder of any Senior Indebtedness to enforce subordination
as herein provided shall at any time in any way be prejudiced or impaired by
any act or failure to act on the part of the Company or by any act or failure
to act by any such holder, or by any non-compliance by the Company with the
terms, provisions and covenants of this Agreement, regardless of any knowledge
thereof any such holder may have or be otherwise charged with. The holders of
Senior Indebtedness may release, sell or exchange or enforce any security there
of or Guarantee thereof or elect any right or remedy, or delay in enforcing or
release any right or remedy and otherwise deal freely with the Company and any
guarantor, all without notice to the holders of Notes and all without affecting
the liabilities and obligation of the holders of the Notes.
SECTION 8.8. Notice to Holders of Notes. The Company shall give prompt
written notice to each holder of any Note of any fact known to the Company
which would prohibit the making of any payment to it in respect of the Notes.
Notwithstanding the provisions of this Article VIII or any other provision of
this Agreement (but without however limiting any rights of the holders of Senior
Indebtedness under this Article VIII to recover from Noteholders any payment
made to such Noteholder which it is not entitled to retain under this Article
VIII), (a) no holder of any Note shall be charged with knowledge of the
existence of any facts which would prohibit the making of any payment to it in
respect of the Notes, unless and until such holder shall have received written
notice thereof from the Company, or a holder of Senior Indebtedness or from any
trustee, fiduciary or agent therefor;
62
and, (b) prior to the receipt of any such written notice absent actual knowledge
thereof, each such holder of the Notes shall be entitled in all respects to
assume that no such facts exist.
Each holder of any Note shall be entitled to rely (provided such holder
is acting reasonably and in good faith) on the delivery to it of a written
notice by a Person representing himself to be a holder of Senior Indebtedness
(or a trustee, fiduciary or agent therefor) to establish that such notice has
been given by a holder of Senior Indebtedness (or a trustee, fiduciary or agent
therefor). In the event that such holder reasonably determines in good faith
that further evidence is required with respect to the right of any Person as a
holder of Senior Indebtedness to participate in any payment, distribution or
transfer pursuant to this Article VIII, such holder may request such Person to
furnish evidence to the reasonable satisfaction of such holder as to the amount
of Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment, distribution or transfer and any other
facts pertinent to the rights of such Person under this Article VIII, and if
such evidence is not furnished, such holder may defer any payment to such Person
until such evidence is furnished.
SECTION 8.9. Reliance of Holders of Senior Indebtedness. Each
Noteholder by its acceptance thereof shall be deemed to acknowledge and agree
that the foregoing subordination provisions are, and are intended to be, an
inducement and a consideration to each holder of any Senior Indebtedness,
whether such Senior Indebtedness was created or acquired before or after the
creation of Subordinated Obligations, to acquire and hold, or to continue to
hold, such Senior Indebtedness, and such holder of Senior Indebtedness shall
be deemed conclusively to have relied on such subordination provision in
acquiring and holding, or in continuing to hold, such Senior Indebtedness.
SECTION 8.10. Reliance on Judicial order or Certificate of Liquidating
Agent. Upon any payment, distribution or transfer of assets of the Company
referred to in this Article VIII, the holders of the Notes shall be entitled to
rely upon any order or decree entered by any court of competent jurisdiction in
which such insolvency, bankruptcy, receivership, liquidation, reorganization,
dissolution, winding up or similar case or proceeding is pending, or a
certificate of the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee for the benefit of creditors, agent or other Person making
such payment, distribution or transfer, delivered to the holders of Notes, for
the sole purpose of ascertaining the Persons receiving such payment,
distribution or transfer, the holders of Senior Indebtedness and other
Indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid, distributed or transferred thereon and all other facts
pertinent thereto or to this Article VIII. Nothing contained in this Section
8.10 shall affect the respective substantive rights of the holders of the Notes
and the holders of Senior Indebtedness under this Article VIII.
SECTION 8.11. This Article Not to Prevent Events of Default. The
failure to make a payment on account of principal of or interest on the Notes
by reason of any provision of this Article will not be construed as preventing
the occurrence of an Event of Default.
63
SECTION 8.12. Reinstatement The agreements contained in this Article
VIII shall continue to be effective or be reinstated, as the case may be, if
at any time any payment of any of the Senior Indebtedness is rescinded or must
otherwise be returned by a holder of Senior Indebtedness upon any bankruptcy or
similar proceeding of the Company or any of its Subsidiaries, all as though
such payment had not been made.
ARTICLE IX
SUBSTITUTION; LIMITATION ON TRANSFERS
SECTION 9.1. Substitution of Purchasers Prior to Closing Date. If (i)
any Purchaser (a "Defaulting Purchaser") shall not purchase all or part of the
Notes such Defaulting Purchaser has agreed to purchase hereunder, and (ii) one
or more other Persons satisfactory to the Company is willing to assume the
obligations of such Defaulting Purchaser under this Agreement, then the
obligations of such Defaulting Purchaser to purchase Notes pursuant to this
Agreement may be assumed by such other Person by executing and delivering a
copy of this Agreement (or, if such other Person is already a Purchaser under
this Agreement, by executing and delivering an amended signature page of this
Agreement with the amount of Notes to be purchased hereunder appropriately
increased) and documents and representations satisfactory to the Company for
the purpose of assuring the Company that the purchase of Notes hereunder by
such Person hereunder will not result in a violation of any provision of
applicable law. The assumption by such other Person of the obligations of a
Defaulting Purchaser pursuant to this Section 9.1 shall not constitute a waiver
of any rights the Company may have against such Defaulting Purchaser that has
defaulted in its obligations under this Agreement.
SECTION 9.2. Restrictions on Transfer. No Purchaser or Noteholder shall
dispose of all or any part of the Notes (other than pursuant to an effective
registration statement under the Securities Act or a sale or other disposition
made pursuant to Rule 144 or Rule 144A) unless, if requested by the Company,
such Purchaser or Noteholder, as the case may be, delivers to the Company an
opinion of counsel (who may be in-house counsel), reasonably satisfactory in
form and substance to the Company, that an exemption from registration under the
Securities Act is available. In the case of sales or other dispositions pursuant
to Rule 144 or Rule 144A, if requested by the Company, such holder will deliver
certificates evidencing compliance with Rule 144 or Rule 144A, reasonably
satisfactory in form and substance to the Company. Each certificate for the
Notes issued to a Purchaser or to a subsequent transferee shall, unless at such
time as the same is no longer required under the applicable requirements of the
Securities Act, shall bear the following legend:
"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISON HEREOF,
THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
64
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR
(B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501
(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED
INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN
OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN THREE YEARS AFTER
THE ORIGINAL ISSUANCE OF THIS NOTE RESELL OR OTHERWISE TRANSFER THIS NOTE
EXCEPT (A) TO HANGER ORTHOPEDIC GROUP, INC. (THE "COMPANY"), OR ANY
SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE
WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO AN ACCREDITED INVESTOR
THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY
A U.S. BROKER-DEALER) TO THE COMPANY A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF
THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE COMPANY),
(D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER
THE SECURITIES ACT (IF AVAILABLE), OR (E) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL
GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY
TRANSFER OF THIS NOTE WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE
HEREOF, THE NOTEHOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE COMPANY
SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM
MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT
TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT."
ARTICLE X
INDEMNIFICATION
SECTION 10.1. Indemnification.
The Company agrees to indemnify and hold harmless each Purchaser or
Noteholder, its directors, officers, employees, Affiliates and each Person, if
any, who controls such Purchaser or Noteholder within the meaning of the
Securities Act or the Exchange Act (any and all of whom are referred to as the
"Indemnified Party") from and against any and all losses, claims, damages and
liabilities, joint or several (including all reasonable legal fees and other
expenses reasonably incurred by any Indemnified Party in connection with the
preparation for or defense of any pending or threatened claim, action or
proceeding, whether or not resulting in any liability), to which such
Indemnified Party may become subject (whether or not such Indemnified Party is
a party thereto) under any applicable federal, state
65
or local law or otherwise caused by or arising out of, or allegedly caused by or
arising out of, the Basic Documents or any transaction contemplated hereby or
thereby (including without limitation, the Acquisition), other than losses,
claims, damages or liabilities resulting from any representation made by such
Purchaser or Noteholder in Article IV.
Promptly after receipt by an Indemnified Party of notice of any claim,
action or proceeding with respect to which an Indemnified Party is entitled to
indemnity hereunder, such Indemnified Party will notify the Company of such
claim or the commencement of such action or proceeding, provided that the
failure of an Indemnified Party to give notice as provided herein shall not
relieve the Company of its obligations under this Section 10.1 with respect to
such Indemnified Party, except to the extent that the Company is actually
prejudiced by such failure. The Company will assume the defense of such claim,
action or proceeding and will employ counsel satisfactory to the Indemnified
Party and will pay the fees and expenses of such counsel. Notwithstanding the
preceding sentence, the Indemnified Party will be entitled, at the expense of
the Company, to employ counsel separate from counsel for the Company and for
any other party in such action if the Indemnified Party reasonably determines
that a conflict of interest or other reasonable basis exists which makes
representation by counsel chosen by the Company not advisable. The Company
further agrees to reimburse each indemnified Party for all legal or other
expenses (including, without limitation, fees and expenses of counsel) incurred
by the Indemnified Party in connection with investigating, defending or
participating in any such loss, claim, damage, liability or action or other
proceeding (whether or not such Indemnified Party is a party to any action or
proceeding out of which such expenses arise), including, without limitation,
the Indemnified Party appearing as a witness in any action or proceeding
brought against the Company or any of its Subsidiaries (or any of its officers,
directors or employees).
In the event that the foregoing indemnity is unavailable or
insufficient to hold an Indemnified Party harmless, then the Company shall
contribute to amounts paid or payable by such Indemnified Party in respect of
such losses, claims, damages, liabilities and expenses in such proportion as
appropriately reflects the relative benefits received by, and fault of, the
Company on the one hand and such Indemnified Party on the other hand in
connection with matters as to which such losses, claims, damages, liabilities
or expenses relate and other equitable considerations. The agreement of the
Company in this paragraph shall be in addition to any liability the Company
may otherwise have.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including facsimile or similar
writing) and shall be given to such party at its address or facsimile number
set forth on the signature pages hereof, or such other address or facsimile
number as such party may hereinafter specify to the party giving such notice.
Each such notice, request or other communication shall be effective (i) if
given by facsimile, when such facsimile is transmitted to the facsimile number
referred to in
66
this Section 11.1 and a telephone call that confirms the receipt of the
facsimile is made or received or, (ii) if given by mail, 72 hours after such
communication is deposited in the mails with first class postage prepaid.
addressed as aforesaid or, (iii) if given by any other means, when delivered at
the address referred to in this Section 11.1.
SECTION 11.2. No Waivers, Amendments. (a) No failure or delay on the
part of any party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies provided by law.
(b) Any provision of this Agreement or the Notes may be amended or
waived if, but only if, such amendment or waiver is in writing and is signed by
the Company and the Required Holders; provided that no such amendment or waiver
shall, unless signed by all of the Purchasers or the Noteholders, as the case
may be, (i) except as provided in Section 9.1, change the amount of any Notes
to be purchased by any Purchaser pursuant to this Agreement, (ii) extend the
period of time during which the Purchasers shall be obligated to purchase Notes
pursuant to this Agreement, (iii) change the number of Purchasers or the
Noteholders, as the case may be, that shall be required for the Purchasers or
the Noteholders, as the case may be, or any of them to take any action under
this Section 11.2(b) or any other provision of this Agreement, (iv) reduce the
rate or amount or extend the time for payment of interest or premium, if any,
on any Note, (v) reduce the principal amount of or extend the fixed maturity of
any Notes or alter the redemption provisions with respect thereto or (vi) make
any Note payable in money or property other than as stated herein.
SECTION 11.3. Survival of Provisions. The representations and
warranties, covenants and agreements contained in this Agreement shall survive
beyond the Closing Date and the issuance of the Notes.
SECTION 11.4. Expenses; Documentary Taxes. The Company agrees to pay
all fees and disbursements of each Purchaser (including reasonable fees and
expenses of counsel) in connection with the purchase and sale of the Notes as
contemplated by this Agreement or any amendments thereto and the fees and
disbursements of each Noteholder (including reasonable fees and expenses of
counsel) in connection with this Agreement, the Notes, the Subsidiary Guaranty
Agreement, the Warrants or any waiver or consent under, or any amendment of any
of, the foregoing or any enforcement action relating thereto. In addition, the
Company agrees to pay any and all stamp, transfer and other similar taxes
payable or determined to be payable in connection with the execution and
delivery of this Agreement, any Notes or the issuance or transfer of the Notes.
SECTION 11.5. Termination: Termination Fees. (a) This Agreement may be
terminated by the Company and the Required Purchasers by mutual agreement at
any time prior to the Closing Date. This Agreement will terminate automaticaly
at 5:00 p.m. on November 1, 1996 unless all conditions to the Purchasers'
obligations hereunder are satisfied or waived by such date.
67
(b) Upon termination of this Agreement, the Company hereby agrees to
pay the Purchasers the fees and expenses which are payable pursuant to Section
11.4 hereof.
SECTION 11.6. Confidentiality. Each Noteholder agrees that it will use
reasonable efforts not to disclose without the prior consent of the Company
(other than to its investment advisers, employees, auditors or counsel or to
another Noteholder) any information with respect to the Company or any
Subsidiary which is furnished pursuant to Section 6.1 and which is designated by
the Company to such Noteholder in writing as confidential, provided that it may
disclose any such information (a) as has become generally available to the
public, (b) as may be required or appropriate in any report, statement or
testimony submitted to any municipal, state or Federal regulatory body having or
claiming to have jurisdiction over such Noteholder, (c) as may be required or
appropriate in response to any summons or subpoena or in connection with any
litigation or as otherwise required by law, (d) to the extent that such
Noteholder believes it appropriate in order to protect its investment in the
Notes or Warrants or in order to comply with any law, order, regulation or
ruling applicable to such Noteholder, (e) to the prospective transferee in
connection with any contemplated transfer of any of the Notes or Warrants by
such Noteholder, or (f) upon the request or demand of any regulatory agency or
authority having jurisdiction over such Noteholder and provided further that the
Company agrees that such Noteholder will not be liable for damages to the
Company unless any such information is disclosed as a result of such
Noteholder's gross negligence or willful misconduct.
SECTION 11.7. Successors and Assigns. (a) All covenants and agreements
contained in this Agreement by or on behalf of any of the parties hereto shall
inure to the benefit of the respective successors and assigns of the parties
hereto including the holders from time to time of the Notes or Warrants whether
so expressed or not, except that the Company may not assign or transfer any of
its rights or obligations under this Agreement.
(b) All provisions hereunder purporting to give rights to the
Purchasers shall extend to and include those entities receiving the beneficial
interest of the Notes at the Closing Date.
SECTION 11.8. NEW YORK LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO THE CONFLICT OF LAWS PROVISIONS THEREOF. Each of the parties hereto
agrees to submit to the jurisdiction of the courts of the State of New York in
any action or proceeding arising out of or relating to this Agreement.
SECTION 11.9. Counterparts; Effectiveness. This Agreement may be
executed in any number of counterparts each of which shall be an original with
the same effect as if the signatures thereto and hereto were upon the same
instrument.
SECTION 11.10. Entire Agreement. This Agreement constitutes the entire
agreement and understanding among the parties hereto and supersedes any and all
prior agreements and understandings, written or oral, relating to the subject
matter hereof.
68
SECTION 11.11. Consent to Jurisdiction. The Company hereby irrevocably
consents to the nonexclusive jurisdiction of the courts of the State of New
York and of any federal court located in such state over each of them in
connection with any action or proceeding arising out of or relating to this
Agreement and, to the fullest extent permitted by law, further agrees (and
shall not contest) that the proper venue for filing and maintaining any such
action or proceeding shall be in the State of New York. In any such action or
proceeding, the Company waives personal service of any summons, complaint or
other process or notice and agrees that service by first class mail, return
receipt requested, to the Company at its address for notices hereunder, or any
other form of service provided for in New York civil practice law and rules
then in effect shall constitute good and sufficient service or notice upon
such person or entity.
ARTICLE XII
SMALL BUSINESS ADMINISTRATION MATTERS
SECTION 12.1. SBIC Forms. On the date hereof, the Purchasers shall have
received from the Company fully executed Small Business Administration Forms
480 and 652 (together with Small Business Administration Form 1031, the "SBA
Forms").
SECTION 12.2. SBIC Information. All information set forth in the SBA
Forms regarding the Company and its Affiliates is accurate and complete. Copies
of such forms have been, on or prior to the date hereof (or within 20 days of
closing in the case of Form 1031), completed and executed by the Company and
delivered to the Purchasers.
SECTION 12.3. Inspection. The Company covenants and agrees that it will
permit the Purchasers and their permitted transferees and their representatives
(including without limitation, examiners from the Small Business Administration)
to inspect the properties of the Company and to examine and make extracts and
copies from the books and records of the Company during normal business hours
(including, without limitation, for purposes of verifying the certifications and
representations made by the Company in the SBA Forms and this Note Purchase
Agreement and in verifying compliance with the covenants contained in this Note
Purchase Agreement).
SECTION 12.4. Information. In addition, the Company covenants and
agrees to provide to the Noteholders any other information which the Noteholders
reasonably requests, including without limitation, at least annually, sufficient
financial and other information necessary to allow the Noteholder to evaluate
the financial condition of the Company for the purpose of valuing the
Noteholder's interest in the Company, to determine the continued eligibility of
the Company under the Small Business Investment Act of 1958, as amended (the
"SBIA") and the regulations thereunder, including Title 13, Code of Federal
Regulations, Section 121.301, and to verify the use of the proceeds received by
the Company from the purchase of the shares. All such information shall be
certified by the President, Chief Executive Officer, Treasurer or Chief
Financial Officer of the Company. Within 20 days of the date hereof, the Company
shall have provided the Purchasers a completed Small
69
Business Administration Form 1031. Promptly after the end of each fiscal year of
the Company (and in any event prior to February 28 of each year), the Company
shall provide to the Purchasers a written assessment in form and substance
satisfactory to the Purchasers of the economic impact of the financing
assistance provided to the Company by the Purchasers, specifying the full time
equivalent jobs created or retained, and the impact of the financing on the
revenues and profits of the business and on taxes paid by the business and its
employees. Upon the request of any Purchaser the Company will also provide all
information requested by such Purchaser in order for it to prepare and file SBA
Form 468 and any other information requested or required by any governmental
agency asserting jurisdiction over such Purchaser.
SECTION 12.5. Use of Proceeds. The Company agrees that it will not use
the proceeds from the sale of the Notes for any purpose that would be a
violation of Section 1-07.720 of Title 13 of the Code of Federal Regulations.
SECTION 12.6. Business. For a period of one year following the date
hereof, the Company will not change its business activity if such change would
render the Company ineligible to receive financial assistance from a Small
Business Investment Company under the Small Business Act and the regulations
thereunder.
SECTION 12.7. Non-Discrimination. The Company will at all times comply
with the nondiscrimination requirements of 13 C.F.R., Parts 112, 113 and 117.
SECTION 12.8. Company Awareness. The Company acknowledges its awareness
that the Purchasers are Federal licensees under the Small Business Investment
Act of 1958, as amended.
70
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers (or, in the case of
parties that are not corporations, other authorized persons), as of the date
first above written.
HANGER ORTHOPEDIC GROUP, INC.
By /s/▇▇▇▇ ▇. ▇▇▇▇▇
Title: President
CHASE VENTURE CAPITAL Associates, L P,
a California limited partnership
By: Chase Capital Partners,
its general partner
By: /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Title: General Partner
Principal Amount of Notes: $4,000,000.00
Number of Warrants: 800,000 to purchase
800,000 shares of Common Stock
Address: c/o Chase Capital Partners
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Telecopier: ▇▇▇-▇▇▇-▇▇▇▇
PARIBAS PRINCIPAL, INC.
By: /s/ ▇. ▇. ▇▇▇▇▇▇▇▇▇
Title: President
Principal Amount of Notes: $4,000,000.00
Number of Warrants: 800,000 to purchase
800,000 shares of Common Stock
Address: ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇.▇. ▇▇▇▇▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Telecopier: ▇▇▇-▇▇▇-▇▇▇▇
EXHIBIT A
[FORM OF SENIOR SUBORDINATED NOTE)
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE
144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501 (a)(l), (2), (3) OR (7) UNDER THE SECURITIES
ACT) (AN "ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING
THIS NOTE IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN THREE
YEARS AFTER THE ORIGINAL ISSUANCE OF THIS NOTE RESELL OR OTHERWISE TRANSFER THIS
NOTE EXCEPT (A) TO HANGER ORTHOPEDIC GROUP, INC. (THE "COMPANY"), OR ANY
SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH
RULE 144A UNDER THE SECURITIES ACT, (C) TO AN ACCREDITED INVESTOR THAT, PRIOR TO
SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S.
BROKER-DEALER) TO THE COMPANY A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS
AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE
FORM OF WHICH LETTER CAN BE OBTAINED FROM THE COMPANY), (D) PURSUANT TO THE
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE), OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS
SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN
CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN THREE YEARS AFTER THE ORIGINAL
ISSUANCE HEREOF, THE NOTEHOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE
COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF
THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT
TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT.
2
HANGER ORTHOPEDIC GROUP, INC.
8.00% Senior Subordinated Note
Due November 1, 2004
No. ____ New York, New York
November 1, 1996
FOR VALUE RECEIVED, the undersigned HANGER ORTHOPEDIC GROUP, INC. (the
"Company"), a Delaware corporation, hereby promises to pay to [CHASE VENTURE
CAPITAL ASSOCIATES, L.P., a California limited partnership] PARIBAS PRINCIPAL
INC. or registered assigns, the principal sum of FOUR MILLION AND NO/100
DOLLARS ($4,000,000) on November 1, 2004 and to pay interest (computed on the
basis of a 360-day year, based on the actual number of days elapsed) on the
unpaid principal amount hereof at the rate of 8.00% per annum from the date
hereof, payable semi-annually in arrears on each June 30 and December 31,
commencing June 30, 1997, (unless said day is not a Business Day, in which
event on the next succeeding Business Day) until the principal hereof (or any
portion thereof) shall have become due and payable, and on any overdue payment
of principal, premium, if any, and interest, (without regard to any applicable
grace periods) until paid, at a rate per annum equal to 2% above the otherwise
applicable interest rate on this Note to the extent lawful.
1. Definitions. Terms defined in the Senior Subordinated Note Purchase
Agreement, dated as of November 1, 1996 (the "Note Purchase Agreement"), among
the Company and the Purchasers listed on the signature pages thereto, and not
otherwise defined herein have, as used herein, the respective meanings provided
for therein.
2. Manner of Payment. Interest payable on any Interest Payment Date
(except on the Maturity Date) may be paid by the Company to the Noteholders
either (i) entirely in cash in the amount of 8.00% per annum of the unpaid
principal amount of the Notes on such Interest Payment Date or, at the option
of the Company, (ii) in a combination of (A) cash in an amount at least equal
to the 3.2% per annum of the unpaid principal amount of the Notes (inclusive of
Subsequent Notes) on such Interest Payment Date and (B) newly-issued Notes
(each, a "Subsequent Note") issued to the Noteholders in an aggregate principal
amount equal to the remaining amount of accrued interest on the Notes for such
period (inclusive of Subsequent Notes); provided that only one such method of
payment may be selected on any Interest Payment Date. Excluding the Maturity
Date, interest on the Notes will be payable on each June 30 and December 31 to
the Noteholders of record at the close of business on the December 15 and June
15 preceding such Interest Payment Dates. Interest payable on the Maturity Date
shall only be payable in cash. Noteholders must surrender Notes to the Company
to collect principal payments. All cash payments in respect of the Notes will
be made by wire transfer of immediately available funds by 11:00 a.m. on the
date
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when due to the account of the Noteholder at a bank in the United States
specified in writing by the Noteholder to the Company.
3. Issuance Pursuant to Note Purchase Agreement. This Note is one of a
duly authorized issue of Notes the Company originally issued in an aggregate
principal amount of $8,000,000 pursuant to the Note Purchase Agreement. The
Noteholder is entitled to enforce the provisions of the Note Purchase Agreement
and to enjoy the benefits thereof and is subject to the restrictions contained
therein, including without limitation the restrictions on transfer.
4. Prepayments. As provided in the Note Purchase Agreement, this Note
is subject to optional and contingent prepayments, in whole or in part,
together with accrued but unpaid interest.
5. Subordination. Payments of principal, premium and interest in
respect of this Note are subordinate, to the extent specified in the Note
Purchase Agreement, to all Senior Indebtedness of the Company, whether
outstanding on the date of the Note Purchase Agreement or thereafter created,
incurred, assumed or guaranteed. Each Holder by his acceptance hereof agrees to
be bound by such provisions.
6. Guarantee. Pursuant to the Note Purchase Agreement and the Subsidiary
Guaranty Agreement, each dated as of November 1, 1996 among the Subsidiary
Guarantors and the Purchasers listed on the signature pages thereto, Obligations
with respect to this Note have been guaranteed by each of the Subsidiary
Guarantors, respectively, subject to the limitations, priorities and provisions
for amendment of such guarantee, including without limitation the subordination
of such guarantees to the Subsidiary Guarantor's obligations in respect of their
guarantees of the Senior Indebtedness.
7. Restrictive Covenants. The Note Purchase Agreement imposes certain
limitations on the ability of the Company and its Restricted Subsidiaries to,
among other things, incur additional Debt, pay dividends or make certain other
Restricted Payments, create liens, consummate certain Asset Sales, enter into
certain transactions with Affiliates, and consummate certain mergers and
consolidations or sales of all or substantially all of its assets. The
limitations are subject to a number of important qualifications and exceptions.
The Company must annually report to the Noteholders on compliance with such
limitations.
8. Registration and Transfer. This Note is transferable only on the
register of the Company upon presentation at the principal office of the
Company, accompanied by a written instrument of transfer in form satisfactory
to the Company, duly executed by, or on behalf of, the Holder. The Company may
treat the person in whose name this Note is registered as the owner hereof for
the purposes of receiving payment and for all other purposes. Transfer of this
Note may not be effected except in compliance with the Securities Act of 1933,
as amended, and is also subject to the additional restrictions contained in the
Note Purchase Agreement and the legend hereon.
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9. Events of Default. In case an Event of Default shall occur and be
continuing, the principal of this Note may be declared due and payable in the
manner and with the effect provided in the Note Purchase Agreement.
10. GOVERNING LAW. THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
HANGER ORTHOPEDIC GROUP, INC.
By
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Name:
Title: