THE SECURITY REPRESENTED BY THIS NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1993, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS, AND
MAY NOT BE RESOLD OR TRANSFERRED, IN WHOLE OR IN PART, UNLESS REGISTERED OR
EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
ALL APPLICABLE STATE SECURITIES LAWS.
FURNISHINGS INTERNATIONAL INC.
12% Senior Note Due 2008
August 5, 1996 $285,000,000.00
New York, New York No. 1
FOR VALUE RECEIVED, FURNISHINGS INTERNATIONAL INC., a Delaware corporation
(the "Company"), promises to pay to Masco Corporation, a Delaware corporation
("Masco" or the "Lender"), or its registered assigns, the principal sum of TWO
HUNDRED EIGHTY- FIVE MILLION DOLLARS ($255,000,000.00), as such sum may be
increased in accordance with the provisions of Section 3(a) below and decreased
by prepayments made pursuant to Section 4 below, on August 5, 2008 (the
"Maturity Date") in accordance with the provisions of this Note.
This Note is the promissory note required to be issued pursuant to Section
2 (b of the Acquisition Agreement dated as of March 29, 1996, among the Company
and the Lender, as amended by Amendment No. 1 thereto dated as of June 21, 1996
and Amendment No. 2 thereto dated as of the Issue Date (as such Acquisition
Agreement may be further amended supplemented or otherwise modified from time to
time, the Acquisition Agreement"). This Note, any notes issued pursuant to
Section 3 below, any Exchange Notes or Public Notes (in each case as defined in
the Registration Rights Agreement) issued pursuant to Article II or Section 9.4
or 9.5 of the Registration Rights Agreement, any notes issued in payment of
interest on this Note, on any note issued pursuant to Section 3 below or on any
such Exchange Note or Public Note (or on any notes so issued in payment of
interest), and any notes issued upon registration of transfer or exchange of
this Note or any of the aforementioned Exchange Notes, Public Notes or other
notes, are collectively referred to herein as the "Notes".
1. Interest; Default Interest. (a) Interest will accrue on the unpaid
principal amount of this Note during the period from and including the date
hereof to but excluding the
Maturity Date at the rate of 12% per annum (computed on the basis of a 360-day
year consisting of twelve 30-day months). The Company will pay interest in
arrears on June 15 and December 15 of each year, beginning December 15, 1996,
and on the Maturity Date.
(b) If the Company shall default in the payment of any principal of or
interest on this Note when due (whether upon the Maturity Date or any scheduled
interest payment date, by acceleration or otherwise), the Company agrees to pay,
to the extent permitted by law, interest on demand from time to time on such
defaulted amount to but excluding the date of actual payment at the rate of 14%
per annum (computed on the basis of a 360-day year consisting of twelve 30-day
months).
2. Method of Payment. (a) The Company will pay the interest on this Note
provided for in Section 1 above (i) in the case of interest which accrues
pursuant to Section 1(a) above, to the person who is the registered holder of
this Note (the "Holder") at the close of business on June 1 or December 1 next
preceding the applicable interest payment date, notwithstanding any cancellation
of this Note after the record date and on or before such interest payment date,
and (b) in the case of interest which accrues pursuant to Section 1(b) above, to
the Holder as of the close of business on the date on which the payment of such
interest is demanded. Subject to paragraph (b) below, the Company will pay the
principal of and interest on this Note, and all other amounts (if any) required
to be paid by it under this Note, in money of the United States that at the time
of payment is legal tender for payment of public and private debts. The Company
may pay principal, interest and any such other amount by check payable in such
money and may mail an interest check to the Holder's registered address. If the
outstanding principal amount of this Note is at least $2,500,000 and the Holder
so requests, the Company shall make all payments of principal of and interest on
this Note, and all other payments (if any) required to be made by it under this
Note, by wire transfer of immediately available funds to the account specified
by the Holder in a written notice to the Company delivered at least three
Business Days prior to the relevant payment date.
If the due date for any payment in respect of this Note is not a Business
Day, such payment shall be made on the next succeeding Business Day and no
interest shall accrue on such payment for the intervening period.
(b) The Company may and, to the extent that (i) the provisions of Section 7
below, or of any agreement or instrument evidencing or relating to any Senior
Indebtedness, then prohibit (including by means of a financial or negative
covenant) the payment of interest on the Notes in cash or (ii) the Relevant
-2-
Subsidiaries are then prohibited (including by means of a financial or negative
covenant) from paying cash dividends to the Company for the purpose of paying
such interest by reason of the provisions of the agreements and instruments
evidencing or relating to Indebtedness of such subsidiaries or by reason of any
applicable law, rule, regulation, judgment, order or decree, the Company shall,
on each interest payment date occurring prior to December 15, 2004, in lieu of
the payment in whole or in part of interest in cash on this Note, pay interest
on this Note through the issuance of additional Notes of like tenor (the
"Secondary Notes") in an aggregate principal amount equal to the amount of
interest that would be payable with respect to this Note if such interest were
paid in cash. Notwithstanding the immediately preceding sentence, on each
interest payment date occurring on or after December 15, 2001 but prior to
December 15, 2004, to the extent that (x) the provisions of Section 7 below and
the agreements and instruments evidencing or relating to any Senior Indebtedness
do not then prohibit (including by means of a financial or negative covenant)
the payment of interest on the Notes in cash and (y) the Relevant Subsidiaries
are not then prohibited (including by means of a financial or negative covenant)
from paying cash dividends to the Company for the purpose of paying such
interest by reason of the provisions of the agreements and instruments
evidencing or relating to Indebtedness of such subsidiaries or by reason of any
applicable law, rule, regulation, judgment, order or decree, the Company shall
pay interest on the Notes in cash in the amount at least equal to the amount by
which (A) the lesser of (I) the Excess Cash Flow for the fiscal year of the
Company immediately preceding the fiscal year in which such interest payment
date occurs and (II) if, as of the end of such immediately preceding fiscal
year, any Bank Indebtedness (or commitment to extend credit constituting Bank
Indebtedness) is outstanding, the amount, if any, by which (1) the "Excess Cash
Flow" (as defined in the Credit Agreement or any successor agreement or
instrument in effect on the date of the prepayment referred to in clause (2)
below (or, if earlier, such interest payment date) evidencing or relating to
Bank Indebtedness) for such immediately preceding fiscal year exceeds (2) the
aggregate principal amount of Bank Indebtedness required to be prepaid during
the fiscal year in which such interest payment date occurs in respect of such
"Excess Cash Flow, " exceeds (B) the aggregate amount of cash interest
previously paid on the Notes during the fiscal year in which such interest
payment date occurs. All interest on the Notes payable on or after December 15,
2004 shall be paid in cash.
(c) In the event that Secondary Notes are issued by the Company in lieu of
interest paid in cash, the Company shall deliver to the Holder (or any prior
registered holder of this Note entitled thereto under Section 2(a)), on the
relevant
-3-
interest payment date, Secondary Notes, dated the date of such interest payment
date, in an aggregate principal amount equal to the amount of cash interest not
paid on this Note on such interest payment date. In the event that, on any
interest payment date, the Company pays in cash part (but less than all) of the
interest then due on the Notes, the payment of such cash interest will be made
pro rata among the registered holders of the Notes (or any prior registered
holders of Notes entitled thereto under Section 2(a)) on the basis of the
outstanding principal amount of the Notes held by each such holder (or prior
holder) on the record date for the payment of such interest.
(d) In the case of each interest payment date occurring on or after
December 15, 2001 but prior to December 15, 2004, the Company shall deliver to
the registered holders of the Notes (or any prior registered holders of Notes
entitled to receive interest on such interest payment date pursuant to Section
2(a)), at least 10 Business Days prior to such interest payment date, a written
notice setting forth the amount of interest that will be paid on the Notes in
cash on such interest payment date. Such notice shall also set forth (i) a brief
summary of the Company's calculation of the Annual Amount applicable to such
interest payment date and (ii) the aggregate amount of cash interest previously
paid on the Notes during the fiscal year in which such interest payment date
occurs. Once delivered, such notice shall be irrevocable, unless the Company's
Board of Directors determines that (x) an error has been made in the calculation
of any amount set forth in such notice or (y) an event has occurred on or after
the date of such notice which would reduce the amount of cash interest required
to be paid by the Company pursuant to Section 2(b) On such interest payment
date.
3. Increase in Principal Amount. (a) In the event that the aggregate
outstanding principle amount Of the Notes is required to be increased pursuant
to Section 2(f)(ii) of the Acquisition Agreement, the Company will give written
notice of such increase to the Holder (if other than the Lender or any of its
Affiliates) within five Business Days after the date (the "Determination Date")
on which Adjusted Net Investment and Advances (as defined in the Acquisition
Agreement) is finally determined pursuant to Section 2(e) of the Acquisition
Agreement. From and after the Determination Date, the portion of the aggregate
principal amount of the Notes represented by such increase (the "Increased
Amount") shall be deemed to have been outstanding effective as of the Issue Date
for all purposes hereunder; provided, however, that the failure to pay interest
in respect of the Increased Amount on any interest payment date occurring prior
to the Determination Date shall not constitute a Default or an Event of Default
hereunder, so long as such interest is paid, in any manner permitted by Section
2, within 10
-4-
Business Days after the Determination Date (it being understood that any
Secondary Notes issued to pay interest due in respect of the Increased Amount on
any such interest payment date shall be deemed to have been outstanding
effective as of such interest payment date and shall be dated the date of such
interest payment date). The Increased Amount shall be allocated solely to the
Lender, regardless of whether the Lender is then a registered holder of Notes.
Within 10 Business Days after the Determination Date, (i) if the Lender is a
registered holder of Notes as of the Determination Date, such Notes shall be
surrendered to the Company and cancelled in exchange for new Notes of like tenor
issued by the Company reflecting the Increased Amount or (ii) if the Lender is
not a registered holder of Notes as of the Determination Date, the Company shall
issue to the Lender a new Note of like tenor, dated the Issue Date, in an
original principal amount equal to the Increased Amount. Notwithstanding
anything in the Notes to the contrary, Section 2(b) of the Notes shall apply to
all interest payable in respect of the Increased Amount.
(b) In the event that from time to time the Company is obligated to issue a
promissory note to the Lender pursuant to Section 12(r) of the Acquisition
Agreement, then in satisfaction of such obligation (and whether or not the
Lender is a registered holder of Notes on the date on which the obligation to
issue such promissory note arises under such Section 12(r) (the "Indemnification
Issue Date")), the Company shall issue to the Lender, within 10 Business Days
after the date on which the obligation to issue such promissory note is finally
determined pursuant to such Section 12(r), a new Note of like tenor, dated the
Indemnification Issue Date, in an original principal amount determined in
accordance with such Section 12(r). From and after the date of such final
determination, the Note issued in respect thereof shall be deemed to have been
outstanding effective as of the related Indemnification Issue Date for all
purposes hereunder; provided, however, that the failure to pay interest in
respect of such Note on any relevant interest payment date occurring prior to
the date of such final determination shall not constitute a Default or an Event
of Default hereunder, so long as such interest is paid, in any manner permitted
by Section 2, within 10 Business Days after the date of such final determination
(it being understood that any Secondary Notes issued to pay interest due in
respect of such Note on any such interest payment date shall be deemed to have
been outstanding effective as of such interest payment date and shall be dated
the date of such interest payment date).
4 . Mandatory and Optional Prepayments; Change of Control Offer. (a)
Mandatory Prepayments. On each of December 15, 2006 (or February 5, 2007, if any
principal, interest or other amount payable in respect of the LFI Notes
-5-
remains unpaid on December 15, 2006), June 15, 2007 and December 15, 2007, the
Company shall prepay principal of the Notes in an amount equal to 25% of the
outstanding aggregate principal amount of the Notes as of the close of business
on December 14, 2006 (or, if any principal, interest or other amount payable in
respect of the LFI Notes remains unpaid on December 15, 2006, as of the close of
business on February 4, 2007); provided, however, that the aggregate principal
amount of Notes which the Company is required to prepay on each such mandatory
prepayment date shall be reduced pro rata by an aggregate amount equal to the
amount of each prepayment or purchase of Notes made pursuant to Section 4(b) or
4(c) on or after the first such mandatory prepayment date. Each prepayment of
Notes pursuant to this Section 4(a) shall be made at a price equal to 100% of
the principal amount of the Notes being prepaid, plus accrued but unpaid
interest thereon to (but excluding) the prepayment date.
(b) Optional Prepayments. The Company, at its option, may prepay all or a
portion of the outstanding principal amount of the Notes at any time and from
time to time, in each case at a purchase price equal to 100% of the principal
amount of the Notes being prepaid plus accrued but unpaid interest thereon to
(but excluding) the prepayment date.
(c) Change of Control Offer. (i) Upon the occurrence of a Change of
Control, the Company shall, in accordance with paragraph (ii) below, notify the
Holder and each other registered holder of Notes of the occurrence of such
Change of Control, and accompanying such notice shall be an offer to purchase
the Notes (a "Change of Control Offer") at a purchase price equal to 100% of
the principal amount thereof, plus accrued but unpaid interest thereon to (but
excluding) the date of purchase.
(ii) Within 30 days following any Change of Control, the Company shall
mail a notice to the Holder and each other registered holder of Notes stating,
among other things: (l) that a Change of Control has occurred and a Change of
Control Offer is being made pursuant to this Section 4(c) and that all Notes (or
portions thereof) timely tendered will be accepted for payment; (2) the purchase
price and the purchase date (the "Change of Control Payment Date"), which shall
be, subject to any contrary requirements of applicable law, no earlier than 30
days nor later than 60 days from the date such notice is mailed; (3) that any
Note (or portion thereof) paid on the Change of Control Payment Date pursuant to
the Change of Control Offer shall cease to accrue interest from and after the
Change of Control Payment Date; (4) that any Note (or portion thereof) not
tendered will continue to accrue interest; (5) a description of the transaction
or transactions constituting the Change Of Control; (6) that the
-6-
Holder or any other registered holder of Notes accepting the offer to have its
Notes purchased pursuant to the Change of Control Offer will be required to
surrender such Notes (or portions thereof) to the Company prior to the close of
business on the Business Day immediately preceding the Change of Control Payment
Date; (7) that the Holder or any other registered holder of Notes will be
entitled to withdraw its acceptance if the Company receives, not later than the
close of business on the third Business Day preceding the Change of Control
Payment Date, written notice setting forth the name of the Holder or such other
holder, the principal amount of the Notes (or portions thereof) delivered for
purchase by the Holder or such other holder, and a statement that the Holder or
such other holder is withdrawing its election to have such Notes (or portions
thereof) purchased; (8) that registered holders whose Notes are being purchased
only in part will be issued new Notes equal in aggregate principal amount to the
unpurchased portion of the Notes surrendered; and (9) any other procedures that
the Holder and the other registered holders of Notes must follow to accept the
Change of Control Offer or effect withdrawal of such acceptance.
(iii) On the Change of Control Payment Date, the Company shall accept
for payment the Notes (or portions thereof) properly tendered (and not
withdrawn) pursuant to the Change of Control Offer (which Notes (or the tendered
portions thereof) shall become due and payable on the Change of Control Payment
Date) and shall pay, to the Holder and each other registered holder of Notes
entitled thereto, the purchase price of the Notes (or portions thereof) so
tendered by the Holder or such other holder, plus accrued but unpaid interest
thereon to (but excluding) the Change of Control Payment Date. The Holder and
each other registered holder of Notes electing to have a Note (or portion
thereof) purchased pursuant to the Change of Control Offer will be required to
surrender such Note to the Company not later than the close of business on the
Business Day immediately preceding the Change of Control Payment Date. The
Holder and each other registered holder of Notes will be entitled to withdraw
its election if the Company receives, not later than the close of business on
the third Business Day preceding the Change of Control Payment Date, written
notice setting forth the name of the Holder or such other holder, the principal
amount of Notes (or portions thereof) delivered for purchase by the Holder or
such other holder and a statement that the Holder or such other holder is
withdrawing its election to have such Notes (or portions thereof) purchased.
(iv) the Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the purchase of Notes (or portions thereof)
pursuant to this Section 4(c). To the extent that the provisions
-7-
of any securities laws or regulations conflict with provisions of this Section
4(c), the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under this
Section 4(c) by virtue thereof .
(d) Miscellaneous Provisions. In the event that the Company prepays
less than all the outstanding principal amount of a Note pursuant to Section
4(a) or 4(b), or purchases a portion (but less than all) of a Note pursuant to a
Change of Control Offer, the Company shall deliver to the registered holder
thereof upon such prepayment or purchase a replacement Note of like tenor
representing the remaining outstanding principal amount of such Note. Any
prepayment of less than all of the outstanding principal amount of the Notes
pursuant to Section 4(a) or 4(b) will be made pro rata among the registered
holders of the Notes on the basis of the outstanding principal amount of the
Notes then held by each such holder. From and after the date of any prepayment
or purchase of this Note pursuant to this Section 4, interest shall cease to
accrue on the portion of this Note so prepaid or purchased.
(e) Notice of Prepayment. Notice of any prepayment of this Note
pursuant to Section 4(b) above will be delivered at least 15 days but not more
than 60 days before the prepayment date to the Holder at the address specified
in (or pursuant to) Section 16, and shall be irrevocable.
5. Repayment. The Company will repay this Note on the Maturity Date at 100%
of the then outstanding principal amount of this Note plus accrued but unpaid
interest thereon to (but excluding) such date.
6. Certain Covenants. The Company covenants and agrees with the Holder and
each other registered holder of Notes from time to time that, until the
outstanding principal of, and the accrued but unpaid interest on, each Note
shall have been paid in full:
6.1 Indebtedness. The Company will not issue, assume, Guarantee, become
liable for or otherwise incur any Indebtedness, other than:
(a) Indebtedness represented by Bank Indebtedness or Guarantees by the
Company of Bank Indebtedness;
(b) Indebtedness represented by Guarantees by the Company of, or
letters of credit or other credit support issued or provided in support of,
Indebtedness of a subsidiary of the Company (other than Bank Indebtedness
and Indebtedness of the Receivables Subsidiary); provided,
-8-
however, that in the case of a Guarantee of, or letter of credit or other
credit support relating to, Indebtedness of Simmons, the recourse against
the Company under such Guarantee, letter of credit or other credit support
shall be limited to a pledge of all or any part of the Capital Stock of
Simmons and the Class D Common Stock;
(c) Indebtedness of a Relevant Subsidiary assumed by the Company upon
the consolidation or merger of such Relevant Subsidiary with or into the
Company or the transfer of all or part of the properties and assets of such
Relevant Subsidiary to the Company, provided that such Indebtedness was not
incurred by such Relevant Subsidiary in anticipation of such consolidation,
merger or transfer;
(d) Indebtedness represented by the Notes (including any Notes issued
pursuant to Sections 2 and 3 above or pursuant to Article II and Sections
9.4 and 9.5 of the Registration Rights Agreement);
(e) Indebtedness represented by the Debentures and any Refinancing
Indebtedness incurred in respect of Debentures in connection with any
purchase or redemption of such Debentures permitted by clause (iv) of
Section 6.2(b);
(f) Indebtedness consisting of Subordinated Obligations issued by the
Company, in lieu of the payment of cash, to purchase or redeem shares of
Capital Stock (or options or warrants in respect of such shares) of the
Company or any Relevant Subsidiary (including related stock appreciation
rights or similar securities) held by any current or former director,
officer or employee of the Company or any subsidiary thereof (or permitted
transferees of such current or former director, officer or employee) upon
any such person's death, disability, retirement or termination of
employment or pursuant to the terms of any agreements (including employment
agreements) or plans (or amendments thereto), approved by the Company's or
a Relevant Subsidiary's Board of Directors (as applicable), under which any
such person may purchase and sell, or is granted options to purchase and
sell, any of the securities referred to in this clause (f) (any such
purchase or redemption by the Company, an "Employee Stock Redemption");
(g) Indebtedness of the Company owing to and held by any Wholly Owned
Subsidiary; provided, however, that any subsequent issuance or transfer of
any Capital Stock or any other event which results in any such Wholly Owned
Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent
transfer of any such Indebtedness (except to a Wholly Owned Subsidiary)
will be deemed, in each case, to
-9-
constitute an incurrence of such Indebtedness by the Company not permitted
by this clause (g);
(h) Indebtedness of the Company (A) in respect of performance bonds,
bankers' acceptances, letters of credit, surety or appeal bonds and similar
obligations, in each case provided by the Company in the ordinary course of
its business (including those incurred to secure health, safety and
environmental obligations in the ordinary course of business) but which do
not secure other Indebtedness, and (B) in respect of interest rate
protection agreements, foreign currency exchange agreements and any other
interest or exchange rate hedging arrangements that are designed to protect
the Company against fluctuations in interest rates or currency exchange
rates and not for the purposes of speculation;
(i) Indebtedness of the Company, to the extent the net proceeds
thereof are immediately used after the incurrence thereof to purchase Notes
tendered in an offer to purchase made as a result of a Change of Control;
(j) Indebtedness of the Company arising from agreements (including the
Acquisition Agreement) providing for indemnification, adjustment of
purchase price or similar obligations, in any case (other than in the case
of the Acquisition Agreement) incurred in connection with the disposition
of any business or assets of the Company or any subsidiary thereof or the
disposition of any Capital Stock of any subsidiary of the Company (in each
case other than Guarantees of Indebtedness incurred by any person acquiring
all or any portion of such business, assets or Capital Stock for the
purpose of financing such acquisition), in a principal amount not to exceed
the gross proceeds actually received by the Company or any subsidiary
thereof in connection with such disposition;
(k) Indebtedness of the Company owed to (including obligations in
respect of letters of credit for the benefit of) any person in connection
with worker's compensation, health, disability, or other employee benefits
or property, casualty or liability insurance provided by such person to the
Company or any subsidiary thereof, pursuant to reimbursement or
indemnification obligations to such person, in each case incurred in the
ordinary course of business;
(l) Any Refinancing Indebtedness incurred in respect of any
Indebtedness under clauses (c), (d), (i) and (l) of this Section 6.1;
-10-
(m) Indebtedness of the Company in an aggregate principal amount at
any time outstanding not in excess of $20 million; and
(n) Indebtedness incurred pursuant to any Permitted Receivables
Financing in respect of receivables sold by the Company to a Receivables
Subsidiary.
provided, however, that the aggregate principal amount of Indebtedness incurred
by the Company pursuant to clauses (c), (l) (but only in the case of any
Refinancing Indebtedness incurred to refinance Indebtedness under clause (c)
above) and (m) above shall not exceed $20 million at any time outstanding.
6.2 Restricted Payments. (a) The Company shall not (i) declare or pay any
dividend or make any distribution on or in respect of its Capital Stock
(including, without limitation, any payment in connection with any merger or
consolidation involving the Company) except dividends or distributions payable
solely in its Capital Stock (other than Disqualified Stock), (ii) purchase,
redeem, retire or otherwise acquire for value any Capital Stock of the Company
held by persons other than the Relevant Subsidiaries, (iii) purchase,
repurchase, redeem, defease or otherwise acquire or retire for value, prior to
scheduled maturity, scheduled repayment or scheduled sinking fund payment any
Subordinated Obligations (other than the purchase, repurchase or other
acquisition of Subordinated Obligations purchased in anticipation of satisfying
a sinking fund obligation, principal installment or final maturity, in each case
due within one year of the date of acquisition) or (iv) make any Investment
(other than a Permitted Investment) in any person (any such dividend,
distribution, purchase, redemption, repurchase, defeasance, other acquisition,
retirement or Investment being herein referred to as a "Restricted Payment").
(b) The provisions of the foregoing paragraph (a) will not prohibit:
(i) any purchase or redemption of Capital Stock or Subordinated Obligations
of the Company made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of the Company (other than Disqualified Stock
and other than Capital Stock issued or sold to a Relevant Subsidiary or an
employee stock ownership plan or other trust established by the Company or any
of its subsidiaries to the extent the purchase by such plan or trust is financed
by Indebtedness of such plan or trust and for which the Company or a Relevant
Subsidiary is liable, directly or indirectly, as a guarantor or otherwise
(including by the making of cash contributions to such plan or trust which are
used to pay interest or principal on such Indebtedness));
-11-
(ii) any purchase or redemption of Subordinated Obligations of the Company
made by exchange for, or out of the proceeds of the substantially concurrent
sale of, Refinancing Indebtedness incurred to refinance Indebtedness under
clause (i) of Section 6.1;
(iii) the issuance of Debentures in exchange for shares of Restricted
Preferred Securities in accordance with the Company's articles of incorporation;
(iv) upon the occurrence of a Change of Control and within 60 days after
the completion of the related Change of Control Offer (including the purchase of
all Notes properly tendered), any purchase or redemption of Subordinated
Obligations required pursuant to the terms thereof as a result of such Change of
Control;
(v) at any time and from time to time prior to the first anniversary of the
Issue Date, any purchase, redemption or other acquisition for value of shares of
the Company's Capital Stock pursuant to the terms of the Call Agreement as in
effect on the Issue Date;
(vi) Employee Stock Redemptions, in each case regardless of whether the
Company pays cash or issues notes in connection therewith, and any payment of
principal or interest on, or any purchase or redemption of, any such notes;
provided, however, that the aggregate amount (net of purchases of the Company's
or any Relevant Subsidiary's Capital Stock by officers, directors and employees
of the Company and its subsidiaries) of (A) Employee Stock Redemptions made in
cash and (B) cash payments to pay principal of, or interest on, or to purchase
or redeem, any such notes shall not exceed as of any date the product of (x)
$6.0 million and (y) the number of years (or fractions thereof) elapsed since
the Issue Date; and
(vii) any dividend or distribution in respect of the Class D Common Stock,
or any purchase or redemption of Class D Common Stock, that consists of or is
directly funded by (x) a distribution in kind of the common stock of Simmons,
(y) distributions (including distributions of assets) made in respect of the
Capital Stock of Simmons held by the Company or (z) proceeds from the sale of
Capital Stock or assets of Simmons.
6.3 Transactions with Affiliates. (a) The Company will not, and will not
permit any Relevant Subsidiary to, directly or indirectly, enter into or conduct
any transaction (including the purchase, sale, lease or exchange of any property
or the rendering of any service) with any Affiliate of the Company on terms (i)
that are less favorable to the Company or such Relevant Subsidiary, as the case
may be, than those that
-12-
could be obtained at the time of such transaction in arm's-length dealings with
a person who is not such an Affiliate and (ii) that, in the event such
transaction involves an aggregate amount in excess of $2.5 million, are not
evidenced by a written agreement, instrument or other document and have not been
approved by a majority of the members of the Company's Board of Directors
having no personal economic stake in such transaction.
(b) The provisions of the foregoing paragraph (a) will not prohibit (i) any
Restricted Payment (other than Permitted Investments) permitted to be made
pursuant to Section 6.2, (ii) any Permitted Investment, other than Permitted
Investments in Simmons, in 399 or in any Affiliate of 399, (iii) any Permitted
Investment in Simmons described in clause (i) of the definition of "Permitted
Investment" in Section 12.1, (iv) fees, compensation or employee benefits paid
to, and any indemnity provided for the benefit of, current or former directors,
officers or employees of the Company or any subsidiary of the Company in the
ordinary course of business, (v) any issuance of securities, or other payments,
awards or grants in cash, securities or otherwise pursuant to, or the funding
of, employment arrangements, stock options and stock ownership plans approved by
the Company's Board of Directors, (vi) Employee Stock Redemptions, including any
payment of principal of or interest on, or any purchase or redemption of, any
note issued in connection therewith, (vii) transactions pursuant to agreements
entered into or in effect on the Issue Date (including the Transitional Services
Agreement between the Lender and the Company), together with amendments thereto
entered into after the Issue Date, provided that the terms of any such amendment
are not, in the aggregate, materially less favorable to the Company or such
Relevant Subsidiary than the terms of such agreement prior to such amendment,
(viii) loans or advances to officers, directors or employees (of the Company or
any subsidiary thereof) that are Affiliates of the Company made in the ordinary
course of business, but in any event not to exceed $2.5 million in the aggregate
outstanding at any one time, or (ix) any transaction between the Company and a
Relevant Subsidiary or between Relevant Subsidiaries (so long as the other
stockholders of any participating Relevant Subsidiaries which are not direct or
indirect wholly owned subsidiaries of the Company are not themselves Affiliates
of the company).
6.4 Liens. The Company will not, directly or indirectly, create or permit
to exist any Lien on any of its property or assets (including Capital Stock),
whether owned on the Issue Date or thereafter acquired, securing any
Indebtedness of the Company other than Indebtedness permitted by Section 6.1
(excluding any such permitted Indebtedness incurred pursuant to clause (e), (f),
(g) or (i) of Section 6.1 and Refinancing Indebtedness incurred in respect of
the Notes or in respect of
-13-
Indebtedness incurred pursuant to such clause (e), (f), (g) or (i)), unless
contemporaneously therewith effective provision is made to secure the Notes
equally and ratably with (or on a senior basis to, in the case of Indebtedness
subordinated in right of payment to the Notes) such Indebtedness for so long as
such Indebtedness is so secured.
6.5 Mergers, Consolidations, etc. The Company will not consolidate with or
merge with or into, or convey, transfer or lease all or substantially all its
assets to, any person, unless: (a) the resulting, surviving or transferee person
(the "Successor Company") will be a corporation organized and existing under the
laws of the United States of America, any State thereof or the District of
Columbia and the Successor Company (if not the Company) will expressly assume,
by a written instrument in form satisfactory to the registered holders of a
majority of the then outstanding principal amount of the Notes, all the
obligations of the Company under the Notes; (b) immediately after giving effect
to such transaction (and treating any Indebtedness which becomes an obligation
of the Successor Company as a result of such transaction as having been incurred
by the Successor Company at the time of such transaction), no Default will have
occurred and be continuing; (c) immediately after giving effect to such
transaction, the Successor Company shall have Consolidated Net Worth in an
amount which is not less than the Consolidated Net Worth of the Company
immediately prior to such transaction; and (d) the Company will have delivered
to the Holder and each other registered holder of Notes an officers' certificate
and an opinion of counsel, each stating that such transaction complies with this
Section 6.5.
The foregoing paragraph will not prohibit the Company from conveying or
transferring Capital Stock of Simmons. Notwithstanding the foregoing clauses
(b), (c) and (d), any Relevant Subsidiary may consolidate with, merge into or
transfer all or part of its properties and assets to the Company.
The Successor Company shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Notes , but the
predecessor Company in the case of a conveyance, transfer or lease of all or
substantially all its assets shall not be released from the obligation to pay
the principal of and interest on the Notes.
6.6 Certain Amendments. The Company will not permit any amendment or other
modification of the Credit Agreement (including Sections 2.13(c) and 6.08(b) (v)
thereof) to the extent that the effect of such amendment or other modification
is to prohibit the Company, in the absence of a default or event of default
under the Credit Agreement, from prepaying Notes at its option with up to 60% of
the Net Cash Proceeds (as defined in the
-14-
Credit Agreement as in effect on the Issue Date) of any public offering of the
Company's Common Stock.
6.7 Existence. Except as otherwise permitted by Section 6.5, the Company
will do or cause to be done all things necessary to preserve and keep in full
force and effect its existence, rights (charter and statutory) and franchises;
provided, however, that the Company shall not be required to preserve or keep in
full force and effect any such right or franchise if the Company's Board of
Directors (or any duly authorized committee thereof) shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Company and that the loss thereof is not disadvantageous in any material
respect to the holders of Notes.
6.8 Financial Statements and Other Retorts. The Company will furnish to the
Holder and to each other registered holder of Notes:
(a) within 90 days after the end of each fiscal year, its consolidated
balance sheet and related statements of income, stockholders' equity and cash
flows showing the consolidated financial condition of the Company and its
consolidated subsidiaries as of the close of such fiscal year and the
consolidated results of its operations and the operations of such subsidiaries
during such year (and showing, on a comparative basis commencing with the fiscal
year ending December 31, 1998, the corresponding figures for the preceding
fiscal year), all audited by Ernst & Young LLP, Coopers and Lybrand LLP or other
independent public accountants of recognized national standing and accompanied
by an opinion of such accountants to the effect that such consolidated financial
statements fairly present in all material respects the financial condition and
results of operations of the Company and its consolidated subsidiaries on a
consolidated basis in accordance with GAAP consistently applied;
(b) within 45 days after the end of each of the first three fiscal quarters
of each fiscal year, its unaudited consolidated balance sheet and related
statements of income, stockholders' equity and cash flows showing the
consolidated financial condition of the Company and its consolidated
subsidiaries as of the close of such fiscal quarter and the consolidated results
of its operations and the operations of such subsidiaries during such fiscal
quarter and the then elapsed portion of the fiscal year (and showing, on a
comparative basis commencing with the fiscal quarter ending March 31, 1998, such
information as of and for the corresponding dates and periods of the preceding
fiscal year), all certified by the principal financial officer of the Company as
fairly presenting in all material respects the financial condition and results
of operations of the Company and its consolidated subsidiaries on a
-15-
consolidated basis in accordance with GAAP (except for the absence of footnote
disclosure) consistently applied, subject to year-end audit adjustments;
(c) promptly after the same become publicly available, copies of all
periodic and other reports, proxy statements and other materials filed by the
Company or any of the Relevant Subsidiaries with the Securities and Exchange
Commission, or with any national securities exchange, or distributed to its
shareholders generally, as the case may be; and
(d) promptly after (and, in any event, no later than 10 Business Days
after) the chief executive officer, the president or the principal financial
officer of the Company obtains knowledge thereof, written notice of any Event of
Default or Default, specifying the nature and extent thereof and the corrective
action (if any) taken or proposed to be taken with respect thereto.
6.9 Officers' Certificates as to Defaults. The Company will deliver to the
Holder and each other registered holder of Notes, within 90 days after the end
of each fiscal year of the Company ending after the date hereof, an officers'
certificate (signed by the president, the principal financial officer or any
vice president of the Company and by the secretary or any assistant secretary of
the Company), stating whether or not to the knowledge of the signers thereof the
Company is in default in the performance and observance of any of its covenants
and agreements contained in the Notes (without regard to any period of grace or
requirement of notice provided hereunder) and, if the Company shall be in
default, specifying all such defaults of which the signers have knowledge and
the nature and status thereof .
7. Subordination.
7.1 Notes Subordinated to Senior Indebtedness. The Company, for itself and
its successors, and the Lender, for itself and its successors and assigns by its
acceptance of this Note, agree that the payment by the Company of the principal
of and interest on the Notes and all other amounts owed in respect of the Notes,
both before and after the commencement of a bankruptcy or similar proceeding
(collectively, the "Note Obligations"), is subordinated, to the extent and in
the manner provided in this Section 7, to the prior payment in full in cash of
all amounts payable under or in respect of the Senior Indebtedness.
-16-
The provisions of this Section 7 are for the benefit of the holders of the
Senior Indebtedness, and such holders are made beneficiaries of this Section 7
and may enforce its provisions.
7.2 No Payment on Notes in Certain Circumstances.
(a) Subject to Section 7.9, prior to the payment in full in cash of
all amounts payable under or in respect of the Senior Indebtedness, no payment
(whether of cash, properties or securities) will be made by the Company on
account of principal of or interest on the Notes or any other amount owed in
respect of the Notes, or to redeem, retire, purchase, deposit moneys for
defeasance of or otherwise acquire any Notes for value, and the Company shall
not segregate and hold separate for the benefit of the Lender or any other
holder of Notes, money for any such payment, if (i) there shall have occurred
and be continuing (x) any default in the payment when due of any amount
constituting Senior Indebtedness (whether principal, interest or otherwise, and
whether due on the scheduled payment date, a date fixed for prepayment or
otherwise) or (y) any other default under any agreement or instrument evidencing
or relating to any Senior Indebtedness that has resulted in, or would permit the
holders of any Senior Indebtedness to cause (subject to any applicable notice
requirement or grace period), the acceleration of any Senior Indebtedness or
(ii) immediately after giving effect thereto, such payment would result in a
default described in clause (i) above.
(b) If any payment or distribution of assets of the Company is
received by the Lender or any other holder of Notes in respect of principal of,
interest on or any other amount owed in respect of the Notes at a time when the
payment or distribution should not have been made because of paragraph (a)
above, such payment or distribution (subject to the provisions of Section 7.9)
will be received and held in trust for the benefit of, and will be paid over to,
the holders of the Senior Indebtedness or their representatives (pro rata as to
each of such holders on the basis of the respective unpaid amounts of Senior
Indebtedness held by them) for application to the payment of the Senior
Indebtedness until all Senior Indebtedness has been paid in full in cash, after
giving effect to any concurrent payment to the holders of the Senior
Indebtedness.
7.3 Notes Subordinated to Prior Payment of All Senior Indebtedness upon
Dissolution, Liquidation or Reorganization. Subject to Section 7.9, in the event
of (i) any insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization, adjustment, composition or other similar case or
proceeding, relative to the Company or to its creditors, as such, or to its
assets, (ii) any liquidation, dissolution or other winding up of the Company,
whether voluntary or involuntary and
-17-
whether or not involving insolvency or bankruptcy, or (iii) any assignment for
the benefit of creditors or any other marshalling of assets and liabilities of
the Company (collectively, "Bankruptcy Events"), then in any such event:
(a) the holders of the Senior Indebtedness will first be entitled to
receive payment in full in cash of the principal and interest due on the Senior
Indebtedness and all other amounts payable under or in respect of the Senior
Indebtedness before the Lender and the other holders of Notes are entitled to
receive any payment on account of the principal of or interest on, or any other
amount owed in respect of, the Notes;
(b) any payment or distribution of assets of the Company of any kind
or character (whether in cash, property or securities) to which the Lender and
the other holders of Notes would be entitled except for the provisions of this
Section 7.3 will be paid by the person making such payment or distribution
(whether a trustee in bankruptcy, a receiver, custodian or liquidating trustee
or otherwise) directly to the holders of the Senior Indebtedness or their
representatives to the extent necessary to make payment in full in cash of all
Senior Indebtedness remaining unpaid, after giving effect to any concurrent
payment to the holders of the Senior Indebtedness; and
(c) if, notwithstanding the foregoing, any payment or distribution of
assets of the Company of any kind or character (whether in cash, property or
securities) is received by the Lender or any other holder of Notes on account of
the principal of or interest on, or any other amount owed in respect of, the
Notes before the Senior Indebtedness is paid in full in cash, such payment or
distribution will be received and held in trust for the benefit of, and will be
paid over to, the holders of the Senior Indebtedness or their representatives
(pro rata as to each of such holders on the basis of the respective unpaid
amounts of Senior Indebtedness held by them) for application to the payment of
the Senior Indebtedness until all Senior Indebtedness has been paid in full in
cash, after giving effect to any concurrent payment to the holders of the Senior
Indebtedness.
The Company will give prompt written notice to the Holder and each other
registered holder of Notes of any dissolution, winding up, liquidation or
reorganization of the Company or any assignment for the benefit of the Company's
creditors.
(d) Any holder of Senior Indebtedness shall have the right to request
the Holder to file and, in the event the Holder fails to do so within 10 days,
is hereby authorized to file a proper claim or proof of debt in the form
required in any
-18-
Bankruptcy Event for and on behalf of the Holder or any other holder of this
Note, to accept and receive any payment or distribution which may be payable or
deliverable at any time upon or in respect of the Note Obligations in an amount
not in excess of the aggregate amount of Senior Indebtedness then unpaid, and to
take such other action as may be reasonably necessary to effectuate the
foregoing. The Holder and any other holder of this Note shall provide to such
holder of Senior Indebtedness all information and documents reasonably necessary
to present claims or seek enforcement as aforesaid. The Holder of this Note
shall retain the right in respect of this Note to vote to accept or reject any
plan of partial or complete liquidation, reorganization, arrangement,
composition or extension; provided, however , that neither the Lender nor any
other holder of this Note shall take any action or vote in any way so as to
contest the enforceability of this Section 7, any Senior Indebtedness or any
other agreement or instrument with or for the benefit of any holder of any
Senior Indebtedness (in its capacity as such).
7.4 Acceleration of Payment of Notes. If an Event of Default (other than an
Event of Default occurring pursuant to clause (i) (but only in the case of a
failure to pay principal), (iv) or (v) of Section 11 (a)) shall have occurred
and be continuing at any time that any Senior Indebtedness is outstanding, the
registered holders of the Notes electing to accelerate the Notes pursuant to
Section 11(b) shall give the holders of the Senior Debt (or their
representatives) at least 10 days' prior written notice before accelerating the
Notes, which notice shall state that it is a "Notice of Intent to Accelerate."
If payment of the Notes is accelerated because of an Event of Default, the
Company shall promptly notify the holders of the Senior Indebtedness (or their
representatives) of the acceleration.
Prior to the payment in full in cash of all amounts payable under or in respect
of the Senior Indebtedness, any amount received by the Lender or any other
holder of this Note in respect of any Note Obligation as a result of any
acceleration of this Note or any other exercise of remedies in respect of this
Note shall be paid to the holders of Senior Indebtedness in accordance with the
provisions of this Section 7.
7.5 Holders to be Subrogated to Rights of Holders of Senior Indebtedness.
Upon the payment in full in cash of all Senior Indebtedness, the Holder and the
other registered holders of Notes will be subrogated to the rights of the
holders of the Senior Indebtedness to receive payments and distributions of
assets of the Company applicable to the Senior Indebtedness until all amounts
owing in respect of the Notes have been paid in full, and for the purpose of
such subrogation, no payments or distributions to the holders of the Senior
Indebtedness by or on
-19-
behalf of the Company or by or on behalf of the Lender or any other holder of
Notes by virtue of this Section 7 which otherwise would have been made to the
Holder or any other holder of Notes will, as between the Company, on the one
hand, and the Holder and the other registered holders of Notes, on the other
hand, be deemed to be payment by the Company to or on account of the Senior
Indebtedness, it being understood that the provisions of this Section 7 are, and
are intended to be, solely for the purpose of defining the relative rights of
the Holder and the other holders of Notes, on the one hand, and the holders of
the Senior Indebtedness, on the other hand.
7.6 Obligations of the Company Unconditional. Nothing contained in this
Note is intended to or will impair, as between the Company and the Holder, the
obligations of the Company, which are absolute and unconditional, to pay to the
Holder the principal of and interest on this Note as and when they become due
and payable in accordance with the terms hereof, or is intended to or will
affect the relative rights of the Holder and the other registered holders of
Notes, on the one hand, and the other creditors of the Company (other than the
holders of the Senior Indebtedness) , on the other hand, nor, except as provided
in this Section 7, will anything herein prevent the Holder and the other
registered holders of Notes from exercising all remedies otherwise permitted by
applicable law upon an Event of Default, subject to the rights, if any, under
this Section 7 of the holders of Senior Indebtedness in respect of cash,
property or securities of the Company received upon the exercise of any such
remedy.
7.7 Subordination Rights Not Impaired by Acts or Omissions of the Company
or Holders of Senior Indebtedness. No right of any present or future holders of
any Senior Indebtedness to enforce subordination, as provided herein, will at
any time or 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 on the part of any such
holder, or by any noncompliance by the Company with the terms of this Note,
regardless of any knowledge thereof which any such holder may have or otherwise
be charged with. The holders of the Senior Indebtedness may increase, extend,
renew, amend, waive or otherwise modify the terms of the Senior Indebtedness or
any security therefor and release, sell or exchange such security and otherwise
deal freely with the Company, all without releasing or otherwise impairing the
rights of such holders hereunder.
7.8 Reinstatement. The provisions of this Section 7 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 any
holder of
-20-
Senior Indebtedness upon the occurrence of a Bankruptcy Event, all as though
such payment had not been made.
7.9 Issuance of Additional Notes Not Prohibited. Notwithstanding anything
in this Section 7 to the contrary, nothing in this Section 7 shall prohibit the
Company from issuing, or the Lender, the Holder or any other registered holder
of Notes (as applicable) from receiving and retaining, (a) Secondary Notes
issued on any interest payment date to pay interest on the Notes in lieu of the
payment in whole or in part of such interest in cash, (b) any Note issued
pursuant to Section 3 or (c) any Exchange Note or Public Note (in each case as
defined in the Registration Rights Agreement) issued in exchange for one or more
other Notes pursuant to Article II or section 9.4 or 9.5 of the Registration
Rights Agreement; provided, however, that each such Secondary Note, Note,
Exchange Note or Public Note (and, in the case of an Exchange Note or a Public
Note, the indenture relating thereto) shall contain provisions substantially
identical to this Section 7.
7.10 Amendment. Any amendment, waiver or other modification of the
provisions of this Section 7 shall not be effective against any holder of Senior
Indebtedness without such holder's consent.
7.11 Remedies. The holders of Senior Indebtedness shall be entitled to
enforce their rights under this Section 7 specifically, to recover damages by
reason of any breach of any provision of this Section 7 and to exercise all
other rights existing in their favor. The Lender and each other holder of Notes
acknowledges and agrees that money damages may not be an adequate remedy for any
breach of the provisions of this Section 7 and that any holder of Senior
Indebtedness may apply to any court of competent jurisdiction for specific
performance and injunctive relief in order to enforce and prevent any violation
of the provisions of this Section 7.
8. Registered Holder Deemed Owner. The company may treat the Holder as the
owner of this Note for all Purposes hereof.
9. Transfers; Note Register; Replacement of Notes.
9.1 Transfers. (a) This Note shall not be sold, assigned, pledged,
hypothecated or otherwise transferred, in whole or in part, except as provided
in paragraphs (b) and (c) below and except for transfers by will or applicable
laws of descent.
(b) After the earlier of (i) a Qualifying Offering and (ii) August 5, 1998,
the Holder may either (x) sell or assign
-21-
this Note, in whole or in part, to any person, or (y) pledge this Note in a bona
fide financing transaction to a commercial bank or other lending institution
that agrees in writing to be bound by the provisions of this Section 9;
provided, however, that the Holder shall not make any such sale, assignment or
pledge unless (A) the ratio of (1) Consolidated EBITDA minus Capital
Expenditures to (2) Consolidated Interest Expense, in each case for the four
most recent fiscal quarters of the Relevant Subsidiaries ending at least 45 days
prior to the date of such sale, assignment or pledge, is at least 2.5 to 1 and
(B) the ratio of (1) Total Debt as of the end of such four-quarter period to (2)
Consolidated EBITDA for such four-quarter Period is not more than 3.1 to 1.
For purposes of this Section 9.1(b), "Consolidated EBITDA," "Capital
Expenditures" and "Total Debt" shall be calculated on a consolidated (or, if
necessary to include all the Relevant Subsidiaries, a combined) basis solely
with respect to the Relevant Subsidiaries, and shall not reflect any financial
data to the extent pertaining solely to the Company.
(c) Prior to any sale, assignment or pledge of this Note pursuant to
paragraph (b) above, the Holder shall give at least 15 days' prior written
notice to the Company of the Holder's intention to effect such transfer. Each
such notice shall describe the manner and circumstances of the proposed transfer
and (except in the case of any pledge pursuant to clause (y) of such paragraph
(b)) shall indicate the exemption under the Securities Act pursuant to which the
proposed transfer of this Note may be effected without registration under the
Securities Act. Every Note surrendered for registration of transfer shall be
duly endorsed, or shall be accompanied by a written instrument of transfer duly
executed, by the registered holder of such Note. The Note issued upon such
transfer shall bear the restrictive legend set forth in paragraph (d) below.
(d) Each Note that is not an Exchange Note or a Public Note (in each case
as defined in the Registration Rights Agreement) will be stamped or otherwise
imprinted with a legend in capital letters and otherwise in substantially the
following form:
"THE SECURITY REPRESENTED BY THIS NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS, AND
MAY NOT BE RESOLD OR TRANSFERRED, IN WHOLE OR IN PART, UNLESS REGISTERED OR
EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
ALL APPLICABLE STATE SECURITIES LAWS."
-22-
9.2 Note Register; Replacement of Notes.
(a) The Company shall keep a register in which provisions shall be made for
the registration of transfers and exchanges of Notes. The register shall be kept
at the chief executive office of the Company. Upon surrender for registration of
transfer of any Note at the chief executive office of the Company (and provided
that such transfer is effected in compliance with Section 9.1), the Company
shall execute and deliver, in the name of the designated transferee or
transferees, one or more new Notes of like tenor for a like aggregate principal
amount of Notes. At the option of any registered holder of Notes, its Notes may
be exchanged for other Notes of like tenor of any authorized denominations and
of a like aggregate principal amount, upon surrender of the Notes to be
exchanged at the chief executive office of the Company. Each new Note issued
upon transfer or exchange shall be in a principal amount of at least $500,000
and dated the date to which interest on the Notes surrendered shall have been
paid. All Notes issued upon any registration of transfer or exchange of Notes
shall be the valid obligations of the Company evidencing the same respective
obligations, and entitled to the same benefits, as the Notes surrendered upon
such registration of transfer or exchange. The Company shall make a notation on
each new Note of the amount of all payments of principal previously made on the
old Notes with respect to which such new Note is issued and the date to which
interest accrued on such old Note has been paid, and shall stamp or otherwise
imprint on each new Note that is not an Exchange Note or a Public Note (in each
case as defined in the Registration Rights Agreement) the restrictive legend set
forth in Section 9.1(d).
(b) Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of any Note and, in the case of any such loss,
theft or destruction, upon delivery of an indemnity agreement satisfactory to
the Company, or in the case of any such mutilation, upon surrender of such Note
(which surrendered Note shall be cancelled by the Company), the Company will,
without charge, issue a new Note of like tenor in lieu of such lost, stolen,
destroyed or mutilated Note as if the lost, stolen, destroyed or mutilated Note
were then surrendered for exchange.
10. Amendments and Waivers. The terms of the Notes may not be amended by
the Company without the consent of the registered holders of a majority of the
then outstanding principal amount of the Notes, and any existing default may be
waived only with the consent of the registered holders of a majority of the then
outstanding principal amount of the Notes; provided, however, that without the
consent of the Holder, the interest rate on this Note may not be reduced, the
principal
-23-
amount of this Note may not be reduced, the Maturity Date may not be changed to
a later date and Sections 4(a), 4(c), 4(d) and 7 and this Section 10 may not be
amended.
11. Defaults and Remedies. (a) An "Event of Default" shall occur if:
(i) the Company defaults in the payment of any principal of or interest on
any Note when the same becomes due and payable (whether on the Maturity
Date, a date fixed for the prepayment or repurchase of such Note pursuant
to Section 4 or otherwise), and the default continues for a period of 10
days;
(ii) there is a default in the performance, or a breach, of any covenant or
agreement of the Company contained in the Notes (other than a default
specified in clause (i) above) and continuance of such default or breach
for a period of 80 days after there shall have been given, to the Company
by the registered holders of at least 25% of the then outstanding principal
amount of the Notes, a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default";
(iii) there is a default under any Bank Indebtedness, the Indebtedness
represented by the LFI Notes or any other Indebtedness for borrowed money
of the Company or any Relevant Subsidiary, or under any agreement or
instrument under which there may be issued or by which there may be secured
or evidenced any such Indebtedness, which default shall have resulted in an
aggregate outstanding principal amount greater than $75 million of such
Indebtedness becoming or being accelerated and declared due and payable
prior to the date on which it would otherwise have become due and payable,
or a failure to pay any such Indebtedness in an aggregate outstanding
principal amount greater than $75 million at maturity, in each case without
such Indebtedness having been discharged, or such acceleration having been
rescinded or annulled, within a period of 10 days after there shall have
been given, to the Company by the registered holders of at least 25% of the
then outstanding principal amount of the Notes, a written notice specifying
such default or failure and requiring the Company to cause such
Indebtedness to be discharged or such acceleration to be rescinded or
annulled, as the case may be, and stating that such notice is a "Notice of
Default";
-24-
(iv) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
(A) is for relief against the Company in an involuntary case;
(B) appoints a Custodian of the Company or for all or any substantial
part of its property; or
(C) orders the liquidation of the Company;
and, in each case, the order or decree remains unstayed and in effect for
60 days; or
(v) the Company, pursuant to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in an
involuntary case;
(C) consents to the appointment of a Custodian of it or for all or
substantially all of its property; or
(D) makes a general assignment for the benefit of its creditors.
The term "Bankruptcy Law" means Title 11 of the United States Code and any
similar federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, custodian or similar official
under any Bankruptcy Law.
(b) If an Event of Default (other than an Event of Default specified
in clause (iv) or (v) of Section 11(a)) occurs and is continuing, the registered
holders of a majority of the then outstanding principal amount of the Notes, by
five Business Days' prior written notice to the Company, may, subject to Section
7, declare the unpaid principal of and accrued interest on all the Notes to be
due and payable. If such Event of Default is not cured or waived within such
five Business Days, such acceleration shall become effective upon the expiration
of such five-Business Day period, and such unpaid principal and interest shall,
subject to Section 7 hereof, thereupon become and be immediately due and
payable. If an Event of Default specified in clause (iv) or (v) of Section 11(a)
occurs, the unpaid principal of and accrued interest on all the Notes shall,
subject to Section 7 hereof, forthwith become and be immediately due and payable
without any declaration or other act on the part of any
-25-
registered holder of Notes. The registered holders of a majority of the then
outstanding principal amount of the Notes may rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and all existing Events of Default have been cured or waived except nonpayment
of principal, interest or any other amount that has become due solely because of
the acceleration.
(c) In the case of an Event of Default resulting from the failure to
pay any principal of or interest on any Note, or from a default in the
performance, or breach, of any other agreement or covenant of the Company
contained in the Notes, the Company agrees to pay to the registered holders of
the Notes, in addition to any interest otherwise required pursuant to Section
1(b), such further amount as shall be required to cover any and all reasonable
out-of-pocket costs and expenses of enforcement and collection, including
reasonable attorneys' fees and expenses.
(d) Subject to any applicable requirement under Section 7.4 to give
prior written notice before accelerating the Notes, if an Event of Default
occurs and is continuing, the registered holders of a majority of the then
outstanding principal amount of the Notes may pursue any available remedy to
collect the unpaid principal of and interest on the Notes or to enforce the
performance of any provision of the Notes. The holders of a majority of the then
outstanding principal amount of the Notes may direct the time, method and place
of conducting any proceeding for any remedy then available to any holder of
Notes.
12. Definitions.
12.1 Defined Terms. As used in the Notes, the following terms shall have
the respective meanings set forth below:
"Acquisition Agreement" has the meaning specified in the forepart of this
Note.
"Additional Management Stockholder" means an Additional Stockholder who is
an employee, officer or director of the Company or any of its subsidiaries.
"Additional Stockholder" means any person (other than an Institutional
Stockholder, Masco Stockholder or Management Stockholder), to whom the Company
issues Restricted Securities or Restricted Preferred Securities after the Issue
Date, other than pursuant to a public offering registered under the Securities
Act, In each case who has executed a joinder agreement as an Additional
Stockholder pursuant to Section 6.2 of the Stockholders Agreement (or any
successor provision), and its
-26-
direct and indirect Permitted Transferees, so long as any such person shall hold
(directly or indirectly through the Voting Trust) Restricted Securities or
Restricted Preferred Securities.
"Affiliate" means, with respect to any person, any other person that
Controls, is Controlled by or is under common Control with such person. For
purposes of the definition of the term "Permitted Transferees," employees,
officers and directors of 399 and its Affiliates shall be "Affiliates" of 399.
"Associate" means, with respect to any person, (i) any trust or other
estate in which such person has a substantial beneficial interest or as to which
such person serves as trustee or in a similar fiduciary capacity and (ii) any
relative or spouse of such person, or any relative of such spouse, who has the
same home as such person.
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
scheduled redemption or similar payment with respect to such Preferred Stock
multiplied by the amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in respect
of the Credit Agreement and any increase, extension, renewal, refinancing or
replacement thereof or of any subsequent Bank Indebtedness, including principal,
premium (if any), interest (including interest accruing on or after the filing
of any petition in bankruptcy or for reorganization relating to the Company
whether or not a claim for post-filing interest is allowed in such proceeding),
fees, charges, expenses, reimbursement obligations, guarantees and all other
amounts payable thereunder or in respect thereof.
"Bankruptcy Events" has the meaning specified in Section 7.3.
"Business Day" means any day other than a Saturday, Sunday or other day on
which banking institutions in New York State are authorized or required by law
to close.
"Call" means the right of the Company to purchase Restricted Securities and
Restricted Preferred Securities from 399 Stockholders pursuant to the Call
Agreement.
"Call Agreement" means the Call Agreement dated as of the Issue Date,
between 399 and the Company, as the same may be amended, supplemented or
otherwise modified from time to time.
-27-
"Capital Expenditures" means, for any period, without duplication, the sum
of (a) the aggregate of all expenditures (whether paid in cash or other
consideration) by the Company and the Relevant Subsidiaries during such period
that, in accordance with GAAP, are or should be included in "additions to
property, plant or equipment" or similar items reflected in the consolidated
statement of cash flows of the Company and the Relevant Subsidiaries for such
period and (b) to the extent not covered by clause (a) above, the aggregate of
all expenditures by the Company and the Relevant Subsidiaries to acquire by
purchase or otherwise the business, property or fixed assets of, or stock or
other evidence of beneficial ownership of, any person (it being understood that
this clause (b) does not include any Investment in a person that is not a
subsidiary at the time of such Investment and that will not become a subsidiary
as a result of such Investment); provided, however, that Capital Expenditures
shall not include (i) Expenditures relating to the development, purchase or
acquisition of sample fabric books, (ii) in the case of clause (b) above, the
portion of such expenditures allocable in accordance with GAAP to net current
assets, (iii) expenditures of proceeds of insurance settlements, condemnation
awards and other settlements in respect of lost, destroyed, damaged or condemned
assets, equipment or other property to the extent such expenditures are made to
replace or repair such lost, destroyed, damaged or condemned assets, equipment
or other property or otherwise to acquire assets or properties useful in the
business of the Company or any of the Relevant Subsidiaries within 12 months of
receipt of such proceeds or (iv) with respect to any person, expenditures that
are accounted for as capital expenditures of such person and that actually are
paid for by a third party and for which neither such person nor any subsidiary
of such person has provided or is required to provide or incur directly or
indirectly, any consideration or obligation to such third party.
"Capital Lease Obligation" of any person means an obligation of such person
that is required to be classified and accounted for as a capital lease for
financial reporting purposes in accordance with GAAP, and the amount of such
obligation shall be the capitalized amount thereof determined in accordance with
GAAP.
"Capital Stock" of any person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
-28-
"Change of Control" means the occurrence of
(i) a sale in one or more transactions of more than 66 2/3% of the
consolidated assets of the Company and its Control Subsidiaries,
(ii) any transaction as a result of which the 399 Stockholders cease
to own at least 10% of the HFG Common Stock on a Fully-Diluted Basis,
(iii) any transaction as a result of which any person other than an
Institutional Stockholder, a Masco Stockholder or a Management Stockholder
(or any group consisting of such persons who (x) shall have agreed in
writing (other than pursuant to the Stockholders' Agreement) to act as a
group with respect to the acquisition or voting of securities of the
Company or the power to designate and elect members of the Company's Board
of Directors, with a copy of such agreement having been provided to the
Company, (y) shall have advised the Company that such group is acting as a
group with respect to the acquisition or voting of securities of the
Company or the power to designate and elect members of the Company's Board
Of Directors, or (z) in connection with the purchase of securities of the
Company, shall have filed or notified the Company that it will file, as a
group, a Schedule 13D or 13G under the Exchange Act) has the power to
designate and elect members of the Company's Board of Directors with
weighted votes Constituting a majority of the weighted votes on such Board
(or, if no such weighting is then in effect, the power to designate and
elect a majority of the members of such Board), excluding, however, any
such person or group that would not have held such power if it had not
acquired from a Masco Stockholder securities of the Company having rights
and privileges conferring such power, other than by a transfer from a Masco
Stockholder through the exercise of "Rights of Inclusion" under Article III
of the Stockholders' Agreement in connection with a transfer by the 399
Stockholders, provided, that no Change of Control under the circumstances
set forth in this clause (iii) shall be deemed to have occurred under any
circumstances solely as a result of the acquisition by any such person or
group of the right to designate and elect the Management Directors and the
Masco Director, or
(iv) the 399 Stockholders (x) have sold in one or more transactions to
persons other than their Permitted Transferees in excess of 66 2/3% of the
HFG Common Stock, on a Fully-Diluted Basis (excluding HFG Common Stock
which is subject to transfer by 399 Stockholders to the Company pursuant to
the Call), owned by the 399 Stockholders on the
-29-
Issue Date (subject to adjustment for any stock dividends, stock splits,
combinations, reclassifications, mergers, consolidations and the like) and
(y) following such sales, the percentage of HFG Common Stock on a
Fully-Diluted Basis owned by the 399 Stockholders on the date of the last
of such sales is less than the percentage thereof owned by the Masco
Stockholders on the date of the last of such sales.
For purposes of this definition of Change of Control, the terms "399
Stockholders" and "Permitted Transferees" do not include any Permitted
Transferee of a 399 Stockholder pursuant to clauses (iii)(C) and (iii)(D) of
the definition of Permitted Transferee (unless such Permitted Transferee is,
with respect to 399, a person described in clauses (iii)(A) and (iii)(B) of
such definition) .
"Change of Control Offer" has the meaning specified in Section 4(c).
"Change of Control Payment Date" has the meaning specified in Section 4(c).
"Class A Common" means the Company's Class A Common Stock, par value $.01
per share, consisting of four series of Class A Common Stock, the Series A-1
Common Stock, the Series A-2 Common Stock, the Series A-3 Common Stock and the
Series I Common Stock, and any securities into which such Class A Common shall
have been changed or any securities resulting from any reclassification or
recapitalization of such Class A Common.
"Class B Common" means the Company's Class B Common Stock, par value $.01
per share, consisting of four series of Class B Common Stock, the Series B-1
Common Stock, the Series B-2 Common Stock, the Series B-3 Common Stock and the
Series II Common Stock, and any securities into which such Class B Common shall
have been changed or any securities resulting from any reclassification or
recapitalization of such Class B Common.
"Class C Common" means the Company's Class C Common Stock, par value $.01
per share, and any securities into which such Class C Common, shall have been
changed or any securities resulting from any reclassification or
recapitalization of such Class C Common.
"Class D Common" means the Company's Class D Common Stock, par value $.01
per share, and any securities into which such Class D Common shall have been
changed or any securities resulting from any reclassification or
recapitalization of such Class D Common.
-30-
"Class D Equity Equivalents" means securities exercisable, convertible or
exchangeable for or into Class D Common.
"Common Stock" means the Class A Common, the Class B Common, the Class C
Common and the Class D Common, any securities into which the Class A Common, the
Class B Common, the Class C Common or the Class D Common shall have been
changed, and all other securities of any class or classes (however designated)
of the Company, the holders of which have the right, without limitation as to
amount, after payment on any securities entitled to a preference on dividends or
other distributions upon any dissolution, liquidation or winding-up, either to
all or to a share of the balance of payments upon such dissolution, liquidation
or winding-up.
"Company" has the meaning specified in the forepart of this Note.
"Consolidated Current Assets" means, at any date of determination, all
assets (other than cash and cash-equivalents) that would, in accordance with
GAAP, be classified on a consolidated balance sheet of the Company and the
Relevant Subsidiaries as current assets at such date of determination.
"Consolidated Current Liabilities" means at any date of determination, all
liabilities (other than the current portion of long-term Indebtedness) that
would, in accordance with GAAP, be classified on a consolidated balance sheet of
the Company and the Relevant Subsidiaries as current liabilities at such date of
determination.
"Consolidated EBITDA" means, for any period, the Consolidated Net Income
for such period, plus, without duplication, to the extent deducted in computing
Consolidated Net Income, the sum of (a) income tax expense, (b) interest expense
(including interest-equivalent costs associated with any Permitted Receivables
Financing, whether accounted for as interest expense or loss on the sale of
receivables), (c) depreciation and amortization expense, including amortization
of sample fabric books, (d) any extraordinary losses, (e) any non-cash charges
or non-cash losses and (f) cash restructuring charges minus, without
duplication, to the extent added in computing such Consolidated Net Income, (i)
interest income, (ii) any extraordinary gains and (iii) any non-cash income or
non-cash gains, all as determined on a consolidated basis with respect to the
Company and the Relevant Subsidiaries in accordance with GAAP. Notwithstanding
anything in the Notes to the contrary, the aggregate amount of cash
restructuring charges added back to Consolidated Net Income in the determination
of Consolidated
-31-
EBITDA for any twelve-month (or shorter) period shall not exceed $3,500,000.
"Consolidated Interest Expense" means, for any period, the gross interest
expense accrued or paid by the Relevant Subsidiaries during such period, as
determined on a consolidated (or, if necessary to include all the Relevant
Subsidiaries, a combined) basis in accordance with GAAP, plus
interest-equivalent costs associated with any Permitted Receivables Financing
for such period, whether accounted for as interest expense or loss on the sale
of receivables; provided, however, that "Consolidated Interest Expense" shall
not include (i) expenses relating to the transactions contemplated by the Credit
Agreement or the Acquisition Agreement or amortization thereof and (ii)
penalties and premiums associated with any prepayment of Indebtedness.
"Consolidated Net Income" means, for any period, net income or loss of the
Company and the Relevant Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP, provided that there shall be
excluded (a) the net income (or loss) of any person in which any other person
(other than the Company, any wholly owned Relevant Subsidiary or any director
holding qualifying shares or any nominee holding shares for the indirect benefit
of the Company in compliance with applicable law) has an equity interest, except
that (i) the Company's or such Relevant Subsidiary's equity in the net income of
any such person shall be included in determining Consolidated Net Income to the
extent of the amount of dividends, other distributions or payments in respect of
loans actually paid to the Company or any of the Relevant Subsidiaries, as the
case may be, by such person during such period, provided that if the ownership
of such equity interest by such other person is required by local ownership laws
in any foreign country, the Company's or such Relevant Subsidiary's equity in
the net income of any such person shall be included in determining Consolidated
Net Income to the extent that cash could have been distributed by such person
during such period to the Company or such Relevant Subsidiary, as the case may
be, as a dividend, and (ii) the Company's or any Relevant Subsidiary's equity in
a net loss of any such person for such period shall be included in determining
Consolidated Net Income, (b) the net income (or loss) of any person for any
period prior to the date it becomes a Relevant Subsidiary or is merged into or
consolidated with the Company or any of the Relevant Subsidiaries or the date
that person's assets are acquired by the Company or any of the Relevant
Subsidiaries and (c) any after tax gains or losses attributable to sales of
assets out of the ordinary course of business.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and the Relevant Subsidiaries, determined on a
consolidated basis, as of the end
-32-
of the most recent fiscal quarter of the Company ending at least 45 days prior
to the taking of any action for the purpose of which the determination is being
made, as (i) the par or stated value of all outstanding Capital Stock of the
Company plus (ii) paid-in capital or capital surplus relating to such Capital
Stock plus (iii) any retained earnings or earned surplus minus (A) any
accumulated deficit and (B) any amounts attributable to Disqualified Stock.
"Consolidated Working Capital" means, at any date of determination,
Consolidated Current Assets at such date of determination minus Consolidated
Current Liabilities at such date of determination.
"Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a person,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "Controlling" and "Controlled" shall have meanings correlative
thereto.
"Control Subsidiary" means, with respect to any person, any corporation,
partnership, association or other business entity of which (i) if a corporation,
a majority of the total voting power of shares of stock entitled (without regard
to the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or Controlled, directly or
indirectly, by that person or one or more of the other Control Subsidiaries of
that person or a combination thereof, or (ii) if a partnership, association or
other business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or Controlled, directly or indirectly, by
that person or one or more Control Subsidiaries of that person or a combination
thereof. For purposes hereof, a person or persons shall be deemed to have a
majority ownership interest in a partnership, association or other business
entity if such person or persons shall be allocated a majority of partnership,
association or other business entity gains or losses or shall be or Control the
managing director or general partner of such partnership, association or other
business entity.
"Credit Agreement" means the Credit Agreement dated as of August 5, 1996,
among the Company, LFI and the other borrowers party thereto from time to time,
the lenders party thereto from time to time and The Chase Manhattan Bank, a New
York banking corporation, as administrative agent and collateral agent, and
Chase Manhattan Bank Delaware, as issuing bank, as the same may be amended,
supplemented or otherwise modified from time to time.
"Debentures" means the Company's Junior Subordinated Debentures issued from
time to time after the Issue Date in
-33-
exchange for shares of the Restricted Preferred Securities or in payment of
interest on any such Junior Subordinated Debentures (including those so issued
in payment of interest).
"Default" means any event or condition that, upon notice, lapse of time or
both would constitute an Event of Default.
"Determination Date" has the meaning specified in Section 3(a).
"Disqualified Stock" means, with respect to any person, any capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable or exercisable) or upon the happening of any
event (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible into or exchangeable for
Indebtedness or Disqualified Stock or (iii) is redeemable at the option of the
holder thereof, in whole or in part, in each case on or prior to 91 days after
the Stated Maturity of the Notes. Disqualified Stork shall not include any
Capital Stock that is not otherwise Disqualified Stock if by its terms the
holders thereof have the right to require the issuer to repurchase such stock
upon a Change of Control (or upon events substantially similar to a Change Of
Control).
"Employee Stock Redemption" has the meaning specified in Section 6.1.
"Equity Equivalents" means securities exercisable, convertible or
exchangeable for or into HFG Common Stock, including without limitation the
Series B Preferred and the Series C Preferred.
"Event of Default" has the meaning specified in Section 11(a).
"Excess Cash Flow" means, for any fiscal year, the Consolidated EBITDA of
the Company and Relevant Subsidiaries on a consolidated basis for such fiscal
year, minus, without duplication, (a) cash interest paid during such Fiscal year
(including interest-equivalent costs during such fiscal year that are associated
with any Permitted Receivables Financing, whether accounted for as interest
expense or loss on the sale of receivables), (b) scheduled principal repayments
of Total Debt made during such year, (c) voluntary prepayments of Total Debt of
the Relevant Subsidiaries during such fiscal year, (d) Capital Expenditures by
the Company and the Relevant Subsidiaries on a consolidated basis during such
fiscal year that are paid in cash, except to the extent that such Capital
Expenditures are prohibited by Section 6.2, (e) taxes paid in cash by the
Company
-34-
and the Relevant Subsidiaries on a consolidated basis during such fiscal year,
(f) the portion (if any) of such Consolidated EBITDA which (in the reasonable
judgment of the Company's Board of Directors) is required to be retained For use
in the business of the Relevant Subsidiaries (including (i) to make Capital
Expenditures and (ii) to pay interest on Indebtedness of any Relevant Subsidiary
and to repay or prepay any outstanding Indebtedness of any Relevant Subsidiary),
(g) cash payments made by the Company to Simmons pursuant to the Tax Sharing
Agreement during such fiscal year, (h) an amount equal to any increase in
Consolidated Working Capital during such fiscal year, (i) capital expenditures
in cash relating to the development, purchase or acquisition of sample fabric
books during such fiscal year, (j) restructuring charges paid in cash during
such fiscal year to the extent included in determining Consolidated EBITDA, (k)
any increase in Investments in customers, suppliers and Joint Ventures during
such fiscal year and (l) to the extent included in Consolidated EBITDA, all
non-cash payments received by the Company and the Relevant Subsidiaries on a
consolidated basis during such fiscal year, plus, without duplication, (i) an
amount equal to any decrease in Consolidated Working Capital during such fiscal
year, (ii) interest income received in cash during such fiscal year, (iii) any
decrease in Investments in customers, suppliers and Joint Ventures during such
fiscal year, (iv) the proceeds of any Capital Lease Obligations, purchase money
Indebtedness and other Indebtedness (to the extent permitted under Section 6.1,
in the case of Indebtedness of the Company), in each case to the extent used to
finance Capital Expenditures during such fiscal year, (v) to the extent deducted
in determining Consolidated EBITDA, all non-cash payments made by the Company
and the Relevant Subsidiaries on a consolidated basis during such fiscal year
and (vi) the portion (if any) of the Consolidated EBITDA for the immediately
preceding fiscal year which has been subtracted pursuant to clause (f) above in
determining Excess Cash Flow for such immediately preceding fiscal year.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, and the rules and regulations of the Securities and Exchange
Commission thereunder.
"Fully-Diluted Basis" means, (A) with respect to the calculation of the
number of shares of HFG Common Stock, (i) all shares of HFG Common Stock
outstanding at the time of determination and (ii) all shares of HFG Common Stock
issuable upon the exercise, conversion or exchange of Equity Equivalents and (B)
with respect to the calculation of the number of shares of Class D Common, (i)
all shares of Class D Common outstanding at the time of determination and (ii)
all shares of Class D Common issuable upon the exercise, conversion or exchange
of Class D Equity Equivalents.
-35-
"GAAP" means generally accepted accounting principles applied on a
consistent basis. All accounting terms shall be interpreted, and all accounting
determinations under the Notes shall be made, in accordance with Section 12.2.
"Guarantee" of or by any person shall mean any obligation, contingent or
otherwise, of such person guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other person (the "primary obligor") in any
manner, whether directly or indirectly, and including any obligation of such
person, direct or indirect, (a) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Indebtedness or to purchase (or to advance
or supply funds for the purchase of) any security for the payment of such
Indebtedness, (b) to purchase or lease property, securities or services for the
purpose of assuring the owner of such Indebtedness of the payment of such
Indebtedness or (c) to maintain working capital, equity capital or any other
financial statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such Indebtedness; provided, however. that the
term in quotes "Guarantee" shall not include endorsements for collection or
deposit in the ordinary course of business. The amount of any Guarantee of any
guaranteeing person shall be deemed to be the lowest of (i) an amount equal to
the stated or determinable amount of the primary obligation in respect of which
such Guarantee is made and (ii) the maximum amount for which such guaranteeing
person may be liable pursuant to the terms of the instrument embodying such
Guarantee, unless such primary obligation and the maximum amount for which such
guaranteeing person may be liable are not stated or determinable, in which case
the amount of such Guarantee shall be such guaranteeing person' s maximum
reasonably anticipated liability in respect thereof as determined by the Company
in good faith.
"Guaranty" means the Holdings Guarantee Agreement, dated the Issue Date,
made by the Company in favor of the collateral agent for the lenders under the
Credit Agreement, as the same may be amended, supplemented or Otherwise modified
from time to time.
"HFG Common Stock" means the Common Stock, but excluding the Class D
Common.
"HFG Restricted Securities" means the Restricted Securities, but excluding
the Class D Common and Class D Equity Equivalents.
"Holder" has the meaning specified in Section 2(a).
"Increased Amount" has the meaning specified in Section 3(a).
-36-
"Indebtedness" of any person shall mean, without duplication, (a) all
obligations of such person for borrowed money, (b) all obligations of such
person evidenced by bonds, Debentures, notes or similar instruments, (c) all
obligations of such person upon which interest charges are customarily paid
(excluding trade accounts payable and accrued obligations incurred in the
ordinary course of business), (d) all obligations of such person under
conditional sale or other title retention agreements relating to property or
assets purchased by such person, (e) all obligations of such person issued or
assumed as the deferred purchase price of property or services (excluding trade
accounts payable and accrued obligations incurred in the ordinary course of
business), (f) all Indebtedness of others secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be secured
by) any Lien on property owned or acquired by such person, whether or not the
obligations secured thereby have been assumed, provided that the amount of such
Indebtedness of such person shall be the lesser of (i) the fair market value of
such property on the date of determination and (ii) the outstanding principal
amount of such Indebtedness of such other person on the Date of determination,
(g) all Guarantees by such person of Indebtedness of others, (h) all Capital
Lease Obligations of such person, (i) all obligations of such person in respect
of interest rate protection agreements, foreign currency exchange agreements or
other interest .or exchange rate hedging arrangements and (j) all obligations of
such person as an account party in respect of letters of credit and bankers'
acceptances. The Indebtedness of any person shall include the Indebtedness of
any partnership in which such person is a general partner, other than to The
extent that the instrument or agreement evidencing such Indebtedness expressly
limits the liability of such person in respect thereof.
"Indemnification Issue Date" has the meaning specified in Section 3 (b).
"Institutional Directors" means any member of the Company's Board of
Directors designated and elected pursuant to Section 5.1(a)(i) of the
Stockholders' Agreement (or any successor provision).
"Institutional Stockholder Group Members" means, collectively, 399,
Associated Madison Companies, Inc., a Delaware corporation, TRV Employees Fund,
L.P., a Delaware limited partnership, Greenwich Street Capital, L.P., a Delaware
limited partnership, GSCP Offshore Fund Ltd., a British Virgin Islands
Corporation, The Travelers Insurance Company, a Connecticut corporation, and The
Travelers Life and Annuity Company, a Connecticut corporation.
-37-
"Institutional Stockholders" means each Institutional Stockholder Group
Member and their respective direct and indirect Permitted Transferees, so long
as any such person shall hold Restricted Securities or Restricted Preferred
Securities.
"Investment" in any person means any advance or loan (other than advances
or loans to customers or suppliers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the person making such
advance or loan) or other extension of credit (including by way of Guarantee or
similar arrangement) or capital contribution to (including by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition of
Capital Stock, Indebtedness or other similar instruments issued by, such person.
"Issue Date" means August 5, 1996.
"Joint Venture" means any person of which securities or other ownership
interests representing at least 20% but no greater than 50% of the equity or
ordinary voting power are owned, Controlled or held by the Company or any
Relevant Subsidiary.
"Lender" has the meaning specified in the forepart of this Note.
"LFI" means Lifestyle Furnishings International Ltd., a Delaware
corporation, and its successors.
"LFI Notes" means the 10.875% Senior Subordinated Notes due 2006 issued by
LFI on the Issue Date and shall include any substantially identical notes
subsequently issued in exchange therefor pursuant to the terms of the indenture
governing such Senior Subordinated Notes.
"Lien" shall mean, with respect to any asset, (a) any mortgage, deed of
trust, lien, pledge, encumbrance, charge or security interest in or on such
asset, (b) the interest of a vendor or a lessor under any conditional sale
agreement, capital lease or title retention agreement (or any financing lease
having substantially the same economic effect as any of the foregoing) relating
to such asset and (c) in the case of securities, any purchase option, call or
similar right of a third party with respect to such securities.
"Management Director" means any member of the Company's Board of Directors
designated and elected pursuant to Section 5.1(a) (ii) of the Stockholders'
Agreement (or any successor provision).
-38-
"Management Group" means, collectively, the individuals whose names appear
on the omnibus signature pages to the Stockholders' Agreement.
"Management Stockholders" means the Management Group and their respective
direct and indirect Permitted Transferees, so long as any such person shall hold
(directly or indirectly through the Voting Trust) Restricted Securities or
Restricted Preferred Securities.
"Masco Director" means any member of the Company's Board of Directors
designated and elected pursuant to Section 5.1(a) (iii) of the Stockholders'
Agreement (or any successor provision).
"Masco Stockholders" means Masco and its direct and indirect Permitted
Transferees, so long as any such person shall hold Restricted Securities,
Restricted Preferred Securities or Debentures.
"Maturity Date" has the meaning specified in the forepart of this Note.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Note Obligations" has the meaning specified in Section 7.1.
"Notes" has the meaning specified in the forepart of this Note.
"Permitted Investment" means an Investment by the Company in: (i) Simmons,
to the extent that such Investment is either (x) existing on the Issue Date or
(y) directly funded by a contemporaneous capital contribution from a stockholder
of the Company in connection with a purchase of Class D Common Stock by such
stockholder; (ii) a Relevant Subsidiary or a person which will, upon the making
of such Investment, become a Relevant Subsidiary; provided, however, that the
primary business of such person is a Related Business; (iii) another person if
as a result of such Investment such other person is merged or consolidated with
or into, or transfers or conveys all or substantially all its assets to, the
Company or a Relevant Subsidiary; provided, however, that such person's primary
business is a Related Business; (iv) Temporary Cash Investments; (v) receivables
owing to the Company, if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; provided,
however, that such trade terms may include such concessionary trade terms as the
Company deems reasonable under the circumstances; (vi) payroll, travel and
-39-
similar advances to cover matters that are expected at the time of such advances
ultimately to be treated as expenses for accounting purposes and that are made
in the ordinary course of business; (vii) loans or advances to employees made in
the ordinary course of business and not exceeding $6.0 million in the aggregate
outstanding at any one time; (viii) stock, obligations or securities received in
settlement of debts created in the ordinary course of business and owing to the
Company or any subsidiary thereof or in satisfaction of judgments; (ix)
Investments in property or assets to be used in (or in Relevant Subsidiaries and
any entity that, as a result of such Investment, is a Relevant Subsidiary
engaged in) a Related Business; (x) securities or other property received as
consideration in sales of assets; (xi) Guarantees which are permitted to be
incurred under Section 6.1; (xii) Investments existing and held by the Company
on the Issue Date (after giving effect to the transactions contemplated by the
Acquisition Agreement to occur on the Issue Date) and set forth on Schedule
6.04(l) to the Credit Agreement (as in effect on the Issue Date) and renewals,
extensions and replacements thereof, provided that the amount of any such
renewed, replaced or extended Investment shall not exceed the amount of the
Investment being renewed, replaced or extended; or (xiii) other Investments of
any type, provided that the outstanding amount of Investments made after the
Issue Date in reliance on this clause (xiii) may not at any time exceed $10
million in the aggregate.
"Permitted Receivables Financing" means (a) the Bridge Receivables
Financing (as defined in the Credit Agreement) and (b) any subsequent financing
secured substantially by receivables (and related assets) originated by the
Company or any Relevant Subsidiary in any amount, provided that (i) any such
subsequent receivables financing has a later or equal final maturity and a
longer or equal weighted average life than the Bridge Receivables Financing,
(ii) sales of receivables to any Receivables Subsidiary are made at fair market
value (as determined in good faith by the Company's or LFI's Board of
Directors), (iii) the interest rate applicable to such subsequent receivables
financing shall be a market interest rate (as determined in good faith by the
Company's or LFI's Board of Directors) as of the time such financing is entered
into, (iv) such financing is non-recourse to the Company except to a limited
extent customary for such financings and (v) the covenants, events of default
and other provisions thereof, collectively, shall be market terms (as determined
in good faith by the Company' s or LFI' s Board of Directors).
"Permitted Transferee" means:
(i) with respect to any Stockholder who is a natural person, the
spouse or any lineal descendant
-40-
(including by adoption and stepchildren) of such Stockholder, or any trust
of which such Stockholder is the trustee and which is established solely
for the benefit of any of the foregoing individuals and whose terms are not
inconsistent with the terms of the Stockholders' Agreement, or any
partnership, all of the general partner(s) and limited partner(s) (if any)
of which are one or more persons identified in this clause (i) (or any
other trust or partnership established by any such Stockholder to the
extent approved in writing by the Company (acting with the approval of the
Company's Board of Directors, including the consent of the Masco Director
and the Institutional Directors));
(ii) with respect to a Masco Stockholder, (x) any direct or indirect
Control Subsidiary of Masco (including any such Control Subsidiary which
ceases to be a Control Subsidiary of Masco after the Issue Date) unless
such Control Subsidiary or former Control Subsidiary does not qualify as
(A) a "Permitted Transferee" of Masco, under the more restrictive of the
definitions of such term with respect to Masco ("Permitted Transferee
Definitions"), under the Credit Agreement (as in effect on the Issue Date)
and the indenture pertaining to the LFI Notes (as in effect on the Issue
Date), or (B) in the event that the agreements referred to in clause (A)
above are no longer in effect, a "Permitted Transferee" of Masco under the
most restrictive Permitted Transferee Definition in any other material
agreement or instrument evidencing indebtedness for borrowed money of the
Company or any of its Significant Subsidiaries, which Permitted Transferee
Definition is no more restrictive in scope with respect to "Permitted
Transferees" of Masco than the more restrictive of the Permitted Transferee
Definitions referred to in clause (A) above, and (y) subject to the prior
written consent of the Institutional Stockholders (which consent shall be
in their sole discretion), any corporation (I) in which Masco owns shares
of capital stock representing at least 19% of the total ordinary voting
power of such corporation and (II) which is "controlled" (within the
meaning under Rule 12b-2 of the regulations under the Exchange Act) by
Masco;
(iii) with respect to the Institutional Stockholders, (A) any
Associate or Affiliate of any such Institutional Stockholder and any
officer, director or employee of any Institutional Stockholder or of any
such Associate or Affiliate, (B) any spouse or lineal descendant (including
by adoption and
-41-
stepchildren) of the officers, directors and employees referred to in
clause (A) above, and any trust (where a majority in interest of the
beneficiaries thereof are any of the persons described in this clause (B)
and in clause (A) above), corporation or partnership (where a majority in
interest of the stockholders or limited partners, or where the managing
general partner, is one of more of the persons described in clause (A)
above), (C) any other Institutional Stockholder or (D) if, after taking
commercially reasonable steps, with the cooperation of the Company, such
Institutional Stockholder is unable to restructure its ownership of the
Company's securities in a manner which avoids a Regulatory Problem and
which is not materially adverse to such Institutional Stockholder, upon the
giving of notice to the Company and the Masco Stockholders that the
Institutional Stockholders have determined that such Regulatory Problem may
not be avoided, then to any third party to avoid such Regulatory Problem;
(iv) with respect to any Additional Stockholder who is not a natural
person, any Affiliate of such Additional Stockholder; and
(v) with respect to any Management Stockholder and any Additional
Management Stockholder, the Voting Trust established pursuant to the Voting
Trust Agreement.
"person" means an individual, partnership, corporation, trust,
unincorporated organization joint venture, government (or agency or political
subdivision thereof) or any other entity of any kind.
"Preferred Stock," as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Qualifying Offers" means the consummation by the Company of an
underwritten primary or secondary public offering of HFG Common Stock pursuant
to an effective registration statement under the Securities Act, covering the
offer and sale of the HFG Common Stock (a) which (taken together with all
similar previous public offerings) raises at least $100,000,000 of aggregate net
proceeds to the Company (after underwriters' fees, commissions and discounts and
offering expenses) and (ii) as a result of which, at that time, at least 25% of
the HFG
-42-
Common Stock on a Fully-Diluted Basis has been sold to the public.
"Receivables Subsidiary" means LFI Receivables Corporation or any successor
thereto or other entity formed solely for purposes of a Permitted Receivables
Financing.
"Refinancing Indebtedness" means Indebtedness that is incurred to refund,
refinance, replace, renew, repay, purchase, redeem or extend (including pursuant
to any defeasance or discharge mechanism) (collectively, "refinances," and
"refinanced" and "refinancing" shall have a correlative meaning) any other
Indebtedness, including Indebtedness that refinances Refinancing Indebtedness;
provided, however, that (i) the Refinancing Indebtedness has a Stated Maturity
no earlier than the Stated Maturity of the Indebtedness being refinanced, (ii)
the Refinancing Indebtedness has an Average Life at the time such Refinancing
Indebtedness is incurred that is equal to or greater than the Average Life of
the Indebtedness being refinanced, (iii) such Refinancing Indebtedness is
incurred in an aggregate principal amount (or, if issued with original issue
discount, an aggregate issue price) that is equal to or less than the aggregate
principal amount (or, if issued with original issue discount, the aggregate
accreted value) then outstanding of the Indebtedness being refinanced plus an
amount necessary to pay any fees and expenses, including premiums, relating to
such refinancing and (iv) if the Indebtedness being refinanced is subordinated
in right of payment to the Notes, such Refinancing Indebtedness is subordinated
in right of payment to the Notes to at least the same extent as the Indebtedness
being refinanced.
"Registration Rights Agreement" has the meaning specified in Section 15.
"Regulatory Problem" means (i) the Institutional Stockholder's investment
in the Common Stock exceeds any limitation to which it is subject, or is
otherwise not permitted, under any law, rule or regulation of any governmental
authority (including any position to that effect taken by such governmental
authority), or (ii) restrictions are imposed on the Institutional Stockholder as
a result of any law, regulation, rule or directive (whether or not having the
force of law) of any governmental or regulatory authority which, in the
reasonable judgment of the Institutional Stockholder, make it illegal or unduly
burdensome for the Institutional Stockholder to continue to hold such Common
Stock.
"Related Business" means any business of the Company and the Relevant
Subsidiaries as conducted on the Issue Date and business related, ancillary or
complementary thereto.
-43-
"Relevant Subsidiary" means any subsidiary of the Company, other than
Simmons.
"Restricted Payment" has the meaning specified in Section 6.2(a)
"Restricted Preferred Securities" means the Series A-l Preferred and the
Series A-2 Preferred.
"Restricted Securities" means the Common Stock, the Class D Equity
Equivalents, the Equity Equivalents and any securities issued with respect
thereto as a result of any stock dividend, stock split, reclassification,
recapitalization, reorganization, merger, consolidation or similar event or upon
the conversion, exchange or exercise thereof.
"S&P" means Standard and Poor's Ratings Group, a division of McGraw-Hill,
Inc., and its successors.
"Secondary Notes" has the meaning specified in Section 2(b).
"Securities Act" means the Securities Act of 1933, as amended from time to
time, and the rules and regulations of the Securities and Exchange Commission
thereunder.
"Senior Indebtedness" of the Company means (i) the Bank Indebtedness, to
the extent that any of the Bank Indebtedness is a direct obligation of the
Company, and (ii) the "Obligations," as such term is defined in the Guaranty or
in any other written Guarantee of Bank Indebtedness (provided that the
definition of "Obligations" in such other written Guarantee shall be
substantially the same (without regard to amounts) as the definition of
"Obligations" in the Guaranty) entered into by the Company on or after the Issue
Date, in each case including any interest accruing thereon on or after the
filing of any petition in bankruptcy or for reorganization relating to the
Company whether or not a claim for post-filing interest is allowed in such
proceeding; provided, however, that Senior Indebtedness shall not include any
portion of the Bank Indebtedness (in the case of clause (i) above) or such
"Obligations" (in the case of clause (ii) above) that, at or promptly following
the time of the incurrence thereof, is not secured by a Lien on all or
substantially all of the Company's properties and assets (including Capital
Stock).
"Series A-1 Preferred" means the Company's Series A-1 Preferred Stock, par
value $.01 per share, and any securities (other than the Debentures) into which
such Series A-1 Preferred shall have been changed or any securities resulting
from any
-44-
reclassification or recapitalization of such Series A-l Preferred.
"Series A-2 Preferred" means the Company's Series A-2 Preferred Stock, par
value $.0l per share, and any securities (other than the Debentures) into which
such Series A-2 Preferred shall have been changed or any securities resulting
from any reclassification or recapitalization of such Series A-2 preferred.
"Series B Preferred" means the Company's Series B Convertible Preferred
Stock, par value $.01 per share, and any securities into which such Series B
Preferred shall have been changed or any securities resulting from any
reclassification or recapitalization of such Series B preferred.
"Series C Preferred" means the Company's Series C Convertible Preferred
Stock, par value $.01 per share, and any securities into which such Series C
preferred shall have been changed or any securities resulting from any
reclassification or recapitalization of such Series C Preferred.
"Significant Subsidiaries" means those Control Subsidiaries of the Company
which constitute a "Significant Subsidiary" as defined in Regulation S-X
promulgated by the Securities and Exchange Commission under the Securities Act,
as such Regulation is in effect on the Issue Date.
"Simmons" means Simmons Upholstered Furniture Corporation, a Delaware
corporation, and its successors (other than a Relevant Subsidiary into which it
merges or to which it transfers all or substantially all its assets) and
subsidiaries.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase or
redemption of such security at the option of the holder thereof upon the
happening of any contingency beyond the control of the issuer unless such
contingency has occurred).
"Stockholders" means each of the Institutional Stockholders, the Masco
Stockholders, the Management Stockholders and the Additional Stockholders.
"Stockholders' Agreement" means the Stockholders' Agreement dated as of the
Issue Date, among the Company, Masco, the Institutional Stockholders and the
Management Stockholders,
-45-
as such agreement may be amended, supplemented or otherwise modified from time
to time.
"Subordinated Obligation" means any Indebtedness of the Company outstanding
from time to time which is subordinate or junior in right of payment to the
Notes pursuant to a written agreement or instrument entered into or accepted by
the holders of such Indebtedness.
"subsidiary" means, with respect to any person (herein referred to as the
"parent"), any corporation, partnership, association or other business entity
(a) of which securities or other ownership interests representing more than 50%
of the equity or more than 50% of the ordinary voting power or more than 50% of
the general partnership interests are, at the time any determination is being
made, owned, controlled or held, or (b) that is, at the time any determination
is made, otherwise Controlled, by the parent or one or more subsidiaries of the
parent or by the parent and one or more subsidiaries of the parent, provided
that the term "subsidiary," when used in respect of the Company or any of its
subsidiaries, shall not include any foreign joint venture in which the Company
or any Relevant Subsidiaries owns less than or equal to 50% of the equity
interest in such joint venture.
"Successor Company" has the meaning specified in Section 6.5.
"Tax Sharing Agreement" means the Tax Sharing Agreement dated as of the
Issue Date, among the Company, LFI, the Receivables Subsidiary and Simmons, as
the same may be amended, supplemented or otherwise modified, renewed or replaced
from time to time.
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations (x) of the United States of America or any agency thereof
or obligations Guaranteed by the United States of America or any agency thereof
or (y) of any foreign country recognized by the United States of America rated
at least "A" by S&P or "A-1" by Moody's; (ii) investments in time deposit
accounts, certificates of deposit and money market deposits maturing within 365
days of the date of acquisition thereof issued by a bank or trust company which
is organized under the laws of the United States of America, any state thereof
or any foreign country recognized by the United States of America having capital
and surplus in excess of $250.0 million ( or the foreign currency equivalent
thereof) and whose long-term debt is rated "A" (or such similar equivalent
rating) or higher by at least one nationally recognized rating agency; (iii)
repurchase obligations with a term of not more than 30 days for underlying
securities of the types described in clause (i)
-46-
above entered into with a bank or trust company meeting the qualifications
described in clause (ii) above; (iv) investments in commercial paper, maturing
not more than 365 days after the date of acquisition, issued by a corporation
(other than an Affiliate of the Company) organized and in existence under the
laws of the United States of America or any foreign country recognized by the
United States of America with a rating at the time as of which any investment
therein is made of "P-l" (or higher) according to Moody's or "A-1" (or higher)
according to S&P; (v) investments in securities maturing within 365 days of the
date of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States of America, or by any political subdivision or
taxing authority thereof, and rated at least "A" by S&P or "A-l" by Moody's;
(vi) any money market deposit accounts issued or offered by a domestic
commercial bank or a commercial bank organized and located in a country
recognized by the United States of America, in each case, having capital and
surplus in excess of $250.0 million (or the foreign currency equivalent
thereof), or investments in money market funds complying with the risk limiting
conditions of Rule 2a-7 (or any successor rule) of the Securities and Exchange
Commission under the Investment Company Act Of 1940, as amended; and (vii)
similar investments approved by the Company's Board of Directors in the
ordinary course of business.
"399" means 399 Venture Partners, Inc., a Delaware corporation.
"399 Stockholders" means 399 and each of its respective direct and indirect
Permitted Transferees, so long as any such person shall hold Restricted
Securities or Restricted Preferred Securities.
"Total Debt" means, at any time, all Indebtedness of the Company and the
Relevant Subsidiaries of the type referred to in clauses (a), (b), (c), (e), (h)
and (j) (provided that obligations in respect of letters of credit shall not be
included in Total Debt, except to the extent of any unreimbursed drawings
thereunder) of the definition of the term "Indebtedness."
"Voting Trust" means the Voting Trust created under the Voting Trust
Agreement.
"Voting Trust Agreement" means the Voting Trust Agreement dated as of the
Issue Date, by and among the Company, the Management Stockholders named therein
and the trustee named therein, as such agreement may be amended, supplemented or
otherwise modified from time to time.
"Wholly Owned Subsidiary" means a Relevant Subsidiary all the Capital Stock
of which (other than directors' qualifying
-47-
shares and, to the extent required by local ownership laws in foreign countries,
shares owned by foreign shareholders) is owned by the Company or one or more
other wholly Owned Subsidiaries (including shares held of record by a nominee
for the benefit of the Company or another Wholly Owned Subsidiary).
12.2 Terms Generally. The definitions in Section 12.1 shall apply equally
to both the singular and plural forms of the terms defined. The words "include,"
"includes" and "including" shall be deemed to be followed by the phrase "without
limitation." Except as otherwise expressly provided herein, all terms of an
accounting or financial nature shall be construed in accordance with GAAP, as in
effect from time to time, provided, however, that for purposes of determining
compliance with the covenants and agreements contained in Sections 2(b), 6.1,
6.2, 6.3, 6.4, 6.5 and 9.1(b), all accounting terms herein shall be interpreted
and all accounting determinations hereunder shall be made in accordance with
GAAP as in effect on the Issue Date.
13. No Recourse Against Others. A director, officer, employee or
stockholder of the Company, as such, shall not have any liability for any
obligations of the Company under this Note or for any claim based on, in respect
of or by reason of such obligations or their creation. The Lender and each other
holder hereof, by accepting this Note, waives and releases all such liability.
The waiver and release set forth in this Section 13 are part of the
consideration for the issuance of this Note.
14. No Offset. Notwithstanding anything to the contrary in any Note or in
the Acquisition Agreement, the Lender shall not be entitled to satisfy or
otherwise discharge any of its payment obligations owed to the Company or any
Relevant Subsidiary (whether arising under the Acquisition Agreement or
otherwise) by means of an offset against the Company's Obligations under any
Note.
15. Registration Rights Agreement. The Company and the Lender have entered
into a Registration Rights Agreement dated as of the Issue Date, relating to the
Notes (as the same may be amended, supplemented or otherwise modified from time
to time, the "Registration Rights Agreement"). The Holder, by its acceptance of
this Note, agrees that it is subject to and bound by the terms and provisions of
the Registration Rights Agreement as if it were a party thereto.
16. Notices. All notices and other communications delivered pursuant to the
Notes shall be in writing and (together with all payments of interest on this
Note made by the issuance of Secondary Notes and all payments of principal and
interest on this Note made by check) shall be delivered by hand, by express
courier service, by registered or certified mail, return receipt
48-
requested, postage prepaid, by first-class mail or by telecopy, addressed, (a)
if to the Holder, at the following address or at such other address as the
Holder shall have furnished to the Company in writing:
Masco Corporation
21001 Van Born Road
Taylor, Michigan 48180
Facsimile No.: 313-374-6135
Attn: President
with a copy to:
Masco Corporation
21001 Van Born Road
Taylor, Michigan 48180
Facsimile No.: 313-374-6135
Attn: General Counsel
or (b) if to the Company, at the following address or at such other address as
the Company shall have furnished to the Holder in writing:
FURNISHINGS INTERNATIONAL INC.
1300 National Highway
Thomasville, North Carolina 27360
Facsimile No. : 910-476-4551
Attn: President
with copies to:
FURNISHINGS INTERNATIONAL INC.
1300 National Highway
Thomasville, North Carolina 27360
Facsimile No.: 910-476-4551
Attn: General Counsel
and
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Facsimile No.: 212-309-6273
Attn: Philip H. Werner
Any notice so addressed and mailed or delivered shall be deemed to be given
(i) one Business Day after being consigned to an express courier service, (ii)
five Business Days after being mailed by registered, certified or first-class
mail, (iii) on the same Business Day, if delivered by hand and (iv) when
received, if delivered by telecopy. -49-
17. Headings; Certain Conventions. The headings of the various Sections of
this Note are for convenience of reference only and shall not define, limit or
otherwise affect any of the terms or provisions hereof. Unless the context
otherwise expressly requires, all references herein to Sections are to Sections
of this Note. The words "herein," "hereunder" and "hereof" and words of similar
import refer to this Note as a whole and not to any particular Section or
provision.
18. Governing Law. The construction, validity and interpretation of this
Note shall be governed by and construed in accordance with the domestic laws of
the State Of New York, without giving effect to any choice of law or conflict of
law provision or rule (whether of the State of New York or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of New York.
IN WITNESS WHEREOF, the Company has executed and delivered this Note as of
the date first above written.
FURNISHINGS INTERNATIONAL INC.
By: /s/ Robert L. George
------------------------
Name: Robert L. George
Title: Executive Vice President
-50-