EXHIBIT 99.(a)(3)
ST. JOHN KNITS INTERNATIONAL, INCORPORATED
15 1/4% EXCHANGEABLE PREFERRED STOCK DUE 2010
CERTIFICATE OF DESIGNATIONS
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Pursuant to Section 151
of the General Corporation Law of the State of Delaware
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St. John Knits International, Incorporated (the "Company"), a
corporation organized and existing under the General Corporation Law of the
State of Delaware, does hereby certify that pursuant to the provisions of
Section 151 of the General Corporation Law of the State of Delaware, its Board
of Directors, by unanimous written consent dated as of July 7, 1999 adopted the
following resolution, which resolution remains in full force and effect as of
the date hereof:
WHEREAS, the Board of Directors of the Company (the "Board of
Directors") is authorized, within the limitations and restrictions stated in the
Certificate of Incorporation of the Company, to fix by resolution or resolutions
the designation of each series of preferred stock and the powers, designations,
preferences and relative participating, optional or other rights, if any, or the
qualifications, limitations or restrictions thereof, including, without limiting
the generality of the foregoing, such provisions as may be desired concerning
voting, redemption, dividends, dissolution or the distribution of assets,
conversion or exchange, and such other subjects or matters as may be fixed by
resolution or resolutions of the Board of Directors under the General
Corporation Law of Delaware; and
WHEREAS, it is the desire of the Board of Directors, pursuant to its
authority as aforesaid, to authorize and fix the terms of a series of preferred
stock and the number of shares constituting such series:
NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized such
series of preferred stock on the terms and with the provisions herein set forth:
1. Certain Definitions. Unless the context otherwise requires, the terms
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defined in this Section 1 shall have, for all purposes of this resolution, the
meanings herein specified (with terms defined in the singular having comparable
meanings when used in the plural).
"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in
connection with an Acquisition from such Person or (b) existing at the time such
Person becomes a Restricted Subsidiary or is merged or consolidated with or into
the Company or any Restricted Subsidiary.
"Acquired Person" means, with respect to any specified Person, any other
Person which merges with or into or becomes a Subsidiary of such specified
Person.
"Acquisition" means (i) any capital contribution (by means of transfers of
cash or other property to others or payments for property or services for the
account or use of others, or
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otherwise) by the Company or any Restricted Subsidiary to any other Person, or
any acquisition or purchase of Equity Interests of any other Person by the
Company or any Restricted Subsidiary, in either case pursuant to which such
Person shall become a Restricted Subsidiary or shall be consolidated with or
merged into the Company or any Restricted Subsidiary or (ii) any acquisition by
the Company or any Restricted Subsidiary of the assets of any Person which
constitute substantially all of an operating unit or line of business of such
Person or which is otherwise outside of the ordinary course of business.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person and shall also mean any beneficial owner of
shares representing 5% or more of the total voting power of the Voting Equity
Interests (on a fully diluted basis) of the Company or of rights or warrants to
purchase such Voting Equity Interests (whether or not currently exercisable) and
any Person who would be an Affiliate of any such beneficial owner pursuant to
this definition. For purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling," "controlled by" and "under common
control with"), as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the ownership of voting
securities, by agreement or otherwise.
"Applicable Day Count Fraction" means, with respect to any Dividend Period
or portion thereof, the number of days in such Dividend Period or portion
divided by 360.
"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
(that has the effect of a disposition) or other disposition (including, without
limitation, any merger, consolidation or sale-leaseback transaction) to any
Person other than the Company or a Restricted Subsidiary, in one transaction or
a series of related transactions, of (i) any Equity Interest of any Restricted
Subsidiary (other than directors' qualifying shares, to the extent mandated by
applicable law); or (ii) any property or asset of the Company or any Restricted
Subsidiary outside of the ordinary course of business (including the receipt of
proceeds paid on account of the loss of or damage to any property or asset and
awards of compensation for any asset taken by condemnation, eminent domain or
similar proceedings). For the purposes of this definition, the term "Asset Sale"
shall not include (a) the creation of any lien, charge or encumbrance; (b) sales
of property or equipment that has become worn out, obsolete or damaged or
otherwise unsuitable for use in connection with the business of the Company or
any Restricted Subsidiary, as the case may be; (c) any transaction consummated
in compliance with Section 12 hereof; (d) any transfers of properties and assets
between Restricted Subsidiaries or the Company and a Restricted Subsidiary; (e)
the sale of Cash Equivalents in the ordinary course of business; (f) a
disposition of inventory in the ordinary course of business; (g) the sale or
other disposition of assets owned by Amen Wardy Home Stores, LLC; and (h) the
sale of accounts receivable, or participation therein, in connection with any
Qualified Receivables Transactions.
"Attributable Indebtedness" in respect of a sale/leaseback transaction
means, as at the time of determination, the present value (discounted at the
interest rate borne by the Notes, compounded semi-annually) of the total
obligations of the lessee for rental payments during the
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remaining term of the lease included in such sale/leaseback transaction
(including any period for which such lease has been extended).
"Board of Directors" means the board of directors of the Company.
"Business Day" means any day except a Saturday, Sunday or other day in the
City of New York on which banks are authorized or ordered to close.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be properly capitalized on the balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means: (a) U.S. dollars; (b) securities issued or
directly and fully guaranteed or insured by the U.S. government or any agency or
instrumentality thereof having maturities of not more than one year from the
date of acquisition; (c) certificates of deposit and eurodollar time deposits
with maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any domestic commercial bank having capital and
surplus in excess of $500 million; (d) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in clauses
(b) and (c) above entered into with any financial institution meeting the
qualifications specified in clause (c) above; (e) commercial paper rated P-1, A-
1 or the equivalent thereof by Moody's Investors Service, Inc. or Standard &
Poor's Corporation, respectively, and in each case maturing within six months
after the date of acquisition; and (f) money market funds at least 95% of the
assets of which constitute Cash Equivalents of the kinds described in clauses
(a) through (e) of this definition.
"Change of Control" means the occurrence of any of the following events
(whether or not approved by the Board of Directors of the Company): (i) any
Person (as such term is used in Sections 13(d) and 14(d) of the Exchange Act,
including any group acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act), other
than one or more Permitted Holders, is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person
shall be deemed to have "beneficial ownership" of all shares that any such
Person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time, upon the happening of an event or otherwise),
directly or indirectly, of greater than 35% of the total voting power of the
then outstanding Voting Equity Interests of the Company and such Person
beneficially owns a greater percentage of the total voting power of the then
outstanding Voting Equity Interests of the Company than the Permitted Holders;
(ii) the Company or any of its Subsidiaries sells, assigns, conveys, transfers,
leases or otherwise disposes (other than by way of
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merger or consolidation) of all or substantially all of the assets of the
Company and its Subsidiaries (determined on a consolidated basis) to any Person
(other than the Company or any Wholly Owned Restricted Subsidiary); (iii) during
any period of two consecutive years, individuals who at the beginning of such
period constituted the Board of Directors of the Company (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the shareholders of the Company was approved by a vote of a majority
of the directors of the Company then still in office who were either directors
at the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of the Company then in office; or (iv) the Company is
liquidated or dissolved or adopts a plan of liquidation or dissolution.
"Change of Control Date" has the meaning set forth in Section 11 hereof.
"Common Stock" means the Common Stock, $.01 par value, of the Company and
any other class of common stock issued by the Company from time to time.
"Company" means St. John Knits International, Incorporated, a Delaware
corporation.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Financial Advisor as having a maturity comparable to
the remaining term of the Exchangeable Preferred Stock that would be utilized,
at the time of selection and in accordance with customary financial practice, in
pricing new issues of securities similar to, and with a comparable maturity to
the remaining term of, the Exchangeable Preferred Stock.
"Comparable Treasury Price" shall be determined by an Independent Financial
Advisor and means, with respect to any redemption date, (i) the average of the
bid and asked prices for the Comparable Treasury Issue (expressed in each case
as a percentage of its principal amount) on the third Business Day preceding
such redemption date, as set forth in the daily statistical release (or any
successor release) published by the Federal Reserve Bank of New York and
designated "Composite 3:30 p.m. Quotations for U.S. Government Securities" or
(ii) if such release (or any successor release) is not published or does not
contain such prices on such Business Day, (A) the average of the Reference
Treasury Dealer Quotations for such redemption date, after excluding the highest
and lowest such Reference Treasury Dealer Quotations, or (B) if the Independent
Financial Advisor obtains fewer than four such Reference Treasury Dealer
Quotations, the average of all such Quotations.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of Consolidated EBITDA for the four quarter
period of the most recent four consecutive fiscal quarters for which financial
statements are available ending prior to the date of such determination (the
"Four Quarter Period") to (ii) Consolidated Fixed Charges for such Four Quarter
Period; provided, however, that (1) if the Company or any Restricted Subsidiary
has incurred any Indebtedness since the beginning of such Four Quarter Period
that remains outstanding on such date of determination or if the transaction
giving rise to the need to calculate the Consolidated Coverage Ratio is an
Incurrence of Indebtedness, Consolidated EBITDA and Consolidated Fixed Charges
for such Four Quarter Period shall be calculated after giving effect
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on a pro forma basis to such Indebtedness as if such Indebtedness had been
Incurred on the first day of such Four Quarter Period and the discharge of any
other Indebtedness repaid, repurchased or otherwise discharged with the proceeds
of such new Indebtedness as if such discharge had occurred on the first day of
such Four Quarter Period, (2) if since the beginning of such Four Quarter Period
the Company or any Restricted Subsidiary shall have made any Asset Sale, the
Consolidated EBITDA for such Four Quarter Period shall be reduced by an amount
equal to the Consolidated EBITDA (if positive) directly attributable to the
assets that are the subject of such Asset Sale for such Four Quarter Period or
increased by an amount equal to the Consolidated EBITDA (if negative) directly
attributable thereto for such Four Quarter Period and Consolidated Fixed Charges
for such Four Quarter Period shall be reduced by an amount equal to the
Consolidated Fixed Charges directly attributable to any Indebtedness of the
Company or any Restricted Subsidiary repaid, repurchased or otherwise discharged
with respect to the Company and its continuing Restricted Subsidiaries in
connection with such Asset Sale for such Four Quarter Period (or, if the Equity
Interests of any Restricted Subsidiary are sold, the Consolidated Fixed Charges
for such Four Quarter Period directly attributable to the Indebtedness of such
Restricted Subsidiary to the extent the Company and its continuing Restricted
Subsidiaries are no longer liable for such Indebtedness after such sale), (3) if
since the beginning of such Four Quarter Period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person that becomes a Restricted Subsidiary) or an
acquisition of assets, including any acquisition of assets occurring in
connection with a transaction causing a calculation to be made hereunder, which
constitutes all or substantially all of an operating unit or a line of a
business or which constitutes replacement assets, Consolidated EBITDA and
Consolidated Fixed Charges for such Four Quarter Period shall be calculated
after giving pro forma effect to (x) such Investment or acquisition of assets
(including the Incurrence of any Indebtedness) as if such Investment or
acquisition occurred on the first day of such Four Quarter Period and (y) net
expense and cost reductions attributable to the assets acquired which, in the
good faith estimate of management, will be eliminated or realized, as the case
may be, as a result of such asset acquisition and (4) if since the beginning of
such Four Quarter Period any Person (that subsequently became a Restricted
Subsidiary or was merged with or into the Company or any Restricted Subsidiary
since the beginning of such Four Quarter Period) shall have made any Asset Sale
or any Investment or acquisition of assets that would have required an
adjustment pursuant to clause (2) or (3) above if made by the Company or a
Restricted Subsidiary during such Four Quarter Period, Consolidated EBITDA and
Consolidated Fixed Charges for such Four Quarter Period shall be calculated
after giving pro forma effect thereto as if such Asset Sale, Investment or
acquisition of assets occurred on, with respect to any Investment or
acquisition, the first day of such Four Quarter Period and, with respect to any
Asset Sale, the day prior to the first day of such Four Quarter Period. For
purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto and the
amount of Consolidated Fixed Charges associated with any Indebtedness Incurred
in connection therewith, the pro forma calculations shall be determined in
accordance with GAAP, except as provided in clause (3)(y). If any Indebtedness
bears a floating rate of interest and is being given pro forma effect, the
interest expense on such Indebtedness shall be calculated as if the rate in
effect on the date of determination had been the applicable rate for the entire
period (taking into account any agreement under which Hedging Obligations are
outstanding applicable to such Indebtedness if such agreement under which such
Hedging Obligations are outstanding has a remaining term as at the date of
determination in
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excess of 12 months); provided, however, that the Consolidated Fixed Charges of
the Company attributable to interest on any Indebtedness Incurred under a
revolving credit facility computed on a pro forma basis shall be computed based
upon the average daily balance of such Indebtedness during the Four Quarter
Period.
"Consolidated EBITDA" means, for any period, the Consolidated Net Income
for such period, plus, without duplication, the following to the extent deducted
in calculating such Consolidated Net Income: (i) Consolidated Income Tax Expense
for such period; (ii) Consolidated Interest Expense for such period; (iii)
Consolidated Non-cash Charges for such period; (iv) step-ups in inventory
valuation as a result of purchase accounting in connection with the acquisition
of assets or Equity Interests; (v) costs not reimbursable by the Company's or
any Subsidiary's insurance incurred in connection with any litigation and other
legal proceedings to which the Company or such Subsidiary is currently a party
(other than in connection with the settlement of the litigation concerning Amen
Wardy Home Stores, LLC), provided that such costs included in this clause (v)
shall not exceed $1.0 million for all periods; (vi) cash charges not to exceed
$1.0 million in connection with the settlement of the litigation concerning Amen
Wardy Home Stores, LLC, the acquisition of the remaining 49% interest in Amen
Wardy Home Stores, LLC and the closure of certain Amen Wardy stores and related
costs; and (vii) expenses related to the Transactions; less (A) all non-cash
items increasing Consolidated Net Income for such period and (B) all cash
payments during such period relating to non-cash charges that were added back in
determining Consolidated EBITDA in any prior period.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense and
(ii) the product of (x) the amount of all dividend payments on any series of
Preferred Equity Interest of the Company and its Restricted Subsidiaries (other
than dividends paid solely in Qualified Equity Interests and other than unpaid
dividends on the Exchangeable Preferred Stock) paid, accrued or scheduled to be
paid or accrued during such period times (y) a fraction, the numerator of which
is one and the denominator of which is one minus the then current effective
consolidated federal, state and local tax rate of such Person, expressed as a
decimal.
"Consolidated Income Tax Expense" means, with respect to the Company for
any period, the provision for Federal, state, local and foreign income taxes
payable by the Company and the Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to the Company for any
period, without duplication, the sum of (i) the interest expense of the Company
and the Restricted Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP, including, without limitation, (a) any
amortization of debt discount, (b) the net cost under Hedging Obligations, (c)
the interest portion of any deferred payment obligation, (d) all commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, (e) all capitalized interest and all accrued
interest and (f) the cash contributions to any employee stock ownership plan or
similar trust to the extent such contributions are used by such plan or trust to
pay interest or fees to any Person (other than the Company) in connection with
Indebtedness Incurred by such plan or trust; provided, however,
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that there will be excluded therefrom any such interest expense of any
Unrestricted Subsidiary to the extent the related Indebtedness is not guaranteed
or paid by the Company or any Restricted Subsidiary and (ii) interest expense
attributable to Capitalized Lease Obligations and the interest portion of rent
expense associated with Attributable Indebtedness in respect of the relevant
lease giving rise thereto, determined as if such lease were a capitalized lease
in accordance with GAAP, as determined for the Company and the Restricted
Subsidiaries on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, for any period, the consolidated net
income (loss) of the Company and the Restricted Subsidiaries determined in
accordance with GAAP and before any reduction in respect of dividends paid
solely in Qualified Equity Interests and before any reduction in respect of
unpaid dividends on the Exchangeable Preferred Stock; provided, however, that
there shall not be included in such Consolidated Net Income: (i) any net income
(loss) of any Person if such Person is not a Restricted Subsidiary, except (A)
to the extent of cash actually distributed by such Person during such period to
the Company or a Restricted Subsidiary as a dividend or other distribution, (B)
with respect to foreign joint ventures, to the extent that cash is available for
distribution (without restriction and not committed for other purposes) during
such period to the Company or a Restricted Subsidiary as a dividend or other
distribution, but is not distributed due to adverse tax or other business
reasons, such cash shall be included and (C) the Company's equity in a net loss
of any such Person (other than an Unrestricted Subsidiary) for such period shall
be included in determining such Consolidated Net Income; (ii) any net income
(loss) of any person acquired by the Company or a Restricted Subsidiary in a
pooling of interests transaction for any period prior to the date of such
acquisition; (iii) any net income (but not loss) of any Restricted Subsidiary if
such Restricted Subsidiary is subject to restrictions, directly or indirectly,
on the payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company to the extent of such
restrictions; (iv) any gain or loss, together with any related provision for
taxes on such gain or loss, realized upon the sale or other disposition of any
asset of the Company or the Restricted Subsidiaries (including pursuant to any
sale/leaseback transaction) outside of the ordinary course of business; (v) any
extraordinary gain or loss, together with any related provision for taxes on
such extraordinary gain or loss; (vi) the cumulative effect of a change in
accounting principles; (vii) any restoration to income of any contingency
reserve of an extraordinary, non-recurring or unusual nature, except to the
extent that provision for such reserve was made out of Consolidated Net Income
accrued at any time following the Issue Date; (viii) gains and losses resulting
from foreign currency transaction adjustments; (ix) gains and losses on assets
that are marked to market; (x) any costs and expenses related to the
Transactions incurred on or immediately after the Issue Date, including the
settlement of all outstanding options; and (xi) non-cash expenses resulting from
the grant of Equity Interests and other compensation to management personnel of
the Company and its Subsidiaries pursuant to a written plan or agreement or the
treatment of options under variable plan accounting.
"Consolidated Non-cash Charges" means, with respect to any Person, for any
period the sum of (i) depreciation, (ii) amortization and (iii) all non-cash
extraordinary charges and other non-cash expenses of such Person and its
Restricted Subsidiaries reducing Consolidated Net Income of such Person and its
Restricted Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP (excluding, for purposes of clause (iii) only, such
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charges which require an accrual of or a reserve for cash charges for any future
period) including, without limitation, non-cash charges in connection with the
settlement of the litigation concerning Amen Wardy Home Stores, LLC, the
acquisition of the remaining 49% interest in Amen Wardy Home Stores, LLC and the
closure of certain Amen Wardy stores and related costs.
"Credit Facility" means the Credit Agreement, dated as of the Issue Date,
among the Company, the lenders named therein, and The Chase Manhattan Bank, as
Administrative Agent, and any and all guarantee agreements, security agreements
and other agreements and instruments relating thereto, in each case as the same
may be amended, modified, supplemented or replaced from time to time, and
including any deferrals, renewals, extensions, replacements, refinancings or
refundings thereof, or amendments, modifications or supplements thereto and any
agreement providing therefor (including any restatements thereof and any
increases in the amount of the commitments or Indebtedness thereunder), whether
by or with the same or any other lender, creditor, group of lenders or group of
creditors, and including related notes, guarantee and note agreements and other
instruments and agreements executed in connection therewith.
"Designation" has the meaning set forth in Section 14 hereof.
"Designation Amount" has the meaning set forth in Section 14 hereof.
"Disqualified Equity Interest" means any Equity Interest which, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable at the option of the holder thereof), or upon the happening
of any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable, at the option of the holder thereof
(except, in each case, upon the occurrence of a Change of Control), in whole or
in part, or exchangeable into Indebtedness on or prior to the earlier of the
Mandatory Redemption Date or the date on which no Exchangeable Preferred Stock
remains outstanding.
"Dividend Payment Date" means January 1 and July 1 of each year.
"Dividend Period" means the applicable period from (and including) the
Issue Date to (but excluding) the first Dividend Payment Date or from (and
including) a Dividend Payment Date to (but excluding) the next subsequent
Dividend Payment Date.
"Equity Interest" in any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any Preferred Equity Interests.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the SEC thereunder.
"Exchange Date" means the date on which the shares of Exchangeable
Preferred Stock are exchanged for the Exchange Debentures by the Company.
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"Exchange Debentures" means the Company's 15 1/4% Subordinated Exchange
Debentures Due 2010, for which the Exchangeable Preferred Stock may be exchanged
in accordance with Section 8 hereof.
"Exchange Indenture" means the Exchange Indenture between the Company and
the Exchange Trustee, governing the Company's 15 1/4% Subordinated Exchange
Debentures Due 2010, which will have terms consistent with this Certificate of
Designations.
"Exchange Trustee" means the trustee under the Exchange Indenture.
"Exchangeable Preferred Stock" shall mean the 15 1/4% Exchangeable
Preferred Stock due 2010, par value $.01 per share, of the Company.
"Expiration Date" has the meaning set forth in the definition of "Offer to
Purchase" below.
"Fair Market Value" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) which could be
negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing and able buyer, neither of which is under any
compulsion to complete the transaction; provided, however, that the Fair Market
Value of any such asset or assets shall be determined conclusively by the Board
of Directors of the Company acting in good faith, and shall be evidenced by
resolutions of the Board of Directors of the Company.
"Four Quarter Period" has the meaning set forth in the definition of
"Consolidated Coverage Ratio" above.
"GAAP" means generally accepted accounting principles in effect in the
United States on the date hereof and which are consistently applied for all
applicable periods.
"Gray Common Stock" means Common Stock of the Company owned by Robert E.
Gray, Marie Gray or Kelly A. Gray.
"guarantee" means, as applied to any obligation, (i) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
"Guarantee" means the guarantee of the Notes by each Guarantor under the
Indenture.
"Guarantor" means any guarantor under the Indenture.
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"Hedging Agreement" means, with respect to any Person, all interest rate
swap or similar agreements or foreign currency or commodity hedge, exchange or
similar agreements of such Person.
"Hedging Obligations" means, with respect to any Person, the Obligations of
such Person under Hedging Agreements.
"Holder" means a holder of shares of Exchangeable Preferred Stock.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "Incurrence," "Incurred" and "Incurring" shall have meanings
correlative to the foregoing). Indebtedness of any Acquired Person or any of its
Subsidiaries existing at the time such Acquired Person becomes a Restricted
Subsidiary (or is merged into or consolidated with the Company or any Restricted
Subsidiary), whether or not such Indebtedness was Incurred in connection with,
as a result of, or in contemplation of, such Acquired Person becoming a
Restricted Subsidiary (or being merged into or consolidated with the Company or
any Restricted Subsidiary), shall be deemed Incurred at the time any such
Acquired Person becomes a Restricted Subsidiary or merges into or consolidates
with the Company or any Restricted Subsidiary.
"Indebtedness" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent, (a) every obligation of such Person for money borrowed; (b)
every obligation of such Person evidenced by bonds, debentures, notes or other
similar instruments, including obligations incurred in connection with the
acquisition of property, assets or businesses; (c) every reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person; (d)
every obligation of such Person issued or assumed as the deferred purchase price
of property or services (but excluding trade accounts payable incurred in the
ordinary course of business and payable in accordance with industry practices,
or other accrued liabilities arising in the ordinary course of business which
are not overdue or which are being contested in good faith); (e) every Capital
Lease Obligation of such Person; (f) every net obligation under Hedging
Agreements of such Person; (g) every obligation of the type referred to in
clauses (a) through (f) of another Person and all dividends of another Person
the payment of which, in either case, such Person has guaranteed or is
responsible or liable for, directly or indirectly, as obligor, guarantor or
otherwise; and (h) any and all deferrals, renewals, extensions and refundings
of, or amendments, modifications or supplements to, any liability of the kind
described in any of the preceding clauses (a) through (g) above. Indebtedness
(a) shall never be calculated taking into account any cash and cash equivalents
held by such Person; (b) shall not include obligations of any Person (x) arising
from the honoring by a bank or other financial institution of a check, draft or
similar instrument inadvertently drawn against insufficient funds in the
ordinary course of business, provided that such obligations are extinguished
within two business days of their incurrence, (y) resulting from the endorsement
of negotiable instruments for collection in the ordinary course of business and
consistent with past
11
business practices and (z) under stand-by letters of credit to the extent
collateralized by cash or Cash Equivalents; (c) which provides that an amount
less than the principal amount thereof shall be due upon any declaration of
acceleration thereof shall be deemed to be incurred or outstanding in an amount
equal to the accreted value thereof at the date of determination; and (d) shall
include the liquidation preference and any mandatory redemption payment
obligations in respect of any Disqualified Equity Interests of the Company or
any Restricted Subsidiary.
"Indenture" means the Indenture, dated July 7, 1999, by and among the
Company, the Guarantors and The Bank of New York as Trustee, governing the
Company's 12 1/2% Senior Subordinated Notes due 2009, as the same may be
amended, modified, supplemented or replaced from time to time.
"Independent Financial Advisor" means a nationally recognized accounting,
appraisal, investment banking firm or consultant which, in the judgment of the
Board of Directors of the Company, is independent and qualified to perform the
task for which it is to be engaged.
"Insolvency or Liquidation Proceeding" means, with respect to any Person,
any liquidation, dissolution or winding up of such Person, or any bankruptcy,
reorganization, insolvency, receivership or similar proceeding with respect to
such Person, whether voluntary or involuntary.
"Investment" means, with respect to any Person, any direct or indirect
loan, advance, guarantee or other extension of credit or capital contribution to
(by means of transfers of cash or other property or assets to others or payments
for property or services for the account or use of others, or otherwise), or
purchase or acquisition of capital stock, bonds, notes, debentures or other
securities or evidences of Indebtedness issued by, any other Person; provided
that (i) endorsements of negotiable instruments and documents in the ordinary
course of business and (ii) an acquisition of assets, Equity Interests or other
securities by the Company for consideration consisting exclusively of Equity
Interests (other than Disqualified Equity Interests) of the Company shall in
each case not be deemed to be an Investment. For purposes of Section 12 hereof,
(i) "Investment" shall include the applicable Designation Amount at the time of
the Designation of any Restricted Subsidiary as an Unrestricted Subsidiary and
(ii) the amount of any Investment shall be the original cost of such Investment,
plus the cost of all additions thereto, but without any other adjustments for
increases or decreases in value, or write-ups, write-downs or write-offs with
respect to such Investment; reduced by the payment of dividends or distributions
in connection with such Investment or any other amounts received in respect of
such Investment; provided, however, that no such payment of dividends or
distributions or receipt of any such other amounts shall reduce the amount of
any Investment if such payment of dividends or distributions or receipt of any
such amounts would be included in Consolidated Net Income. If the Company or any
Restricted Subsidiary sells or otherwise disposes of any Voting Equity Interests
of any direct or indirect Restricted Subsidiary such that, after giving effect
to any such sale or disposition, the Company no longer owns, directly or
indirectly, greater than 50% of the outstanding Voting Equity Interests of such
Restricted Subsidiary, the Company shall be deemed to have made an Investment on
the date of any such sale or disposition.
"Issue Date" means July 7, 1999.
12
"Junior Securities" has the meaning set forth in Section 3 hereof.
"Lien" means any lien, mortgage, charge, security interest, hypothecation,
assignment for security or encumbrance of any kind (including any conditional
sale or capital lease or other title retention agreement, any lease in the
nature thereof, and any agreement to give any security interest).
"Liquidation Preference" means $100 per share, plus an amount in cash equal
to all accrued and unpaid dividends (including an amount equal to the dividends
accruing from the last Dividend Payment Date to the date such Liquidation
Preference is being determined). The Liquidation Preference of a share of
Exchangeable Preferred Stock will increase on a daily basis as dividends accrue
on such share and will decrease only to the extent such dividends are actually
paid, all as provided in Section 4 hereof.
"Mandatory Redemption Date" means July 1, 2010.
"Notes" means the Company's 12 1/2% Senior Subordinated Notes due 2009
issued pursuant to the Indenture, and any refinancing or refunding thereof.
"Obligations" means any principal, interest (including, without limitation,
Post-Petition Interest), penalties, fees, indemnification obligations,
reimbursement obligations, obligations to provide cash collateral, damages and
other liabilities payable under the documentation governing any Indebtedness.
"Offer" has the meaning set forth in the definition of "Offer to Purchase"
below.
"Offer to Purchase" means a written offer (the "Offer") sent by or on
behalf of the Company by first-class mail, postage prepaid, to each Holder at
his address appearing in the records of the Company on the date of the Offer
offering to purchase up to the aggregate Liquidation Preference of Exchangeable
Preferred Stock specified in such Offer at the purchase price specified in such
Offer (as determined pursuant to this Certificate of Designations if so
required). Unless otherwise required by applicable law, the Offer shall specify
an expiration date (the "Expiration Date") of the Offer to Purchase, which shall
be not less than 20 business days nor more than 60 days after the date of such
Offer, and a settlement date (the "Purchase Date") for purchase of Exchangeable
Preferred Stock to occur no later than five business days after the Expiration
Date. The Offer shall contain all the information required by applicable law to
be included therein. The Offer shall contain all instructions and materials
necessary to enable such Holders to tender Exchangeable Preferred Stock pursuant
to the Offer to Purchase. The Offer shall also state: (1) the section of this
Certificate of Designations pursuant to which the Offer to Purchase is being
made; (2) the Expiration Date and the Purchase Date; (3) the aggregate
Liquidation Preference of the outstanding Exchangeable Preferred Stock offered
to be purchased by the Company pursuant to the Offer to Purchase (including, if
less than 100%, the manner by which such amount has been determined pursuant to
the section of this Certificate of Designations requiring the Offer to Purchase)
(the "Purchase Amount"); (4) the purchase price to be paid by the Company for
each share of Exchangeable Preferred Stock accepted for payment (as specified
pursuant to this Certificate of Designations) (the "Purchase Price"); (5) that
the
13
Holder may tender all or any portion of the Exchangeable Preferred Stock
registered in the name of such Holder; (6) the place or places where the
Exchangeable Preferred Stock is to be surrendered for tender pursuant to the
Offer to Purchase; (7) that dividends on Exchangeable Preferred Stock not
tendered or tendered but not purchased by the Company pursuant to the Offer to
Purchase will continue to accrue; (8) that on the Purchase Date the Purchase
Price will become due and payable upon each share of Exchangeable Preferred
Stock being accepted for payment pursuant to the Offer to Purchase and that
dividends thereon shall cease to accrue on and after the Purchase Date; (9) that
each Holder electing to tender all or any portion of its Exchangeable Preferred
Stock pursuant to the Offer to Purchase will be required to surrender such
Exchangeable Preferred Stock at the place or places specified in the Offer prior
to the close of business on the Expiration Date (such Exchangeable Preferred
Stock being, if the Company so requires, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company duly executed
by, the Holder thereof or his attorney duly authorized in writing); (10) that
(a) if Exchangeable Preferred Stock in an aggregate Liquidation Preference less
than or equal to the Purchase Amount is duly tendered and not withdrawn pursuant
to the Offer to Purchase, the Company shall purchase all such Exchangeable
Preferred Stock and (b) if Exchangeable Preferred Stock in an aggregate
Liquidation Preference in excess of the Purchase Amount is tendered and not
withdrawn pursuant to the Offer to Purchase, the Company shall purchase
Exchangeable Preferred Stock having an aggregate Liquidation Preference equal to
the Purchase Amount on a pro rata basis; and (11) if shares of Exchangeable
Preferred Stock are in certificated form, and in the case of any Holder whose
Exchangeable Preferred Stock is purchased only in part, the Company shall
execute and deliver to the Holder of such Exchangeable Preferred Stock without
service charge, Exchangeable Preferred Stock, of any authorized denomination as
requested by such Holder, in an aggregate Liquidation Preference equal to and in
exchange for the unpurchased portion of the Exchangeable Preferred Stock so
tendered.
An Offer to Purchase shall be governed by and effected in accordance with
the provisions above pertaining to any Offer.
"Officers' Certificate" means a certificate signed by (i) the Chairman of
the Board of Directors, the Chief Executive Officer, the President or a Vice
President of the Company and (ii) the Chief Financial Officer or the Secretary
of the Company, which certificate shall comply with the Indenture.
"Opinion of Counsel" means a written opinion from legal counsel. The
counsel may be an employee of or counsel to the Company or Vestar.
"Parity Securities" has the meaning set forth in Section 3 hereof.
"Permitted Business" means the business of the Company and its Restricted
Subsidiaries conducted on the Issue Date and businesses ancillary or reasonably
related thereto, including businesses whose principal strategy is to capitalize
on the image of the Company and its products.
"Permitted Holder" means Vestar and its Affiliates.
14
"Permitted Indebtedness" has the meaning set forth in the second paragraph
of Section 13 hereof.
"Permitted Investments" means (a) Cash and Cash Equivalents; (b)
Investments in prepaid expenses, negotiable instruments held for collection and
lease, utility and workers' compensation, performance and other similar
deposits; (c) Hedging Obligations; (d) bonds, notes, debentures, stock or other
securities received as a result of asset sales; (e) Investments in the Company
and Investments in a Restricted Subsidiary or a Person that, as a result of or
in connection with such Investment, becomes a Restricted Subsidiary or is merged
with or into or consolidated with the Company or another Restricted Subsidiary
or that transfers or conveys all or substantially all its assets to the Company
or a Restricted Subsidiary; (f) Investments existing as of the Issue Date; (g)
any Investment consisting of a guarantee by a Restricted Subsidiary of Senior
Indebtedness or any guarantee of Indebtedness otherwise permitted by the
Indenture; (h) receivables owing to the Company or any Restricted Subsidiary
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however, that
such trade terms may include such concessionary trade terms as the Company or
any such Restricted Subsidiary deems reasonable under the circumstances; (i)
payroll, travel and similar advances to cover matters that are expected at the
time of such advances ultimately to be treated as expenses for accounting
purposes and that are made in the ordinary course of business; (j) Investments
in joint ventures in an aggregate amount not to exceed $10.0 million; (k) stock,
obligations or securities received in settlement of debts created in the
ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments or pursuant to any plan of
reorganization or similar arrangement upon the bankruptcy or insolvency of a
debtor; (l) Investments by the Company or a Restricted Subsidiary in a
Receivables Entity or any Investment by a Receivables Entity in any other
Person, in each case, in connection with a Qualified Receivables Transaction;
and (m) Investments by the Company or a Restricted Subsidiary in St. John
Company, Ltd. for the purpose of purchasing minority interests therein in an
aggregate amount not to exceed $1.5 million.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, limited liability
limited partnership, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"Post-Petition Interest" means, with respect to any Indebtedness of any
Person, all interest accrued or accruing on such Indebtedness after the
commencement of any Insolvency or Liquidation Proceeding with respect to such
Person in accordance with and at the contract rate (including, without
limitation, any rate applicable upon default) specified in the agreement or
instrument creating, evidencing or governing such Indebtedness, whether or not,
pursuant to applicable law or otherwise, the claim for such interest is allowed
or allowable as a claim in such Insolvency or Liquidation Proceeding.
"Preferred Equity Interest", in any Person, means an Equity Interest of any
class or classes (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over Equity
Interests of any other class in such Person.
15
"Public Equity Offering" means, with respect to the Company, an
underwritten public offering of Qualified Equity Interests of the Company
pursuant to an effective registration statement filed under the Securities Act
(excluding registration statements filed on Form S-8).
"Purchase Amount" has the meaning set forth in the definition of "Offer to
Purchase" above.
"Purchase Date" has the meaning set forth in the definition of "Offer to
Purchase" above.
"Purchase Money Indebtedness" means Indebtedness of the Company or any
Restricted Subsidiary Incurred for the purpose of financing all or any part of
the purchase price, or the cost of construction or improvement of any property;
provided, however, that the aggregate principal amount of such Indebtedness does
not exceed the lesser of the Fair Market Value of such property or such purchase
price or cost, including any refinancing of such Indebtedness that does not
increase the aggregate principal amount (or accreted amount, if less) thereof as
of the date of refinancing.
"Purchase Money Note" means a promissory note of a Receivables Entity
evidencing a line of credit, which may be irrevocable, from the Company or any
Restricted Subsidiary of the Company in connection with a Qualified Receivables
Transaction to a Receivables Entity, which note is repayable from cash available
to the Receivables Entity, other than amounts required to be established as
reserves pursuant to agreements, amounts paid to investors in respect of
interest, principal and other amounts owing to such investors and amounts owing
to such investors and amounts paid in connection with the purchase of newly
generated accounts receivable.
"Purchase Price" has the meaning set forth in the definition of "Offer to
Purchase" above.
"Qualified Equity Interest" in any Person means any Equity Interest in such
Person other than any Disqualified Equity Interest.
"Qualified Receivables Transaction" means any transaction or series of
transactions that may be entered into by the Company or any of its Restricted
Subsidiaries pursuant to which the Company or any of its Restricted Subsidiaries
may sell, convey or otherwise transfer to (1) a Receivables Entity (in the case
of a transfer by the Company or any of its Restricted Subsidiaries) and (2) any
other Person (in the case of a transfer by a Receivables Entity), or may grant a
security interest in, any accounts receivable (whether now existing or arising
in the future) of the Company or any of its Restricted Subsidiaries, and any
assets related thereto including, without limitation, all collateral securing
such accounts receivable, all contracts and all guarantees or other obligations
in respect of such accounts receivable, the proceeds of such receivables and
other assets which are customarily transferred, or in respect of which security
interests are customarily granted in connection with asset securitization
involving accounts receivable.
"Receivables Entity" means a Wholly Owned Restricted Subsidiary of the
Company (other than a Guarantor) which engages in no activities other than in
connection with the
16
financing of accounts receivable and which is designated by the board of
directors of the Company (as provided below) as a Receivables Entity:
(1) no portion of the Indebtedness or any other obligations
(contingent or otherwise) of which:
(a) is guaranteed by the Company or any Restricted Subsidiary of
the Company (excluding guarantees of Obligations (other than the
principal of, and interest on, Indebtedness) pursuant to Standard
Securitization Undertakings);
(b) is recourse to or obligates the Company or any Restricted
Subsidiary of the Company in any way other than pursuant to Standard
Securitization Undertakings; or
(c) subjects any property or asset of the Company or any
Restricted Subsidiary of the Company, directly or indirectly,
contingently or otherwise, to the satisfaction thereof, other than
pursuant to Standard Securitization Undertakings;
(2) with which neither the Company nor any Restricted Subsidiary of
the Company has any material contract, agreement, arrangement or
understanding (except in connection with a Purchase Money Note or Qualified
Receivables Transaction) other than on terms no less favorable to the
Company or such Restricted Subsidiary than those that might be obtained at
the time from Persons that are not Affiliates of the Company, other than
fees payable in the ordinary course of business in connection with
servicing accounts receivable; and
(3) to which neither the Company nor any Restricted Subsidiary of the
Company has any obligation to maintain or preserve such entity's financial
condition or cause such entity to achieve certain levels of operating
results.
Any such designation by the board of directors of the Company shall be
evidenced to the Trustee by a resolution of the Board of Directors of the
Company giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions.
"Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated by the Board of Directors of the Company, by a resolution of the
Board of Directors of the Company, as an Unrestricted Subsidiary pursuant to
Section 14 hereof. Any such designation may be revoked by a resolution of the
Board of Directors of the Company, subject to the provisions of such covenant.
"SEC" means the Securities and Exchange Commission.
"Senior Indebtedness" means, at any date, (a) all Obligations of the
Company under or in respect of the Credit Facility; (b) all Hedging Obligations
of the Company; (c) all Obligations of the Company under stand-by letters of
credit; and (d) all other Indebtedness of the Company for
17
borrowed money, including principal, premium, if any, and interest (including
Post-Petition Interest) on such Indebtedness, unless the instrument under which
such Indebtedness of the Company for money borrowed is Incurred expressly
provides that such Indebtedness for money borrowed is not senior or superior in
right of payment to the Exchange Debentures under the Exchange Indenture, and
all renewals, extensions, modifications, amendments or refinancings thereof.
Notwithstanding the foregoing, Senior Indebtedness shall not include (a) to the
extent that it may constitute Indebtedness, any Obligation for Federal, state,
local or other taxes; (b) any Indebtedness among or between the Company and any
Subsidiary of the Company or any Affiliate of the Company or any of such
Affiliate's Subsidiaries, unless and for so long as such Indebtedness has been
pledged to secure obligations under or in respect of Senior Indebtedness; (c) to
the extent that it may constitute Indebtedness, any Obligation in respect of any
trade payable Incurred for the purchase of goods or materials, or for services
obtained, in the ordinary course of business; (d) that portion of any
Indebtedness that is Incurred in violation of the Indenture; (e) Indebtedness
evidenced by the Notes; (f) Indebtedness of the Company that is expressly
subordinate or junior in right of payment to any other Indebtedness of the
Company; (g) to the extent that it may constitute Indebtedness, any obligation
owing under leases (other than Capitalized Lease Obligations) or management
agreements; (h) any obligation that by operation of law is subordinate to any
general unsecured obligations of the Company; and (i) Indebtedness of the
Company to the extent such Indebtedness is owed to and held by any Federal,
state, local or other governmental authority.
"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by the Company or any Restricted
Subsidiary of the Company which are reasonably customary in securitization of
accounts receivable transactions.
"Stockholders' Agreement" means the Stockholders' Agreement among St. John
Knits, Inc., the Company, Vestar/Gray Investors LLC, Vestar/SJK Investors LLC
and the members of Vestar/Gray Investors LLC party thereto dated as of, and as
in effect on, the Issue Date.
"Subordinated Indebtedness" means, with respect to the Company or any
Guarantor, any Indebtedness of the Company or such Guarantor, as the case may
be, which is expressly subordinated in right of payment to the Notes or such
Guarantor's Guarantee, as the case may be.
"Subsidiary" means, with respect to any Person, (a) any corporation of
which the outstanding Voting Equity Interests having at least a majority of the
votes entitled to be cast in the election of directors shall at the time be
owned, directly or indirectly, through one or more Persons by such Person, or
(b) any other Person of which at least a majority of Voting Equity Interests are
at the time, directly or indirectly, owned by such first named Person.
"Transactions" means the series of transactions whereby the Company was
acquired by Vestar/Gray Investors LLC, including the financing of the
acquisition.
"Transfer Agent" means the transfer agent for the Exchangeable Preferred
Stock, which initially shall be the Company unless and until a successor is
selected by the Company.
18
"Treasury Yield" shall be determined by an Independent Financial Advisor
and shall mean, with respect to any redemption date, the rate per annum equal to
the semi-annual equivalent yield to maturity of the Comparable Treasury Issue,
assuming a price for the Comparable Treasury Issue (expressed as a percentage of
its principal amount) equal to the Comparable Treasury Price for such redemption
date.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as
such pursuant to Section 14 hereof. Any such designation may be revoked by a
resolution of the Board of Directors of the Company, subject to the provisions
of such covenant.
"Vestar" means Vestar Capital Partners III, L.P.
"Voting Equity Interests" means Equity Interests in a corporation or other
Person with voting power under ordinary circumstances entitling the holders
thereof to elect the Board of Directors or other governing body of such
corporation or Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
or Disqualified Stock at any date, the number of years obtained by dividing (a)
the sum of the products obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity or other required scheduled
payment of principal or liquidation preference, as applicable, including payment
at final maturity, in respect thereof, by (ii) the number of years (calculated
to the nearest one-twelfth) that will elapse between such date and the making of
such payment, by (b) the then outstanding aggregate principal amount or
liquidation preference, as applicable, of such Indebtedness.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary all of
the outstanding Voting Equity Interests (other than directors' qualifying
shares) of which are owned, directly or indirectly, by the Company and/or one or
more Wholly Owned Restricted Subsidiaries.
2. Designation.
-----------
There is hereby authorized 250,000 shares of 15 1/4% Exchangeable
Preferred Stock Due 2010 (the "Exchangeable Preferred Stock"), par value $0.01
per share, with a liquidation preference of $100 per share on the terms and with
the provisions set forth herein. All shares of Exchangeable Preferred Stock
shall be identical with each other in all respects.
3. Ranking.
-------
The Exchangeable Preferred Stock will, with respect to the dividend
rights and rights on liquidation, winding-up and dissolution, rank (i) senior to
all classes of Common Stock and each other class of Capital Stock or series of
preferred stock issued by the Company established after the Issue Date by the
Board of Directors of the Company which does not expressly provide that it ranks
senior to or on a parity with the Exchangeable Preferred Stock as to dividend
rights and rights on liquidation, winding-up and dissolution (collectively
referred to with the Common Stock of the Company as "Junior Securities"); (ii)
on a parity with each other
19
class of Capital Stock or series of preferred stock issued by the Company
established after the Issue Date by the Board of Directors of the Company, which
expressly provides that such series will rank on a parity with the Exchangeable
Preferred Stock as to dividend rights and rights on liquidation, winding-up and
dissolution (collectively referred to as "Parity Securities"); and (iii) junior
to each other class of Capital Stock or series of Exchangeable Preferred Stock
issued by the Company established after the Issue Date by the Board of Directors
of the Company the terms of which specifically provide that such series will
rank senior to the Exchangeable Preferred Stock as to dividend rights and rights
on liquidation, winding-up and dissolution (collectively referred to as "Senior
Securities"). The Exchangeable Preferred Stock will be subject to the issuance
of series of Junior Securities, Parity Securities and Senior Securities.
4. Dividends.
---------
(a) The Holders of the Exchangeable Preferred Stock shall be entitled
to receive, when, as and if dividends are declared by the Board of Directors out
of funds of the Company legally available therefor, cumulative cash dividends
from the date of issuance of the Exchangeable Preferred Stock accruing at the
rate per share of 15 1/4% per annum, payable semi-annually in arrears on January
1 and July 1 of each year (each, a "Dividend Payment Date"), or if any such date
is not a Business Day, on the next succeeding Business Day, commencing on
January 1, 2000, to the Holders of record as of the preceding December 15 and
June 15 (each, a "Record Date"). If dividends accrued by any Dividend Payment
Date are not paid in full on such Dividend Payment Date, each Holder shall be
entitled to receive, out of funds of the Company legally available therefor,
additional cumulative cash dividend payments for each succeeding Dividend Period
or portion thereof during which such accrued but unpaid dividends shall remain
unpaid, in an amount determined by multiplying (A) .1525 times (B) the amount of
such accrued but unpaid dividends times (C) the Applicable Day Count Fraction
for such Dividend Period or portion.
(b) Dividends payable on the Exchangeable Preferred Stock will be
computed on the basis of a 360-day year of twelve 30-day months and will be
deemed to accrue on a daily basis. On any scheduled Dividend Payment Date, the
Company may, at its option, but subject to certain conditions, exchange all but
not less than all of the shares of Exchangeable Preferred Stock for the Exchange
Debentures. Dividends on the Exchangeable Preferred Stock shall accrue whether
or not the Company has earnings or profits, whether or not there are funds
legally available for the payment of such dividends and whether or not dividends
are declared.
5. Voting Rights.
-------------
Holders of record of the Exchangeable Preferred Stock will have no
voting rights, except as required by law.
6. Right of Appointment.
--------------------
Upon (i) the failure by the Company or any of its Restricted
Subsidiaries to comply with any mandatory redemption obligation with respect to
the Exchangeable Preferred Stock; and (ii) failure by the Company or any of its
Restricted Subsidiaries to comply with any of
20
the other covenants or agreements set forth in this Certificate of Designations
and the continuance of such failure for 60 consecutive days or more (each of the
events described in clauses (i) and (ii) being referred to as an "Appointment
Event"), then the number of members of the Company's Board of Directors will be
immediately and automatically increased by one, and the Holders of a majority of
the outstanding aggregate Liquidation Preference of Exchangeable Preferred
Stock, voting as a separate class, will be entitled to elect one member to the
Board of Directors of the Company. Voting rights arising as a result of an
Appointment Event will continue until such time as all Appointment Events have
been cured or waived. An Appointment Event shall constitute a violation
hereunder.
7. Amendment, Supplement and Waiver.
--------------------------------
Except as provided in the next two succeeding paragraphs, this
Certificate of Designations or the Exchangeable Preferred Stock may be amended
or supplemented with the consent of the Holders of at least a majority in
aggregate Liquidation Preference of the Exchangeable Preferred Stock then
outstanding (including, without limitation, consents obtained in connection with
a purchase of, or tender offer or exchange offer for, Exchangeable Preferred
Stock), and any existing default or compliance with any provision of this
Certificate of Designations or the Exchangeable Preferred Stock may be waived
with the consent of the Holders of a majority in aggregate Liquidation
Preference of the then outstanding Exchangeable Preferred Stock (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Exchangeable Preferred Stock).
Without the consent of each Holder affected, an amendment or waiver
may not (with respect to any Exchangeable Preferred Stock held by a non-
consenting Holder): (i) alter the voting rights with respect to the Exchangeable
Preferred Stock or reduce the number of shares of Exchangeable Preferred Stock
whose Holders must consent to an amendment, supplement or waiver, (ii) reduce
the Liquidation Preference of or change the Mandatory Redemption Date of any
Exchangeable Preferred Stock or alter the provisions with respect to the
redemption of the Exchangeable Preferred Stock (other than the provisions of
Section 11 hereof), (iii) reduce the rate of or change the time for payment of
dividends on any Exchangeable Preferred Stock, (iv) make any Exchangeable
Preferred Stock payable in any form other than that stated in this Certificate
of Designations, (v) waive a redemption payment with respect to any Exchangeable
Preferred Stock (other than a payment required by Section 11 hereof) or (vi)
make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of
Exchangeable Preferred Stock, the Company may (to the extent permitted by
Delaware law) amend or supplement this Certificate of Designations to cure any
ambiguity, defect or inconsistency, to provide for uncertificated Exchangeable
Preferred Stock in addition to or in place of certificated Exchangeable
Preferred Stock or to make any change that would provide any additional rights
or benefits to the Holders of Exchangeable Preferred Stock or that does not
adversely affect the legal rights under this Certificate of Designations of any
such Holder.
21
8. Exchange.
--------
The Company may, at its option on any Dividend Payment Date, exchange
all but not less than all of the shares of then outstanding Exchangeable
Preferred Stock for Exchange Debentures in a principal amount equal to the
Liquidation Preference of the Exchangeable Preferred Stock; provided that (i)
such exchange would be permitted under the terms of the Indenture, the Credit
Facility and other contractual arrangements of the Company and, immediately
after giving effect to such exchange, no default or event of default would exist
under the Exchange Indenture, the Credit Facility, the Indenture or any other
material instrument governing Indebtedness outstanding at the time; (ii) the
Exchange Indenture has been qualified under the Trust Indenture Act if such
qualification is required at the time of exchange; and (iii) the Company shall
have delivered a written opinion to the Exchange Trustee to the effect that all
conditions to be satisfied prior to such exchange have been satisfied. If
issued, the Exchange Debentures will be subordinated to the Notes to the same
extent as the Notes are subordinated to the Credit Facility.
Upon any exchange pursuant to the preceding paragraph, holders of
outstanding Exchangeable Preferred Stock will be entitled to receive, subject to
the second succeeding sentence of this paragraph, $1.00 principal amount of
Exchange Debentures for each $1.00 of the aggregate Liquidation Preference. The
Exchange Debentures will be issued in registered form, without coupons. The
Exchange Debentures will be issued in principal amounts of $1,000 and integral
multiples thereof to the extent possible, and will also be issuable in principal
amounts less than $1,000 so that each Holder of Exchangeable Preferred Stock
will receive interests representing the entire amount of Exchange Debentures to
which such Holder's shares of Exchangeable Preferred Stock entitle such Holder;
provided that the Company may pay cash in lieu of issuing an Exchange Debenture
having a principal amount less than $1,000. Notice of the intention to exchange
shall be sent by or on behalf of the Company not more than 60 days nor less than
30 days prior to the Exchange Date, by first class mail, postage prepaid, to
each Holder of record of Exchangeable Preferred Stock at its registered address.
In addition to any information required by law or by the applicable rules of any
exchange upon which Exchangeable Preferred Stock may be listed or admitted to
trading, such notice will state: (i) the Exchange Date; (ii) the place or places
where certificates for such stock are to be surrendered for exchange, including
any procedures applicable to exchanges to be accomplished through book-entry
transfers; and (iii) that dividends on the Exchangeable Preferred Stock to be
exchanged will cease to accrue on the Exchange Date. If notice of any exchange
has been properly given, and if on or before the Exchange Date the Exchange
Debentures have been duly executed and authenticated and an amount in cash or
additional Exchangeable Preferred Stock (as applicable) equal to all accrued and
unpaid dividends, if any, thereon to the Exchange Date has been deposited with
the Transfer Agent, then on and after the close of business on the Exchange
Date, the Exchangeable Preferred Stock to be exchanged will no longer be deemed
to be outstanding and may thereafter be issued in the same manner as other
authorized but unissued preferred stock, but not as Exchangeable Preferred
Stock, and all rights of the Holders thereof as stockholders of the Company will
cease, except the right of the Holders to receive upon surrender of their
certificates the Exchange Debentures and all accrued and unpaid dividends, if
any, thereon to the Exchange Date.
22
A Holder may transfer or exchange Exchangeable Preferred Stock in
accordance with this Certificate of Designations if the requirements of the
Transfer Agent for such transfer or exchange are met. The Transfer Agent may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and the Company may require a Holder to pay any taxes and
fees required by law or permitted by this Certificate of Designations.
9. Redemption.
----------
Mandatory Redemption.
On July 1, 2010 (the "Mandatory Redemption Date"), the Company shall
be required to redeem, from any source of funds legally available therefor, all
outstanding Exchangeable Preferred Stock at a price in cash equal to the
Liquidation Preference thereof. The Company shall not be required to make
sinking fund payments with respect to the Exchangeable Preferred Stock. The
Company shall take all actions required or permitted under Delaware law to
permit such redemption.
Optional Redemption.
Except as provided in the next two succeeding paragraphs, the
Exchangeable Preferred Stock may not be redeemed at the option of the Company
prior to July 1, 2004. The Exchangeable Preferred Stock may be redeemed, in
whole or in part, at the option of the Company on or after July 1, 2004, at the
redemption prices specified below (expressed as percentages of the Liquidation
Preference thereof), in each case upon not less than 30 nor more than 60 days=
prior written notice, if redeemed during the 12-month period commencing on July
1 of each of the years set forth below:
Year Redemption Rate
---- ---------------
2004........................ 107.625%
2005........................ 105.719%
2006........................ 103.813%
2007........................ 101.906%
2008 and thereafter......... 100.000%
The Exchangeable Preferred Stock will also be redeemable in whole or
in part, at the option of the Company at any time before July 1, 2004, at a
redemption price equal to the greater of (i) 100% of the Liquidation Preference
of the Exchangeable Preferred Stock and (ii) the present value of the
Liquidation Preference at the Mandatory Redemption Date, discounted on a semi-
annual basis at the Treasury Yield plus 15 basis points, all as determined by an
Independent Financial Advisor.
In addition, at any time and from time to time on or prior to July 1,
2002, the Company may redeem in the aggregate up to 35% of the originally issued
Liquidation Preference of the Exchangeable Preferred Stock with the net cash
proceeds of one or more Public Equity Offerings by the Company at a redemption
price in cash equal to 115.25% of the Liquidation
23
Preference thereof; provided, however, that at least 65% of the originally
issued aggregate Liquidation Preference of the Exchangeable Preferred Stock must
remain outstanding immediately after giving effect to each such redemption
(excluding any Exchangeable Preferred Stock held by the Company or any of its
Affiliates). Notice of any such redemption must be given within 60 days after
the date of the closing of the relevant Public Equity Offering of the Company.
General Redemption Provisions
Subject to the provisions of this Section 9 and Section 11 hereof, the
following provisions shall apply to the redemption or repurchase of shares of
Exchangeable Preferred Stock.
(a) Selection of Shares to Be Redeemed.
If less than all of the shares of Exchangeable Preferred Stock are to
be redeemed or purchased in an offer to purchase at any time, the Company shall
select the shares of Exchangeable Preferred Stock to be redeemed or purchased
among the Holders of the shares of Exchangeable Preferred Stock in compliance
with the requirements of the principal national securities exchange, if any, on
which the shares of Exchangeable Preferred Stock are listed or, if the shares of
Exchangeable Preferred Stock are not so listed, on a pro rata basis, by lot or
in accordance with any other method the Company considers fair and appropriate;
provided that no shares shall be redeemed in part. In the event of partial
redemption by lot, the particular shares of Exchangeable Preferred Stock to be
redeemed shall be selected, unless otherwise provided herein, not less than 30
nor more than 60 days prior to the redemption date by the Company from the
outstanding shares of Exchangeable Preferred Stock not previously called for
redemption.
At least 30 days but not more than 60 days before a redemption date,
the Company shall mail or cause to be mailed, by first class mail, a notice of
redemption to each Holder whose shares of Exchangeable Preferred Stock are to be
redeemed at its registered address. The notice shall identify the shares of
Exchangeable Preferred Stock to be redeemed and shall state: (i) the redemption
date; (ii) the redemption price; (iii) the name and address of the Paying Agent;
(iv) that shares of Exchangeable Preferred Stock called for redemption must be
surrendered to the Paying Agent to collect the redemption price; (v) that,
unless the Company defaults in making such redemption payment, dividend payments
on shares of Exchangeable Preferred Stock called for redemption cease to accrue
on and after the redemption date; (vi) the section of this Certificate of
Designations pursuant to which the shares of Exchangeable Preferred Stock called
for redemption are being redeemed; and (vii) that no representation is made as
to the correctness or accuracy of the CUSIP number, if any, listed in such
notice or printed on the shares of Exchangeable Preferred Stock.
(b) Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with this Section 9,
shares of Exchangeable Preferred Stock called for redemption become irrevocably
due and payable on the redemption date at the redemption price. A notice of
redemption may not be conditional.
24
(c) Deposit of Redemption Price.
On the redemption date, the Company shall deposit with the Paying
Agent money sufficient to pay the redemption price of and accumulated dividends
on all shares of Exchangeable Preferred Stock to be redeemed on that date. The
Paying Agent shall promptly return to the Company any money deposited with the
Paying Agent by the Company in excess of the amounts necessary to pay the
redemption price of, and accumulated dividend payments on, all shares of
Exchangeable Preferred Stock to be redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, dividend payments shall cease to
accrue on the shares of Exchangeable Preferred Stock. If a share of
Exchangeable Preferred Stock is redeemed on or after a payment Record Date but
on or prior to the related Dividend Payment Date, then any accumulated and
unpaid dividends shall be paid to the Person in whose name such share of
Exchangeable Preferred Stock was registered at the close of business on such
Record Date. If any shares of Exchangeable Preferred Stock called for
redemption shall not be so paid upon surrender for redemption because of the
failure of the Company to comply with the preceding paragraph, dividends shall
be paid on the Liquidation Preference thereof, from the redemption date until
such principal is paid, and to the extent lawful on any dividends not paid on
such unpaid principal, in each case at the rate provided in this Certificate of
Designations.
10. Liquidation Rights.
------------------
Upon any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company or reduction or decrease in its capital stock
resulting in a distribution of assets to the holders of any class or series of
the Company's Capital Stock (a "reduction or decrease in Capital Stock"), each
Holder of the Exchangeable Preferred Stock will be entitled to payment out of
the assets of the Company available for distribution of an amount equal to the
Liquidation Preference per share of Exchangeable Preferred Stock held by such
Holder to the date fixed for liquidation, dissolution, winding up or reduction
or decrease in Capital Stock, before any distribution is made on any Junior
Securities, including, without limitation, Common Stock of the Company. After
payment in full of the Liquidation Preference to which Holders of Exchangeable
Preferred Stock are entitled, such Holders will not be entitled to any further
participation in any distribution of assets of the Company. However, neither
the voluntary sale, conveyance, exchange or transfer (for cash, stock,
securities or other consideration) of all or substantially all of the property
or assets of the Company nor the consolidation or merger of the Company with or
into one or more corporations will be deemed to be a voluntary or involuntary
liquidation, dissolution or winding up of the Company or reduction or decrease
in Capital Stock, unless such sale, conveyance, exchange or transfer shall be in
connection with a liquidation, dissolution or winding up of the business of the
Company or reduction or decrease in Capital Stock.
25
11. Change of Control.
-----------------
Following the occurrence of a Change of Control (the date of such
occurrence being the "Change of Control Date"), the Company shall notify the
Holders of such occurrence in the manner prescribed by this Certificate of
Designations and shall, within 45 days after the Change of Control Date, make an
Offer to Purchase all Exchangeable Preferred Stock then outstanding at a
purchase price in cash equal to 101% of the aggregate Liquidation Preference
thereof to the Purchase Date (subject to the right of Holders of record on the
relevant Record Date to receive dividends due on the relevant Dividend Payment
Date).
The Company will not be required to make an Offer to Purchase upon a
Change of Control if a third party makes the Offer to Purchase in the manner, at
the times and otherwise in compliance with the requirements set forth in this
Certificate of Designations applicable to an Offer to Purchase made by the
Company and purchases all Exchangeable Preferred Stock validly tendered and not
withdrawn under such Offer to Purchase.
If the Company makes an Offer to Purchase, the Company shall comply
with all applicable securities laws and regulations, and any violation of the
provisions of this Certificate of Designations relating to such Offer to
Purchase occurring as a result of such compliance shall not be deemed a
violation or an event that, with the passing of time or giving of notice, or
both, would constitute a violation, of this Certificate of Designations.
12. Restricted Payments.
-------------------
The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, directly or indirectly,
(i) declare or pay any dividend or any other distribution on any
Parity Securities or Junior Securities of the Company or make any payment
or distribution to the direct or indirect holders (in their capacities as
such) of Parity Securities or Junior Securities of the Company (other than
(A) any dividends, distributions and payments made to any Restricted
Subsidiary, (B) dividends and distributions payable to any Person solely in
Parity Securities or Junior Securities of the Company that are Qualified
Equity Interests, or (C) dividends and distributions payable to any Person
solely in options, warrants or other rights to purchase Parity Securities
or Junior Securities of the Company that are Qualified Equity Interests);
(ii) purchase, redeem or otherwise acquire or retire for value any
Parity Securities or Junior Securities of the Company (other than any such
Parity Securities or Junior Securities owned by any Restricted Subsidiary);
or
(iii) make any Investment in any Person (other than Permitted
Investments)
(any such payment or any other action (other than any exception thereto)
described in (i), (ii), or (iii) each, a "Restricted Payment"), unless
26
(a) no Appointment Event shall have occurred and be continuing at the
time or immediately after giving effect to such Restricted Payment;
(b) immediately after giving effect to such Restricted Payment, the
Company would be able to Incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under the Consolidated Coverage Ratio of the first
paragraph of Section 13 hereof; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments declared or made on or after
the Issue Date does not exceed an amount equal to the sum of (1) 50% of
cumulative Consolidated Net Income determined for the period (taken as one
period) from the Issue Date and ending on the last day of the most recent
fiscal quarter immediately preceding the date of such Restricted Payment
for which consolidated financial information of the Company is available
(or if such cumulative Consolidated Net Income shall be a loss, minus 100%
of such loss), plus (2) the aggregate net cash proceeds received by the
Company either (x) as capital contributions to the Company after the Issue
Date or (y) from the issue and sale (other than to a Restricted Subsidiary)
of its Qualified Equity Interests after the Issue Date (excluding the net
proceeds from any issuance and sale of Qualified Equity Interests financed,
directly or indirectly, using funds borrowed from the Company or any
Restricted Subsidiary until and to the extent such borrowing is repaid),
plus (3) the principal amount (or accreted amount (determined in accordance
with GAAP), if less) of any Indebtedness of the Company or any Restricted
Subsidiary Incurred after the Issue Date which has been converted into or
exchanged for Qualified Equity Interests of the Company, plus (4) without
duplication of any amounts included in clause (1) above, in the case of the
disposition or repayment of, or the receipt by the Company or any
Restricted Subsidiary of any dividends or distributions from, any
Investment constituting a Restricted Payment made after the Issue Date
(including by way of a Revocation), an amount equal, in the aggregate, to
the lesser of the amount of such Investment, other than pursuant to a
Revocation, in which case such amount will be the lesser of the Fair Market
Value of such Investment at the date of Revocation, and the amount received
by the Company or any Restricted Subsidiary upon such disposition,
repayment, dividend or distribution or Revocation.
The foregoing provisions will not prevent (i) the payment of any
dividend or distribution on, or redemption of, Equity Interests within 60 days
after the date of declaration of such dividend or distribution or the giving of
formal notice of such redemption, if at the date of such declaration or giving
of such formal notice such payment or redemption would comply with the
provisions of this Certificate of Designations provided, however, that the
payment of the $0.025 per share dividend on St. John common stock declared on
June 8, 1999 and payable on July 22, 1999 shall not constitute a Restricted
Payment; (ii) the purchase, redemption, retirement, defeasance or other
acquisition of Parity Securities or Junior Securities, or any other payment
thereon, made in exchange for, or out of the net cash proceeds of a
substantially concurrent issue and sale (other than to a Restricted Subsidiary)
of Parity Securities or Junior Securities, as the case may be, that are
Qualified Equity Interests of the Company; provided, however, that any such net
cash proceeds and the value of any Qualified Equity Interests issued in exchange
for
27
Parity Securities or Junior Securities are excluded from clauses (c)(2) and
(c)(3) of the preceding paragraph (and were not included therein at any time)
and are not used to redeem the Exchangeable Preferred Stock pursuant to
"Redemption--Optional Redemption" in Section 9 hereof; (iii) the repurchase,
redemption, defeasance, retirement, refinancing or acquisition for value or
payment of principal of Parity Securities or Junior Securities at a purchase
price not greater than 101% of the Liquidation Preference of such Parity
Securities or Junior Securities in the event of a Change of Control pursuant to
a provision similar to the Change of Control provisions in Section 11 above;
provided, however, that prior to any such repurchase, the Company has made an
Offer to Purchase as provided in Section 11 above with respect to the
Exchangeable Preferred Stock and has redeemed all Exchangeable Preferred Stock
validly tendered in connection with such Offer to Purchase; (iv) the purchase,
redemption or other acquisition, cancellation or retirement for value of Equity
Interests of the Company held by any existing or former employees or management
of the Company or any Restricted Subsidiary of the Company (other than Robert
Gray, Marie Gray and Kelly Gray) or their assigns, estates or heirs, in each
case in connection with the repurchase provisions under employee stock option or
stock purchase agreements or other agreements to compensate management
employees; provided that such redemptions or repurchases pursuant to this clause
will not exceed $500,000 in the aggregate during any calendar year; provided,
further, that any amounts not used for redemptions or repurchases pursuant to
this clause (iv) may be used in any subsequent calendar year; (v) repurchases of
Equity Interests deemed to occur upon the exercise of stock options if such
Equity Interests represent a portion of the exercise price thereof; (vi) the
defeasance, redemption or repurchase of any Disqualified Equity Interest of the
Company in exchange for, or out of the net cash proceeds of, a substantially
concurrent issue and sale (other than to the Company or a Subsidiary of the
Company) of Disqualified Equity Interests of the Company or such Restricted
Subsidiary, respectively; provided that: (A) the aggregate liquidation
preference of such Disqualified Equity Interest does not exceed the aggregate
liquidation preference of the Disqualified Equity Interest so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount of
reasonable expenses incurred in connection therewith); (B) such Disqualified
Equity Interest has a final redemption date later than the final redemption date
of, and has a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of the Exchangeable Preferred Stock; and (C)
such Disqualified Equity Interest is incurred either by the Company or by the
Restricted Subsidiary who is the obligor on the Disqualified Equity Interest
being extended, refinanced, renewed, replaced, defeased or refunded; (vii) the
defeasance, redemption or repurchase of any Preferred Equity Interest or
Disqualified Equity Interest issued in connection with the acquisition of assets
or a Permitted Business, provided, that the aggregate amount of such defeasance,
redemption or repurchase payments shall not exceed at any time $15.0 million;
(viii) the payment of any dividend by a Restricted Subsidiary to the holders of
its common Equity Interests on a pro rata basis; (ix) the performance by the
Company of its obligations under the Stockholders= Agreement to (A) purchase
Gray Common Stock, (B) make cash payments to Robert Gray, Marie Gray or Kelly
Gray on Preferred Equity Interests of the Company that are Qualified Equity
Interests and (C) to purchase, redeem or otherwise acquire or retire for value
Preferred Equity Interests of the Company that are Qualified Equity Interests
that are owned by Robert Gray, Marie Gray or Kelly Gray; (x) Restricted Payments
in an amount not to exceed $20.0 million; and (xi) Restricted Payments made on
the Issue Date in connection with the Transactions; provided, however, that in
the case
28
of each of clauses (iii), (iv), (vii) and (viii) no Appointment Event shall have
occurred and be continuing or would arise therefrom.
In determining the amount of Restricted Payments permissible under
this covenant, amounts expended pursuant to clauses (iv), (vii) and (ix) of the
immediately preceding paragraph shall be included as Restricted Payments.
Amounts paid pursuant to clause (i) of the immediately preceding paragraph shall
be included, when paid, as Restricted Payments only to the extent not already
included as Restricted Payments upon declaration. Amounts expended pursuant to
all other clauses of the immediately preceding paragraph shall not be included
as Restricted Payments. The amount of any non-cash Restricted Payment shall be
deemed to be equal to the Fair Market Value thereof at the date of the making of
such Restricted Payment.
13. Limitation on Indebtedness.
--------------------------
The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, directly or indirectly, Incur any Indebtedness (including
Acquired Indebtedness), except for Permitted Indebtedness; provided, however,
that the Company and any Restricted Subsidiary may Incur Indebtedness if, at the
time of and immediately after giving pro forma effect to such Incurrence of
Indebtedness and the application of the proceeds therefrom, the Consolidated
Coverage Ratio would be at least 1.75 to 1.0.
The foregoing limitations will not apply to the Incurrence by the
Company or any Restricted Subsidiary of any of the following (collectively,
"Permitted Indebtedness"), each of which shall be given independent effect:
(a) Indebtedness under the Indenture, other Indebtedness outstanding
on the Issue Date and the Exchange Debentures;
(b) Indebtedness of the Company and any Restricted Subsidiary
Incurred pursuant to the Credit Facility if at the time of and immediately
after giving effect thereto, the aggregate consolidated Indebtedness
Incurred under the Credit Facility would not exceed $215.0 million at any
one time outstanding; provided, however, that such $215.0 million shall be
reduced by the sum of (i) the amount of any repayments or prepayments of
Indebtedness (that are accompanied by a corresponding permanent commitment
reduction) under the Credit Facility and (ii) the outstanding principal
amount of Indebtedness and preferred stock of a Receivables Entity
(excluding the net proceeds of such Indebtedness and preferred stock that
are applied to the repayment or prepayment of Indebtedness described in
clause (i));
(c) Indebtedness of any Restricted Subsidiary owed to and held by the
Company or any Restricted Subsidiary and other Indebtedness of the Company
owed to and held by any Restricted Subsidiary; provided, however, that an
Incurrence of Indebtedness that is not permitted by this clause (c) shall
be deemed to have occurred upon (i) any sale or other disposition of any
Indebtedness of the Company or any Restricted Subsidiary referred to in
this clause (c) to a Person (other than the Company or a Restricted
Subsidiary), (ii) any sale or other disposition of Equity Interests of any
Restricted
29
Subsidiary or which holds Indebtedness of the Company or another Restricted
Subsidiary such that such Restricted Subsidiary ceases to be a Restricted
Subsidiary and (iii) the designation of a Restricted Subsidiary which holds
Indebtedness of the Company or any other Restricted Subsidiary as an
Unrestricted Subsidiary;
(d) the Guarantees and guarantees by any Restricted Subsidiary of
Indebtedness of the Company;
(e) Hedging Obligations of the Company or any Restricted Subsidiary
entered into in the ordinary course of business and not for speculative
purposes;
(f) Purchase Money Indebtedness (and refinancings thereof) and
Capitalized Lease Obligations (and refinancings thereof) which do not
exceed $15.0 million in the aggregate at any one time outstanding;
(g) Indebtedness to the extent representing a replacement, renewal,
refinancing or extension (collectively, a "refinancing") of outstanding
Indebtedness Incurred in compliance with the Consolidated Coverage Ratio of
the first paragraph of this covenant or clause (a) of this paragraph of
this covenant; provided, however, that (i) any such refinancing shall not
exceed the sum of the principal amount (or accreted amount (determined in
accordance with GAAP), if less) of the Indebtedness being refinanced, plus
the amount of accrued interest thereon, plus the amount of any reasonably
determined prepayment premium necessary to accomplish such refinancing and
such reasonable fees and expenses incurred in connection therewith, (ii)
Indebtedness representing a refinancing of Indebtedness other than Senior
Indebtedness shall have a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of the Indebtedness
being refinanced, (iii) Indebtedness that is pari passu with the Exchange
Debentures may only be refinanced with Indebtedness that is made pari passu
with or subordinate in right of payment to the Notes and Subordinated
Indebtedness may only be refinanced with Subordinated Indebtedness and (iv)
Indebtedness of the Company may only be refinanced by Indebtedness of the
Company and Indebtedness of a Restricted Subsidiary may only be refinanced
by Indebtedness of such Restricted Subsidiary or by the Company;
(h) Indebtedness incurred in respect of workers' compensation claims,
self-insurance obligations, performance, surety and similar bonds and
completion guarantees provided by the Company or a Restricted Subsidiary in
the ordinary course of business;
(i) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary providing for indemnification, adjustment of purchase
price or similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, assets or Equity Interests
of a Restricted Subsidiary, provided that the maximum aggregate liability
in respect of all such Indebtedness shall at no time exceed the gross
proceeds actually received by the Company and its Restricted Subsidiaries
in connection with such disposition;
30
(j) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument (except in
the case of daylight overdrafts) drawn against insufficient funds in the
ordinary course of business, provided, however, that such Indebtedness is
extinguished within five business days of Incurrence;
(k) Indebtedness representing deferred compensation to employees of
the Company and its Subsidiaries in an aggregate amount not to exceed $5.0
million at any one time outstanding;
(l) Indebtedness of a Receivables Entity that is non-recourse to the
Company or any other Restricted Subsidiary of the Company Incurred in
connection with a Qualified Receivables Transaction, provided that the
proceeds of such Indebtedness are used to reduce Indebtedness under the
Credit Facility; and
(m) in addition to the items referred to in clauses (a) through (l)
above, Indebtedness of the Company (including any Indebtedness under the
Credit Facility that utilizes this subparagraph (m)) having an aggregate
principal amount not to exceed $45.0 million at any one time outstanding.
For purposes of determining compliance with, and the outstanding
principal amount of any particular Indebtedness incurred pursuant to and in
compliance with, this Section 13:
(1) in the event that Indebtedness meets the criteria of more than one
of the types of Indebtedness described in the first and second paragraphs
of this covenant, the Company, in its sole discretion, will classify such
item of Indebtedness on the date of Incurrence and only be required to
include the amount and type of such Indebtedness in one of such clauses;
and
(2) the amount of Indebtedness issued at a price that is less than the
principal amount thereof will be equal to the amount of the liability in
respect thereof determined in accordance with GAAP.
Accrual of interest, accrual of dividends, the accretion of accreted
value, the payment of interest in the form of additional Indebtedness and the
payment of dividends in the form of additional shares of preferred stock will
not be deemed to be an Incurrence of Indebtedness for purposes of this covenant
provided, in each such case, that the amount thereof is included in the
Consolidated Fixed Charges of such Person.
14. Designation of Unrestricted Subsidiaries.
----------------------------------------
The Company may designate after the Issue Date any Subsidiary of the
Company as an "Unrestricted Subsidiary" under this Certificate of Designations
(a "Designation") only if:
(i) no Appointment Event shall have occurred and be continuing at the
time of or after giving effect to such Designation;
31
(ii) at the time of and after giving effect to such Designation, the
Company could Incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the Consolidated Coverage Ratio of the first paragraph
of Section 13 hereof; and
(iii) the Company would be permitted to make an Investment (other
than a Permitted Investment) at the time of Designation (assuming the
effectiveness of such Designation) pursuant to the first paragraph of
Section 12 hereof in an amount (the "Designation Amount") equal to the Fair
Market Value of the net assets of such Subsidiary on such date.
In the event of any such Designation, the Company shall be deemed to
have made an Investment constituting a Restricted Payment pursuant to Section 12
hereof for all purposes of this Certificate of Designations in the Designation
Amount.
The Company may revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "Revocation") only if:
(i) no Appointment Event shall have occurred and be continuing at the
time of and after giving effect to such Revocation; and
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if Incurred at
such time, have been permitted to be Incurred for all purposes of this
Certificate of Designations.
All Designations and Revocations must be evidenced by resolutions of
the Board of Directors of the Company.
15. Payment.
-------
(a) All amounts payable in cash with respect to the Exchangeable
Preferred Stock shall be payable in United States dollars at the office or
agency of the Company maintained for such purpose within the City and State of
New York or, at the option of the Company, payment of dividends (if any) may be
made by check mailed to the Holders of the Exchangeable Preferred Stock at their
respective addresses set forth in the register of Holders of Exchangeable
Preferred Stock maintained by the Transfer Agent, provided that all cash
payments with respect to the Global Certificates (as defined below) and shares
of Exchangeable Preferred Stock the Holders of which have given wire transfer
instructions to the Company shall be required to be made by wire transfer of
immediately available funds to the accounts specified by the Holders thereof.
(b) Any payment on the Exchangeable Preferred Stock due on any day
that is not a Business Day need not be made on such day, but may be made on the
next succeeding Business Day with the same force and effect as if made on such
due date.
(c) The Company will initially act as the paying agent (the "Paying
Agent"). The Company may at any time appoint additional or other Paying Agents;
provided that until the
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Exchangeable Preferred Stock has been delivered to the Company for cancellation,
or moneys sufficient to pay the Liquidation Preference on the Exchangeable
Preferred Stock have been made available for payment and either paid or returned
to the Company as provided in this Certificate of Designations, the Company
shall maintain an office or agency in the Borough of Manhattan, The City of New
York for surrender of Exchangeable Preferred Stock for payment and exchange.
(d) Dividends payable on the Exchangeable Preferred Stock on any
redemption date or repurchase date that is a Dividend Payment Date shall be paid
to the Holders of record as of the immediately preceding Record Date.
(e) All moneys and shares of Exchangeable Preferred Stock deposited
with any Paying Agent or then held by the Company in trust for the payment of
the Liquidation Preference on any shares of Exchangeable Preferred Stock which
remain unclaimed at the end of two years after such payment has become due and
payable shall be repaid to the Company, and the Holder of such shares of
Exchangeable Preferred Stock shall thereafter look only to the Company for
payment thereof.
16. Exclusion of Other Rights.
-------------------------
Except as may otherwise be required by law, the shares of Exchangeable
Preferred Stock shall not have any voting powers, preferences and relative,
participating, optional or other special rights, other than those specifically
set forth in this Certificate of Designations (as such Certificate of
Designations may be amended from time to time) and in the Certificate of
Incorporation. The shares of Exchangeable Preferred Stock shall have no
preemptive or subscription rights.
17. Remedies for Breach of Covenants.
--------------------------------
The sole remedy to Holders in the event of a breach of any of the
covenants herein, including Section 9 hereof, will be the appointment rights
arising from Section 6 hereof and such breach by the Company will not cause any
action taken by the Company to be invalid or unauthorized under its charter
documents.
18. Headings of Subdivisions.
------------------------
The headings of the various subdivisions hereof are for convenience of
reference only and shall not affect the interpretation of any of the provisions
hereof.
19. Form of Exchangeable Preferred Stock.
------------------------------------
(a) The Exchangeable Preferred Stock may be issued in the form of
Certificated Securities (as defined) or in the form of one or more Global
Certificates (the "Global Certificates"). The Global Certificates shall be
deposited with, or on behalf of, The Depository Trust Company (the "Depositary")
and registered in the name of Cede & Co., as nominee of the Depositary (such
nominee being referred to as the "Global Certificate Holder").
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(b) So long as the Global Certificate Holder is the registered owner
of any Exchangeable Preferred Stock, the Global Certificate Holder will be
considered the sole Holder under this Certificate of Designations of the shares
of Exchangeable Preferred Stock evidenced by the Global Certificate. Beneficial
owners of shares of Exchangeable Preferred Stock evidenced by the Global
Certificate shall not be considered the owners or Holders thereof under this
Certificate of Designations for any purpose.
(c) Payments in respect of the Liquidation Preference on any
Exchangeable Preferred Stock registered in the name of the Global Certificate
Holder on the applicable Record Date shall be payable by the Company to or at
the direction of the Global Certificate Holder in its capacity as the registered
Holder under this Certificate of Designations. The Company may treat the
persons in whose names Exchangeable Preferred Stock, including, without
limitation, the Global Certificate, are registered as the owners thereof for the
purpose of receiving such payments.
(d) If (i) the Company notifies the Holders in writing that the
Depositary is no longer willing or able to act as a depositary and the Company
is unable to locate a qualified successor within 90 days or (ii) the Company, at
its option, notifies the Holders in writing that it elects to cause the issuance
of Exchangeable Preferred Stock in the form of registered definitive
certificates ("Certificated Securities") under this Certificate of Designations,
then, upon surrender by the Global Security Holder of its Global Certificate,
Exchangeable Preferred Stock in such form will be issued to each person that the
Global Certificate Holder and the Depositary identify as being the beneficial
owner of the related Exchangeable Preferred Stock. Upon any such issuance, the
Company shall register such Certificated Securities in the name of, and cause
the same to be delivered to, such person or persons (or the nominee of any
thereof).
(e) Each Global Certificate which has not been registered pursuant to
an effective registration (including a shelf registration) statement shall bear
a legend in substantially the following form:
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR A
SECURITY IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED
EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE
DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH
SUCCESSOR DEPOSITARY. THE DEPOSITORY TRUST COMPANY SHALL ACT AS
THE DEPOSITARY UNTIL A SUCCESSOR SHALL BE APPOINTED BY THE
COMPANY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET,
NEW YORK, NEW YORK) ("DTC"), TO THE ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
34
CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE
& CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH
AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
(f) All shares of Exchangeable Preferred Stock and the Exchange
Debentures which have not been registered pursuant to an effective registration
(including a shelf registration) statement shall bear a legend to the following
effect, unless the Company determines otherwise in compliance with applicable
law:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND THIS SECURITY MAY
NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN
APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH ANY APPLICABLE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER JURISDICTION.
EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY
NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE
PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE
144A THEREUNDER ("RULE 144A") OR ANOTHER EXEMPTION UNDER THE
SECURITIES ACT. THE HOLDER OF THE SECURITY EVIDENCED HEREBY
AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY MAY
BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)(a) TO A
PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b)
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON
IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE
SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED
UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (2) TO
THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS
35
OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE
JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER
IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY
EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A)
ABOVE.
36
IN WITNESS WHEREOF, St. John Knits International, Incorporated has
caused this Certificate to be executed by Roger Ruppert, as Vice-President and
Chief Financial Officer of the Company, this ____ day of July, 1999.
ST. JOHN KNITS INTERNATIONAL,
INCORPORATED
By:________________________________________
Name: Roger Ruppert
Title: Vice-President and Chief Financial
Officer